2012: Industry Views from the 2011 NAFA Summit

By Rob Billingham
InsuranceNewsNet Magazine, December 2011

Industry principals and executives offered their insight on what’s ahead in 2012 in the ever-changing world of indexed annuities at the 2011 National Association for Fixed Annuities (NAFA) Summit.

Niju Viswani- President of Altisure Group

Annuities will remain a strong player next year. The tumultuous stock market forces us to look beyond the way products exist today to survive. What’s the next phase? More variable companies are offering indexed annuities and this is not a challenge but an opportunity. It is good that indexed annuities adopted some of the wonderful ideas that VAs brought to the table in the first place but we need to further embrace creative ideas and also innovate on our own.

I think that in this low-interest rate environment we will see a shift of focus from annuities, as accumulation vehicles to annuities as insurance products. Instead of selling the biggest caps or participation rates, for example, we are now starting to focus on the insurance element of the annuity (the GLWB and death benefit sale). The biggest regulatory impact on our industry is the continued pressure of the 10/10 Rule—most of the states will make it so that annuities cannot have more than a 10 percent surrender charge that lasts for more than 10 years. This puts a lot of pressure on insurers, which will have a product development impact, from premium bonuses to commission to how carriers are investing their money.

Cindy McGarity - Fidelity Guaranty and Life, Vice President of Agency Services

As we enter 2012, we’ll see a lot of regulatory and suitability impact. And, producers are expressing concerns around the amount of paperwork now required. On the flipside though, consumers will feel more at ease and better educated about their assets, estate or financial plan—it will also broaden a writing agent’s understanding. And, as products are manufactured, we can expect more consumer friendly products.

As a carrier, we have a lot of regulation placed on us to train, educate and to work with multiple players to ensure that certain certifications and training is completed. We also see carrier consolidation happening now and continuing because of the risk involved and administration costs. When you have a company that is looking to make profits they are going to be looking at those two things. I expect a few more noticeable consolidations to take place. In terms of indexed sales, I think we will see a slight increase. Steady growth will happen as producers identify how to tap pre-retiree accounts. My advice to advisors is to take hold of the change and understand the technologies available to you but don’t lose sight of the customer service, the relationship building—those are long-lasting. And if you manage that well, you will have repeat purchases.

Brian Mann - Senior Vice President of Brokerage Annuities and RIA Divisions, Partners Advantage

Selling annuities in this dismally low interest rate environment is a challenge, but there’s opportunity. The volatility has never been so high while the rates have never been so low. It’s a double whammy for the carriers which throws off the pricing of the products and leads to decreases in premium bonuses, caps and decreases in commissions. Producers can either have the mentality that things can’t get any worse ,and waiting until they turn around or they can act now.

There has never been a better time to navigate these unchartered waters to help pre-retirees gain peace of mind whether they’re preparing for or in their retirement. A lot of it comes down to income planning. Annuities have always been the only vehicle that can provide guaranteed lifetime income that you can never outlive. Despite the interest rate environment, if you are focused on income and if you are focused on helping solve the number one fear that retirees have, which is running out of money during retirement—they don’t care about the interest rate. What they care about is how to get to the other side of fear—which is freedom, peace of mind, flexibility. Most of these retirees have an income gap and it has to be plugged with something.

A fixed indexed annuity with a GLWB is at least a solution they should consider because, for one, it is guaranteed, and number two, the consumer maintains control because they can start and stop it at any time. What’s changing is how we explain the value that annuities bring to the table. It’s not just a savings alternative where you compare it to a bank product. This is a tool that can play a huge role in helping put together an income plan they can never outlive. The key is that producers need to probe versus pitch. You need to really find out what people want to buy. If you ask them questions, they will tell you exactly what they want. So you can say, “If we can accomplish numbers one, two and three, would we be moving in the right direction?” And people will say, “Well, yeah.” Stay educated so you can increase sales at the consumer level.

Harry Stout - Former President of ING Annuities and Consultant with Insurance Insight Group

Because of their guarantees, annuities remain very relevant and still enjoy a significant advantage over CDs. For years there’s been a bashing of indexed annuities from variable annuity (VA) carriers (and I’ve sold both). People are now realizing that indexed annuities are a structured product and that it fulfills a certain need; as VA advisors add it to their portfolio it adds legitimacy to the product and will help their sales overall as for the most part the variable players and fixed players have been in different segments in the past in terms of distribution. One of the biggest changes to indexed annuities has been the continued addition of living benefit riders, GLWBs and guaranteed death benefits.

As these riders are added to the products, it is a great example of how products changing to meet consumer needs. In terms of carrier consolidation and M&A activity, many companies may seek out acquisitions as organic growth and GDP slows down. So in order to reduce costs and to deliver products in a way that people find comfortable, carriers will need to make significant technology investments in order to fund an ever-larger base of customers. Understanding this, capital management is going to be key in order to fund technology and yield more ways to make acquisitions. Going forward, some companies are going to be very careful in how their capital is used. Especially in light of potential, new global capital requirements such as Solvency II in Europe and the NAIC Capital Model—it all works together and raises questions of how is my capital deployed, where is it deployed what is the return I am earning on that capital?

Mary Ann Lacey - President, Underwriters Marketing Service

We will see continued changes with product development, like long-term care insurance (LTCi) riders. There are always people who are too sick to get qualified for LTCi. It’s a natural sale to have a rider on an annuity, without underwriting, to offset those expenses. It fits a niche, fits what you are trying to do—to provide solutions. The regulatory landscape has forced IMOs to be more compliant and dedicated to compliance. We do our best to make sure agents call in, read, do webinars—it’s difficult sometimes because agents get overwhelmed and don’t always stay on top of change, but we help them pre-scrub apps and manage the many compliance differences from all the carriers, which would be challenging for an agent to do all that on their own. Finding new producers to handle the business is always a challenge for the industry.

We decided to talk to our senior producers about mentoring. We use the NAILBA education platform, which is very affordable and includes 11 training modules on sales, prospecting and basically all the different aspects you need. Education and awareness is a big job so many companies are not doing it. Companies are so focused on production and are running out of time. As an industry, we need to go into different distribution channels where there are younger people like banks, credit unions and others.

In 2012, I see increases in annuity sales. But we need to make sure that every client and opportunity gets developed. There are just too many people who don’t know about the other options beside CDs. It’s never been a better time to be in the industry. You have to sharpen your toolbox, become an expert and be a total planner/advisor by partnering with an IMO/BGA so that you have resources that save you time and money when you can’t do it on your own. We have seen a 37 percent increase in our annuity business and we really think that there are lots of opportunities that are still there we just need to learn how to tap into that.

Joe Anzelone - Vice President, Asset Marketing Systems

Annuities will remain a strong player in the low-interest rate environment if they are sold as safe money products—not rate-of-return products. There’s a big opportunity with VA players getting involved like MetLife, Hancock and Pac Life. If they train their agent force and educate the media we will see a turning of the tide with the media outlets and how they view indexed annuities, especially if the wirehouses get involved. If captive distribution builds up indexed products it will only help us. Changes will include more products with guaranteed income riders, as life expectancy increases and 401(k)s decrease.

Fixed annuities will continue to become income vehicles without annuitization—you will see more and more people gain control of their accounts, turning on income when they want to.  Boomers like control, including the echo-boomers. Regarding product design, more changes will continue with income riders and death benefits—you will see longer term income benefits, less short-term benefits to sell the product. As a result, agents will have to become more thoughtful planners. One of the biggest changes is regulation. Apps used to be five pages, but now they can be 80-plus pages. Carriers are under suitability pressure. Increased regulation may be a challenge for traditional agents but will not be too different for those in the investment space.

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