3 reasons for RILAs’ growing popularity

Since they entered the marketplace in 2010, registered index-linked annuities have become the fastest growing category of annuities. RILA sales surpassed variable annuity sales for the first time in the fourth quarter of 2023, LIMRA reported.

Momentum for RILAs is expected to grow, given that RILAs provide investors with a level of protection coupled with growth opportunities to help meet their long-term retirement investment and income needs.

Kevin Russ, director of the advanced markets group at Brighthouse Financial, provided some insights into RILAs’ popularity during a recent webinar by the National Association for Fixed Annuities.

RILA sales have been climbing steadily, growing from $1.4 billion in 2014 to $4.74 billion in 2023, LIMRA reported.

“I haven’t seen any annuity product grow like this in a 10-year period since I’ve been in this business,” Russ said. “The rise in the popularity of this product lends itself to how effective it is around addressing client concerns.”

What was behind the development of RILAs? Russ said three factors influenced RILA development.

1. Interest rate environment. Around 2009-2010, insurance companies realized interest rates would be low for the foreseeable future. “From the insurance companies’ perspective, we needed an investment that was less interest-rate sensitive, something we can hedge a little bit easier, knowing that interest rates will be low for the foreseeable future,” he said.
2. Projected equity market performance. After the 2008-2009 global financial crisis, equity markets were projected to do well over the next decade, Russ said. “And we all saw that. We know 2022 was a painful year but we forget 2010-2019 was a pretty good decade.”
3. Growing aversion to VAs. Part of the growing aversion to VAs was self-inflicted, Russ said. “Our industry did a not-so-good job of explaining how VAs work. They were complex. Clients did not understand them. We have rollups, step-ups and death benefit values and account values versus benefit face, subaccounts versus mutual funds. A lot of people thought this was a little too expensive or a little too confusing for them.”

The development of RILAs, Russ said, was centered on “Let’s figure out something better to hedge, easier to hedge. Let’s figure out something to take advantage of projected equity growth. And let’s figure out something with a simpler story for the client to understand.”

Clients are concerned about receiving guaranteed income in retirement and protecting their portfolios from loss, Russ said. But the 2023 Protected Income and Planning Study revealed that while 73% of financial professionals say they discussed protected income with their clients, only 33% of investors said their advisors discussed it with them.

“We must do a better job of talking about where guaranteed income will come from and how you can protect what clients spent so many years accumulating and building up in terms of their overall portfolio,” he said.

Index linked annuities give consumers the ability to trade risk for potential gain, Russ said. A RILA with a floor poses the risk of some loss but provides more potential for gain. A RILA with a buffer comes with the risk of greatest loss but has the most potential for gain.

“RILAs offer downside protection, upside opportunity. Why is that important? You all know helping your client keep things in perspective and avoid knee-jerk reactions to the market are so important in helping them achieve overall financial success,” he said.

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on X @INNsusan.

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Susan Rupe is editor in chief, magazine, for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected].