Annuity Opportunity ‘Ripe’ In Three States

By Linda Koco InsuranceNewsNet

Some states are ripe for growth in retail annuity sales this year. Others have such competitive markets that potential for growth may be limited. Still others are humming along with annuity sales close to valued benchmarks.

The question is: Which states have the most opportunity for annuity sales growth?

Right now, three states — California, Florida and New Jersey — present the most growth opportunity, according to a quarterly report from Information Asset Partners (IAP).

That news may be a bit puzzling to industry professionals. After all, those three states are home to tough insurance and annuity regulators, an atmosphere widely viewed as creating a sales environment replete with compliance and disclosure requirements and leaving little time to spend on growth initiatives.

Yet IAP’s data analytics team has concluded that those three states definitely have the potential to increase annuity sales this year.

The analysis

Bill Poll, managing partner at IAP, said this assessment is based on IAP’s analysis of annuity buyers in ZIP codes across the country as compared to actual annuity sales (inflows) in 2013 as reported by the Depository Trust & Clearing Corp. (DTCC) Analytic Reporting for Annuities service.

That analysis is what uncovered the three states the researchers believe have “unrealized potential” for annuity sales, Poll told AnnuityNews.

To reach that conclusion, the researchers assessed the current retail annuity market using data analytics processes. The market is made up of households that look like ones that have bought annuities over the last two years, Poll said.

It’s a big number: There are 2.6 million households representing an estimated 4 to 5 million individuals on the “current” list.

Then the researchers looked at where these buyers are located. This revealed that the annuity market has “significant” concentration in 7,000 U.S. ZIP codes, or 22 percent of all ZIP codes in the country.

Only 22 percent? Yes, that’s the estimate. But these ZIP codes represent the large majority — 70 percent — of the current retail annuity market households, Poll said.

These particular ZIP codes are “areas of the states where the annuity potential is three times the states’ respective benchmarks,” he said.

The “benchmark” is a measure that IAP developed from its analysis of DTCC annuity inflow data from 2013. (The DTCC data include variable and fixed annuity production from 117 carriers, 138 distributors and 3,467 products, according to Poll.)

The potential opportunity

Where are the three high-potential states in all of this? They floated to the top once the researchers started looking at annuity-buying household concentration at the state level.

They found that 12 large states had 57 percent of these “three-times benchmark” households, or best annuity-buying households. This 57 percent translates into 956,000 households having individuals who are likely to buy annuities.

The 12 states include not only the top three mentioned above — California, New Jersey and Florida —but also Georgia, Illinois, Michigan, North Carolina, New York, Ohio, Pennsylvania, Texas and Virginia. In 2013, these 12 states produced 60 percent of annuity inflows reported by DTCC, Poll said.

There is more to the analytics than this, but the point for annuity professionals is that, based on the IAP analysis, the potential for annuity sales continues to exist, with certain areas of the country having higher potential than others.

The states that have higher potential are so classified because, according to IAP, they have ZIP codes with a lot of likely buyers but the annuity production has not yet successfully penetrated much of the potential market. In IAP terms, the industry in these states has been “less efficient” at tapping the best annuity markets. Most likely, marketers in these states face a less competitive environment than in more “efficient states.”

Poll cited Florida as an example or a less efficient state. IAP found that production in the state’s best annuity markets in 2013 was only 42 percent efficient in 2013, even though it has a lot of potential buyers. By comparison, in Illinois, IAP found that annuity production was highly efficient, with a score of 96 percent in the best annuity markets.

Illinois, Virginia and New York are examples of highly efficient states. The best markets for annuities in those states tend to be concentrated in certain areas, he said, laughing that “advisors who work in such states need sharp elbows.” People there need to compete hard for market share, he added, and “if you can beat the market in certain of those ZIP codes, you are brilliant!”

As for the high opportunity states (which include the “less efficient” states of California, New Jersey and Florida), the annuity market potential tends to be more geographically dispersed, Poll said. This means that the potential annuity buyers are spread out among many ZIP codes in their state. Annuity marketers who want to increase production there might want to try using different strategies than previously, Poll suggested.

“Once distributors understand the localized dynamics that advisors are facing in such areas, they can develop new approaches that build market share,” he concluded.

Linda Koco, MBA, is a contributing editor to AnnuityNews, specializing in life insurance, annuities and income planning. Linda may be reached at [email protected].

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].