Why Annuities Are Now Cool

By Linda Koco
InsuranceNewsNet

ORLANDO – Large broker-dealers and wirehouses are tuning into income annuities, to the point that they are asking for support and information about the products, according to Gary Baker, president of CANNEX USA.

In an interview before his talk here on the opening day of the Retirement Industry Conference, Baker said this is one of several signs he sees that income annuities are now cool, or at least beginning to be so.

His Doylestown, Pa., firm is the U.S. division of CANNEX Financial Exchanges Ltd., Toronto.  The firm gathers and compiles interest rates and calculation values on income annuities and, in the process, works with a variety of annuity distributors.

Some of the broker-dealers and wirehouses are looking for information that will help them develop in-house specialty tools that advisors can use in allocating funds between income annuities and investments in a single portfolio, Baker says.

They are interested in more specific allocation tools rather than “overview tools” that give clients general information about retirement finances, he said.

Some larger annuity manufacturers are doing something similar, often in concert with a producer or producer group, he added.

“We’ve also seen an uptick from retirement planning firms that are looking for concept and planning tools that can help with allocation in income planning,” he said. These tend to be smaller, independent firms, including software providers in the retirement field.

The landscape

As for the income planning landscape in general, Baker pointed out that sales are moving up. For instance, he said that LIMRA has estimated 2011 income annuities sales at $8.1 billion, up from $7.6 billion in 2010.

He attributed the growth to several factors. For one, there has been more information circulated in public venues about income planning and products, he said.

His sense is that many buyers are older investors in their 70s who like the income annuity because it has a higher return than that of bank certificates of deposits, bonds and bond funds.

Consumers may not understand the advantage of risk pooling and mortality credits in income annuities, he allowed, but “advisors are starting to grasp this,” especially as more advisors attend education programs on retirement income planning.

That’s significant because “these products are presented and sold by advisors,” Baker said.

He noted that there are now several designation and certification programs available in this discipline. In addition, providers and distributors have started pushing income planning concepts out to advisors.

A topic of keen interest is finding effective ways to use insurance and investments together in a client’s portfolio, he said.

Then and now

He estimates that the increase in technical support and training on this and on income products has occurred over the last five years.

Previously, he said, many advisors viewed the products as too expensive, unavailable, and illiquid, Baker recalled.  And many consumers felt that once they bought an income annuity, their money was “gone” because they no longer could access the account value (and could only receive the monthly income payouts).

Providers have responded by enhancing their income annuities to be more flexible, he said. For example, a CANNEX/LIMRA study published last year found that 24 of the 53 carriers that were polled said they offer liquidity (access to account value) in their income annuities. Seven of the top 10 participating carriers said they did that for their 2010 sales.

In addition, the survey found that liquidity features vary. For instance, 19 carriers said they offer liquidity on all types of contracts, while three offer it only on period-certain-only contracts, and three exclude it from certain-only contracts.

Seventeen allow the policy owner to cash in only a portion of the contract value.  But six allow cash-in of all or some of the value, while one allows cash-in only of all of the commuted policy value.

Some require waiting periods before the liquidity can be triggered, but the periods can range from at least six months to at least 60 months, depending on the carrier.

In addition, beyond the annuity’s free-look period but before actual income annuity payments begin, some annuities offer a return-of-premium liquidity feature, the study found.

Putting the trends together, Baker said that the greater understanding and awareness of income annuities, the increased training and education of advisors, the availability of more tools, and the enhanced product designs are paving the way for future sales growth. “The barriers are coming down,” he said.

Joining Baker in the retirement conference panel on income annuities will be Ami Diviri, corporate vice president-retirement income security for New York Life.

Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.

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Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.