Annuities sales are incredibly strong, and a close look at market trends reveals yet more room to run.

All-in-one digital delivery changing annuity sales

The promise that technology would change the annuity industry is an old story with more tales of potential than actual results.

But the narrative is changing — so much so that carriers were almost caught off guard by the power of a new all-digital, paperless transaction process for annuity transfers that is cutting cycle times by 94%.

The overall “Digital First” project was led by the Insured Retirement Institute.

“This first paperless transfer annuity transaction is just the beginning of what our Digital First for Annuities initiative can deliver,” said Wayne Chopus, CEO of IRI. “We are creating a modern, consumer-centric infrastructure by embracing advancements to help streamline processes, reduce errors and accelerate transactions. This transformative work continues to gain momentum.”

IRI members and The Depository Trust & Clearing Corporation collaborated for more than two years to build a digital framework to support real-time processing of transfers, including money settlement.

“We need to stop thinking about the way things have always been,” said Katherine Dease, chief technology and innovation officer at IRI, recalling those early planning conversations. “Big, large, flat files make it hard to get your arms around the data. We need to be thinking about what our consumers and financial professionals are demanding: access to data right now in real time.”

IRI rolled out its first digital priority in November, a paperless, carrier-to-carrier replacement annuity process. Athene, the No. 1 seller of annuities, was the first company to sign up for the effort.

Since then, Jackson National Life Insurance Co., Prudential Financial and Sammons Financial Group have joined them. In a blog post for IRI, Sandy Stokley, senior vice president or operations for Athene, urged competitors to join the project.

“Complacency is no longer an option,” Stokley wrote. “Improving the transfer experience benefits our customers, financial professionals and distribution partners. … Collaboration can expand the annuity market and ensure our industry’s long-term viability.”

IRI anticipates that 14 carriers will be using the Digital First process by the end of 2025, Dease said.

Takes too long

Perhaps the most common complaint about life insurance and annuities is that it is an onerous process that can take weeks. In the case of annuities, many rates are changing fast, and some buyers might not want to wait the 18-day average it takes to seal a deal.

Digital First is bringing that average down to less than 24 hours, Dease said. It can mean the different between closing an annuity sale and a polite “no thanks.”

Many financial professionals are “calling their carriers and their distributors and asking, ‘What just happened?’” Dease said. “‘I issued this transaction yesterday, and it’s already settled and in the consumer’s account.’”

John Carroll, senior vice president and head of insurance and annuities at LIMRA and LOMA, is not surprised.

“IRI’s Digital First program will be a game changer for our industry,” he said. “LIMRA research consistently shows the number one obstacle preventing financial professionals from selling annuities is the extensive paperwork and time it takes to finalize a contract.”

Digital First is not just about speed. It should cut down on errors and also help annuity sellers get in front of financial advisors and planners, Carroll said.

‘Directly benefits our clients’

Sammons Financial Group joined Digital First in March. Its participating companies include Midland National Life Insurance Co., North American for Life and Health Insurance, Sammons Retirement Solutions, and Midland Retirement Distributors.

The time is long past for annuity sellers to deliver a level of immediacy that consumers enjoy in nearly all transactions, said Casey Decker, chief operating officer of Midland National and North American.

“We have all grown accustomed to on-demand services,” Decker said. “Our clients expect this level of convenience, and it is essential for the financial services industry to continue simplifying and speeding up the processing of financial transactions. This has become increasingly critical for today’s retirees.”

The digital-first project is a “build once, use many” effort that will hugely benefit all annuity sellers and distributors, Dease said. That is bringing normally fierce competitors together in an unusual open collaboration.

“They’re creating the standard, and they’re all agreeing, which has never happened before,” Dease said. “They’re all agreeing that we have to do it consistently in a ‘build once, use many’ approach or we are not helping ourselves.”

While the paperless replacement process is the first step, there are many more steps to come to perfect a digital-first annuity sales process, e.g., pre-sale, onboarding, application, servicing and management, how the annuity shows up in new tools, and the payout and the exit statements.

“Anywhere an annuity could show up and should show up,” Dease said, “we are working on addressing standards to make it easier for the innovating firms and the distributors to create their very best experiences.”

Sell! Sell! Sell! New opportunities abound in hot annuity market

It seems as though annuities are selling as fast as the paperwork can be completed. But, a close look at market trends reveals yet more room to run.

A couple of key ancillary developments are supporting further growth in the annuity market: annuity replacements and the rise of in-plan and fee-based annuities. That is, developments beyond the pure demographics of more than 4 million baby boomers turning 65 each year.

It all makes for a terrific time to be selling annuity products.

“You have the demographic wave, and that’s not going away,” said John Carroll, senior vice president and head of insurance and annuities at LIMRA and LOMA. “For the annuity industry, certainly, this is a huge opportunity.”

Total annuity sales reached $434.1 billion in 2024, up 13% year over year, according to LIMRA’s U.S. Individual Annuity Sales Survey, which represents 83% of the U.S. annuity market. It marked the third year of record-high annuity sales.

Even during solid-to-strong years from 2014 to 2021, annuity sales never strayed far from about $225 billion annually. Starting in 2022, a new sales frenzy took hold.

Nearly 80% of participating carriers reported positive growth, said Bryan Hodgens, senior vice president and head of LIMRA research.

“The past few years have transformed the annuity market,” he added. “Although we don’t expect sales at the levels seen in the past two years, LIMRA predicts total annuity sales to be well above $350 billion in 2025 and remain above $300 billion through 2027.”

Rates on the rise

After years of near-zero rates, the Federal Reserve began aggressively raising rates in March 2022 to combat the highest inflation in more than 40 years. The Fed hiked the federal funds rate seven times in 2022, and took it to 5.5% in July 2023.

The rate remains at 4.25% to 4.50%, but no one knows for how long. President Donald Trump continues to pressure Jerome Powell, chairman of the Federal Reserve, to cut the rate further. The Federal Reserve met May 6-7, after this issue went to press.

Regardless of what happens with interest rates, they are likely to continue to drive replacement annuity sales. Replacements soared along with interest rates as consumers traded in multiyear guaranteed annuities for new versions with better returns.

Talk of interest rates dropping is also likely to cause advisors and consumers to seek better rates while they last. Total 2024 MYGA sales were $156.3 billion, according to Wink Inc., and drove the market higher.

As long as MYGAs can compete with certificate of deposit rates, they offer the added bonus of tax deferral, said Dan Acker, president and chief marketing officer of SILAC Insurance Co.

“With MYGAs — I’ll call them a commodity — the highest rate typically wins. There aren’t a lot of bells and whistles with a MYGA, and that’s the beauty of them,” Acker explained. “But I think given the replacement business that’s happening, some carriers have a lot of business going out the door it’s moving to other carriers.”

SILAC entered the annuity space in 2018 with just over $150 million in sales, Acker noted. The following year that figure jumped to $1.7 billion, and “we’ve grown ever since.” he added.

Replacements are likely to die down, Acker said, as consumers have fewer opportunities to move to higher rates. But that does not mean annuity sales have to decline, he said.

“I think overall we’ll probably see sales come down slightly within the next year, but I don’t view that as necessarily negative,” Acker said, “because if we can continue to focus on first-time annuity buyers, we can increase that number.”

A tool for advisors

Fee-based annuity sales have been gaining traction in recent years, reflecting a broader trend in the financial advisory landscape toward fee-based compensation models.

By 2026, more than three-quarters of the wealth management industry (77.6%) is expected to operate on a fee-based model, representing an increase of more than five percentage points from 2024, according to a new Cerulli study.

The shift toward fee-based services is driven primarily by a transition from commissions to asset-based fees among the wirehouse and broker/dealer channels, according to the recent edition of “Cerulli Edge — Americas Asset and Wealth Management Edition.”

Long-held negative opinions about annuities are slowly fading among advisors who see what a guaranteed income element can bring to a financial plan. Many carriers responded with aggressive suites of fee-based annuities.

Jackson, for example, offers advisors fee-based variable annuity and registered index-linked annuities, as well as a fixed-indexed linked annuity, and has selling partnerships with Morgan Stanley and Kestra Financial.

“We continue to see financial professionals transitioning to more of a fee-based structure as well as an increasing number of RIAs working with licensed [outsourced insurance desks] to provide customized services for their clients,” said Tim Munsie, head of RIA, platform distribution and planning for Jackson. “We are continually evaluating our products and services to ensure they meet the ever-changing needs of retirees and financial professionals.”

The trend driving annuities in financial planning is also seen in the meteoric rise of in-plan annuity options. Old-school annuity sellers are striking new partnerships with investment firms to make guaranteed income options a regular feature of retirement plans.

“The in-plan annuity is a big deal in the annuity space,” said John Carroll. “That could be enormous for growth.”

A 401(k) ‘paycheck’

J.P. Morgan Asset Management is partnering with insurers on its SmartRetirement Lifetime Income, while BlackRock offers LifePath Paycheck to spotlight the benefit, which makes it easier to save for retirement. It later was expanded by SECURE Act 2.0 in 2022.

When a participant enters retirement, they will receive a guaranteed amount of funds in a form like a paycheck that is meant to provide a stable source of income. By providing access to guaranteed income through a target date fund, LifePath Paycheck is meant to be more stable than a standard 401(k).

LifePath Paycheck launched in April 2024, and BlackRock has partnerships with Equitable Financial and Brighthouse Financial to provide annuities.

In-plan annuities would not be possible without the SECURE Act (Setting Every Community Up for Retirement Enhancement Act), which passed in 2019 and included several initiatives aimed at making it easier for Americans to save for retirement. It was later expanded by SECURE Act 2.0 in 2022.

One of the biggest things the SECURE legislation did is provide a safe harbor for plan sponsors to offer annuities inside retirement plans.

But challenges still remain, with many products too complicated to fit the plan market, said Greg Jaeck, senior product director, retirement products for Edward Jones. “You’ve got participants, plan sponsors, third-party administrators and fiduciaries with oversight, all of whom have a stake in retirement plans.

“I think in order to be successful, you’ve got to get them on board, and you have to have very, very simplistic products overall,” Jaeck said during LIMRA’s spring Life and Annuity Conference. “I think a lot of the products right now have a little bit of moving parts, and it’s hard to explain overall. So I think over time this is going to happen. It will take some time.”

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.