Advisors Double Their QLAC Searches

By Linda Koco

Annuity specialists more than doubled their sales efforts involving qualifying longevity annuity contracts (QLACs) during the third quarter, according to Cannex USA.

To get quotes and product information about QLACs, advisors made 18,800 hits to the Cannex database during that three-month period, according to the Springfield, Mass. firm. Activity was up 138 percent from 7,900 hits on QLACs in second quarter.

The database records the number of searches that annuity advisors do on a variety of single premium income annuities. It began reporting on QLAC activity just this year, in the second quarter.

“The increase from second to third quarter shows that advisors are ramping up on a product that did not even exist before this year,” said Gary Baker, president of Cannex USA, in an interview with InsuranceNewsNet.

The rise of QLACs

QLACs are a special type of deferred income annuity (DIA). Under government rules issued last year, owners of defined contribution (DC) retirement accounts and IRAs can now use some of their qualified funds to buy a QLAC, which must be a fixed annuity. The QLAC allow owners to defer the required minimum distributions (RMDs) associated with the policy premium until as late as age 85.

This year, at least 10 companies have jumped into the QLAC market, some offering more than one product.

Industry buzz has it that advisors are also jumping in. The Cannex data supports that contention, at least where searching is concerned. (Note: Cannex does not track annuity sales, and industry researchers that do track annuity sales have not yet released QLAC results.)

The advisor searches on QLACs are a relatively small part of the overall income annuity search activity in third quarter—18,800 hits versus 320,900 overall, or not quite 6 percent of third quarter’s total searches.

Still, the QLAC searches are revealing. For one thing, many of the searches are being done by annuity specialists who are using QLACs in developing tax strategies for mass affluent or high-net-worth clients, Baker said.

One indication of use in the more affluent market is that the average size of QLAC policies sold to date tends to be larger than that for income annuities in general, said Baker, who referenced data from a QLAC insurer. The QLAC premiums are close to the maximum allowable, which is $125,000, he said.

By comparison, according to various industry sources, average premiums for traditional single-life income annuities tend to hover in the $90,000-$100,000 range, depending on distribution channel.

Another trend that has surfaced is that virtually all (99.5 percent) of the QLAC searches at Cannex have involved qualified money held in IRAs.

This parallels statements made by various QLAC developers who have told InsuranceNewsNet that they are offering QLACs first for use with IRAs. This is partly because the carriers believe they can get into the QLAC market faster that way than if they start with the more complex DC market. Also, many agents have clients with big rollover IRAs who could benefit from the RMD relief.

Third quarter overall

The growth in QLAC searching is occurring against the backdrop of growing interest in DIAs in general. Cannex defines DIA as an income annuity that defers income for 13 months to 20 years or more.

In the third quarter, 28 percent of searches were on DIAs meeting that definition. By comparison, in the third quarter 2014, they were 24 percent of the total, and in the third quarter 2013, they were just 12 percent of the total.

The growth also comes at a time when total hits to the online engine are rising. In the third quarter, total searches on all types of income annuities reached 320,900. That’s up 24 percent from the 258,600 total in the second quarter.

The third quarter increase surprised Cannex officials. Normally, advisor activity on the database slows down during the summer months, explained Baker.

The increase didn’t just reflect new advisors joining the online service for the first time, he said, noting that firms that have been using the Cannex database for some time noticed an increase, too, among their own advisors.

“These firms suggested that the growth could be attributable to increased communication about income annuities and retirement planning, in the media and elsewhere,” Baker said.

The greater awareness could be spurring greater interest in purchasing an income policy, so advisors are checking out income products more often.

Another impetus might be the effort of some carriers and advisors to “balance out” their annuity business, Baker said, pointing to firms that have been curtailing sales of variable annuities while increasing sales of fixed indexed annuities.

“My sense is that the income annuity products are riding on this shift towards more balance,” he said.

Variable annuities are “still king,” he said, “and they won’t go away. But their proportion of annuity sales is being reduced as part of this desire for greater balance.”

InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at linda.koco@innfeedback.com.

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.