COVID-19 Pushes RILA Growth, Annuity Acceptance, Panel Says

By John Hilton

The COVID-19 and related economic trouble hit many near-retirees hard, but the impact might turn positive in the long run for both consumers and annuities.

The connection is fairly obvious: the value of guaranteed income is most evident when people don't have it, said Alan Assner, vice president and head of product development for Brighthouse Financial.

"Think of people who are ready to retire in the second quarter of this year," Assner said. "A number of them will wish that they had some things in place knowing what happened in 2020. So having these things in place in the future will only be beneficial."

Assner was part of a panel last week on the state of the annuity industry and what the future holds -- hosted by the Insured Retirement Institute Supply Chain Summit.

The panel touched on three main annuity themes:

The conditions impacting product sales today.
Whether the SECURE Act will help annuities gain a wide audience.
The potential product designs going forward.

How Low Can They Go?

The low interest rate environment continues to drive change in annuity designs, the panel pointed out.

"Interest rates are really the foundation that supports the guarantees our products will offer, whether it's crediting rates, income, death benefits, or whatever solution you're looking at," said Eric Boucher, senior director of product, pricing and solution implementation at Transamerica. "So as these rates move lower, it's not surprising we're going to see a need to adjust the guarantees as well."

Many annuity manufacturers adopted product designs that essentially share the downside risk with the consumer. That gave rise to the registered index-linked annuities, which continue to post impressive sales numbers. Through the first half of 2020, RILA sаles were $9.4 billion, up 22% from the first hаlf of 2019.

The panel expects continued growth in these products.

"That market growing quite substantially over the past few years, is already an indication of the direction of risk-sharing that's going to arise in the market going forward," said Peter Tian, head of pricing and inforce management, individual retirement, at Equitable.

SECURE Route?

Passed and signed by President Donald Trump late in 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act includes several measures designed to spur retirement saving.

For one, the SECURE Act establishes a safe harbor for the selection of guaranteed lifetime income contracts. This means that it is much easier for plan sponsors to add annuity options to their plans.

Tamiko Toland, head of annuity research for CANNEX, moderated the panel discussion. A recent CANNEX survey found that one-third (35%) of financial professionals thought that clients will be more receptive to annuities because of the SECURE Act. And 27% thought it would lead to an increase in annuity sales.

The panel echoed those predictions. Melissa Buccilli, head of retirement insurance at BlackRock, represented the asset management sector on the panel and said annuities are growing as an attractive option to both advisors and their clients.

"I think it's going to be really important that the entire retirement ecosystem collaborates in expanding access to retirement income solutions," she said. "Our view is that by including an income option within the default, you can facilitate greater adoption as participants understand and are comfortable with that whole target date concept."

Product Evolution

Three companies represented on the panel -- BlackRock, Equitable Holdings and Brighthouse -- teamed up in May provide an annuity-based lifetime income program for U.S. retirement plan sponsors. The new LifePath Paycheck program combines a 401(k) plan or other defined contribution plan with a target date investment arrangement.

There will likely be more ventures such as that in the coming years as insurers get creative in expanding annuity options to a wide audience, panelists said.

Otherwise, insurers are likely to keep tinkering with products while keeping guarantees low. Advisors and clients will need to adjust as well.

"I think it's going to continue to take time for the industry as a whole to innovate here and test these designs to find the right balance of lower guarantees versus innovation and risk sharing," Boucher said. "I think clients and advisors are going to need time to consider how their financial goals are adapting to these lower rates ... and that's going to change risk preferences and risk tolerances. It's going to take time to see which solutions longer term are going to meet those needs going forward."

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.