The variable annuity market is in a transition period reliant on product and regulatory evolution to keep sales high.
If that evolution takes place, VAs could easily recapture their former glory while meeting consumers' needs in a variety of ways, an Insured Retirement Institute panel agreed this week.
The nonqualified variable annuity market is growing while the qualified market shrinks, Seamus Ray, vice president, national account manager, for T. Rowe Price, noted during the IRI virtual annual conference session.
That trend is a reflection of VAs gaining wider traction among advisors, as well as the product designs evolving to meet more needs. One thing that hasn't changed is client demand, said Joe Toledano, managing director, Morgan Stanley Wealth Management.
"The key themes that truly act as key differentiators to the products and services that we offer - including taxes, mortality risk and creditor protection - continue to resonate, and I would argue, have actually been elevated through the pandemic to levels not seen before," Toledano said.
Traditional VA product sales increased 37% from second quarter last year to $22.7 billion in the second quarter 2021. Traditional VA sales totaled $43.6 billion year-to-date, up 16%, according to the Secure Retirement Institute sales numbers. The SRI said sales were helped by strong market growth and low volatility.
Advisors Keep Warming Up
Registered investment advisors have historically viewed annuities with disdain. But that is changing. As 10,000 baby boomers retire each day, the retirement crisis is an acute part of public policy planning. And guaranteed-income solutions are desperately needed to supplement Social Security, itself an annuity.
With many new fee-based annuity products being rolled out each quarter, advisors are slowly changing their views on the products.
"Our conversations have really changed," said Kevin Sullivan, senior vice president, annuity distribution–RIA, Nationwide. "The conversations that we're having with RIAs and the mindset around those conversations has changed so much over the last 10 years. That really tells me that their mindset, their level of engagement in those types of things are really changing. And it all signals an increase of use as we go forward."
VAs are among the annuity products that are becoming more versatile retirement vehicles to offer solutions to other issues as well. Riders can address issues such as long-term care concerns, for example.
"We're starting to see some of that positioning for health care with your long-term care riders," Sullivan said. "As the baby boomers are increasing in age, we will have many, many more people who will need those services. So I think that we're fulfilling a need there, especially for that demographic that is a little bit larger in population."
One lingering issue stands in the way of greater use of VAs on the advisory side is regulation, the panelists agreed. Since advisors are fiduciaries, they already are committed to higher standards than the annuity suitability bar set for insurance agents.
For sales to truly burst out, regulators might want to tweak those rules a bit since the conflicts of interest are not an issue for advisors, Toledano said.
"Taking that out of the equation puts the industry in a much better place to go back to the regulators and say, 'OK, let's have a conversation on modernizing the regulatory environment, recognizing that these meaningful changes to which you had argued were some of your primary concerns have now either been minimized or completely put out of the equation,'" he said.
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.
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