Survey respondents see marketplace opportunities ahead for annuity sales
In January, the Agent’s Sales Journal completed a survey of insurance agents in order to capture perceptions of annuity sales opportunities and challenges. Over 500 individual annuity producers across the country responded. The results reveal an annuity-product future with tremendous potential.
Product potential
Our survey reveals that most agents (84 percent) believe there is substantial potential for additional income from annuities in the year ahead. Few think the potential is limited. (Chart 1)
The coming retirement boom appears to be playing an important part in the surging popularity of annuities. Professional agents report the greatest success in selling annuities to those in their 50s and 60s. The largest group of respondents (43 percent) sell annuities to individuals in their 60s most often, while 30 percent sell annuities to clients in their 50s most often. (Chart 2)
The reasons people purchase annuities are clear. Fully half the survey respondents (50 percent) identify safety and security as the main reason their clients purchase annuities. As one respondent says, “Clients purchase annuities because they provide good returns without risk.” Another one in five respondents (20 percent) consider guaranteed income options to be the key driver of annuity purchases, while 15 percent cite the tax advantages. At least one participant uses these benefits as a part of his overall sales strategy. “A selling advantage is knowing how well annuities satisfy the security of monthly income,” he says, “and it’s desperately needed.” (Chart 3)
According to Bill Harris, president of W.V.H Inc., a San Diego-based technology and publishing company, people “are living longer than expected, fear that Medicare and Social Security may change, are concerned that inflation may ignite again, worry that taxes may increase, and realize that they may not have saved or invested enough.” In addition, fewer and fewer companies are sponsoring retirement plans these days, and those that do offer them are rethinking their options. All these variables are making annuities an increasingly attractive alternative.
Annuities are an important part of an agents’ portfolio. Three out of four respondents (75 percent) consider annuities to be another way to provide clients with a valuable planning tool that helps them to meet their financial objectives. Meanwhile, 15 percent see annuities as an opportunity to cross sell other insurance products. As one respondent said, “A major advantage of offering annuities is being prepared to offer each client something other than just life insurance.” Only 2 percent say commissions are the primary reason to sell annuities. (Chart 4)
The favored annuity
There are many types of annuity products available today, but one in particular — the index annuity — is far and away the most popular. Nearly half the survey respondents (49 percent) say they sell the index annuity more than any other. One in four respondents (26 percent) sell variable annuities most, followed by 22 percent traditional fixed, and 3 percent single premium immediate annuities (SPIA). (Chart 5a)
Robert Davis, executive director of The Annuities Institute, an independent organization that works to improve the quality and capabilities of financial advisors nationwide, sees continued success for index annuity sales. “The indexed annuity is experiencing great growth … as people become aware of the great benefits they offer, [namely] security, guaranteed minimums, tax deferment, longevity, and so on.”
Survey respondents expect the coming year to generally mirror last year in terms of which annuity they’ll sell most. More than half of agents anticipate selling the index annuity most often (55 percent), while 25 percent expect to have the most success with the variable annuity, 18 percent with the traditional fixed annuity, and 2 percent with the SPIA. (Chart 5b)
Marketing matters
The challenges that agents face in the annuity sales process have little to do with the product itself. Their main complaint is finding the prospects in the first place. Close to half the respondents (45 percent) listed this as their chief frustration. One agent says, “A big challenge is determining the suitability of the product for the client.” To a more limited extent, respondents said their clients don’t want to tie up their money (13 percent), negative press has made clients skeptical about annuities (11 percent), and just one in 10 say their clients don’t understand annuities. (Chart 6)
Prospects should not be difficult to find these days, however. Lori Bochner, president and chief marketing officer of DNA Brokerage in Des Moines, Iowa, explains, “We have an aging population ready to switch from the wealth-accumulation phase to one where preservation and distribution of income for retirement years are the two primary goals.” Annuities would fill that bill.
What would help advisors to overcome the challenges? In line with the findings above, most say having qualified prospects in hand would surely help them to be more successful (52 percent). To that end, they say that referrals are the most effective tool for marketing annuities (53 percent). “Prospecting the current book of business is helpful,” suggests one survey respondent. Other methods such as seminars (15 percent), marketing materials (12 percent), and direct mail (8 percent) are only mildly effective. (Charts 7a and 7b)
Agents were asked whether commissions tend to dictate which product they sell. Nearly four in five (78 percent) indicated that commissions are not the main driver in their decision to recommend an annuity. (Chart 8) As one respondent said, “I firmly feel that if you take care of the client, the commissions will come.” Another points out, “If you fill the client’s needs, the commissions will be taken care of.” This is not to say, however, that commissions are insignificant. “The client must come first, but commissions do matter,” a participant asserted.
Sales support
Although agents contract with as many as six to 10 insurers (25 percent of respondents), they clearly have their favorites, as the majority of their annuity business is written through only one (36 percent) or two (35 percent) carriers. In addition to working directly with carriers, 45 percent of agents sell annuity products through one wholesaler or marketing group; 10 percent work with four or more brokers. (Charts 9a, 9b, and 9c)
It comes as no surprise that agents want all the sales support they can get from their wholesaler or marketing group. Twenty-seven percent say assistance with marketing and point-of-sale tools is the most important service they can provide, followed by sales training and live telephone support (18 percent each), case design and leads (8 percent each), and advanced marketing support (7 percent). (Chart 10a)
Nearly seven in 10 insurance professionals (69 percent) say they consider the sales support they receive from their annuity wholesaler or marketing group useful, with 36 percent saying they find the help very useful. Eight percent do not find the help useful at all, however. A number of agents confided that they feel they get little or nothing in the way of support from their brokerage group. For example, one survey participant said, “They say they provide many things, but in reality they provide pretty much nothing,” while another noted, “I do not believe any provide the proper service.” (Chart 10b)
Advisors like to read about annuity offers rather than have the information presented to them personally via seminars and trade shows. Their favorite way to receive annuity offers is via email (36 percent), followed by direct mail (21 percent) and ads (20 percent). (Chart 11) According to a study participant, “Referrals, along with other marketing tools such as email, direct mail, and ads are important to the product-communication process.”
The vast majority of agents feel they are able to stay abreast of annuity industry news and product developments (28 percent very well able; 59 percent well able). They say that insurance wholesalers and brokers are their most useful resources for information (32 percent). Twenty-eight percent see trade magazines as most helpful, with the Agent’s Sales Journal scoring highest among the industry publications (78 percent of all industry magazines versus 22 percent for other trade publications). (Charts 12a and 12b)
Conclusion
With the proper approach to selling and the right prospects, annuity sales seem like a sure thing. “To succeed,” Harris advises, “the financial sales professional must care more about the customer than self, believe in their product, tell a story of diversification, listen more than talk, and return to needs-based selling.”
The outlook for expanding annuity product sales looks rosy indeed, as it transitions from what has been a fairly lengthy product-introduction phase to a more established and financially rewarding growth stage. Harris predicts major activity in the next few years. “We could be on the brink of the largest selling opportunity the financial services industry has ever seen. With the aging of America, more and more agents learning how to present the annuity, increased Internet exposure, and expanded distribution, annuity production could double over the next three years.”
Irving M. “Peter” Day III heads his own marketing and editorial services firm. During his corporate career, he served in leadership roles in all areas of marketing. Mr. Day can be contacted at 727-791-6946 or irvingday@tampabay.rr.com.
Should Index Annuities Be Exempt from Securities Regulation?
| The debate over whether index annuities should be treated as securities continues to rear its head on a regular basis. The National Association of Securities Dealers (NASD) is itching for regulation and SEC oversight. And it seems the media is often on their side, spinning annuities into controversial products with lengthy surrender fees and high commissions that are inappropriately sold to gullible seniors.
So far, however, the insurance community has stayed out front in the battle to ensure the current standing: no regulation. According to Kim O’Brien, executive director of the National Association for Fixed Annuities (NAFA), “NAFA believes these products have been misrepresented and misunderstood by the mainstream media.”
While the concept of annuities is not difficult to understand, the features can be complex for agents to explain and clients to grasp. For example, there are financial formulas, indexing methods, crediting methods, fees, surrender charges, contract terms, distribution options, and participation rates. Industry veteran Wilma Anderson of The LTC Coach in Littleton, CO agrees. “Consumers at large have been unable to understand annuity products,” she says. Responses to the Agent’s Sales Journal’s 2006 annuity survey show that agents have somewhat mixed feelings regarding possible NASD oversight of the index annuity. Nearly half the respondents (48 percent) say oversight would be worse for the client (26 percent say supervision would be “much worse,” and 22 percent state “worse”). About one in four actually think oversight would be better for the client. Eighteen percent foresee no impact on the consumer. (Chart A) One agent with mixed emotions about the issue notes, “Index annuity regulation would be better in that, perhaps, the NASD would enforce rules against poor sales tactics, but worse in that we don’t need more oversight — just current enforcement of existing rules.”
Because agents sell index annuities more than any other type, the outcome of the debate has critical implications for them. Agents would need a license in order to sell index annuities if they were to become regulated as securities. Of those agents who do not already have a securities license, 42 percent say they would take the trouble to attain one, while 58 percent say they would not. (Chart B)
Looking ahead, as consumers become better educated about annuities, there is hope that pressure for regulation at the federal, state, and industry levels will abate. As O’Brien states, “NAFA will continue to work with industry groups to educate and train in all aspects of annuity selling and product positioning. [We] believe index annuities will maintain their current status as insurance products because they provide, first and foremost, guaranteed protection of principal and guaranteed payout options.”
In the meantime, in order to offset the potential for future regulation, Anderson advises, “Sell each one like a security, even though it is not.”
| | Chart A | Chart B | Effect of NASD oversight of index annuities on the consumer
Better 23%
Much better 6%
Worse 22%
Much worse 26%
Would have no impact on consumer 18% | Whether agent would obtain a securities license if index annuities become regulated securities
Yes 42%
No 58% | |
The Agent’s Sales Journal would like to thank the following industry experts for providing their input in the development of the annuity survey:
| Wilma Anderson
of The LTC Coach
Lori Bochner
of DNA Brokerage
Robert Davis
of The Annuities Institute
William Harris of W.V.H. Inc.
| Jack Marrion
of Advantage Compendium
Kim O’Brien
of NAFA
Deborah Tucker
and Kit O’Connor
of NAVA | |