How To Market A Variable Annuity

Transcription

1 IRI and Cerulli Associates 2010 Annuity Distribution Survey Key Findings January 2011 For more information on The Cerulli Report Variable Annuity Distribution Opportunities: Broadening Appeal and Attracting New Advisors 2010, please contact: Marketing & Business Development Exhibit 1: Greatest Challenge in Marketing Variable Annuities, % 1 5% 28% Attracting new advisors Communicating complex benefit riders to advisors and investors 23% Differentiating offerings in a crowded marketplace 12% Validating the fees associated with the insurance features of the product 5% 5% Negative perceptions of insurance company solvency issues Negative press coverage 2% Increased competition from target-date and other retirement income funds The greatest challenge in marketing variable annuities is attracting new advisors at 28%. Key Implication: Attracting new advisors to the business must be a top priority because without these new advisors, sales in the annuity industry will remain stagnant. Communicating complex benefit riders to advisors and investors is the second greatest challenge. Many new advisors do not have the incremental learning benefit of having tracked changes to these products. Annuities have evolved and product features have changed greatly over the years and without having followed that change, it will make it difficult to understand the many features to the product. Key Findings u 2010 Annuity Distribution Survey u January 2011 u 1

2 Exhibit 2: Household Opinion of Annuities, % % 15% % 11.8% 9.8% 8.2% % 5% I am not familiar with annuities No opinion Annuities are too confusing, complex Annuities are too expensive Annuities are a good way to protect my assets The insurance companies that sell annuities are untrustworthy Annuities are a good way to generate income Because of weak balance sheets, insurance companies will not be able to fulfill all of their annuity contracts Sources: Cerulli Associates, Phoenix Marketing International Consumers are mostly unfamiliar (35%) with or have no opinion (29.1%) of annuities. Key Implication: While it may be difficult to explain the features of an annuity, this unfamiliarity presents an opportunity for annuity companies to educate investors of the benefits that an annuity can provide for them. Of the consumers that do have an opinion, 12.8% find that annuities are too complex and 11.8% find that annuities are too expensive. These negative feelings may be more difficult to change, however most of these negative feelings could be slightly appeased with continued education. Instead of competing over product features that are not understood, insurers could educate investors to make informed decisions to better their financial future. Key Findings u 2010 Annuity Distribution Survey u January 2011 u 2

3 Exhibit 3: Effectiveness of Strategies Insurers Use to Gain Interest of Advisors New to Annuity Business, % 75% Demonstrate how annuities can supplement portfolios 13% 13% 13% 13% Provide training tools to show value of annuities 38% 5 57% 63% Simplify Begin Emphasize Annuities conversations insurers with longevity ' financial risk strength 5 Compare annuities to other retirement products 38% 43% 38% 38% 38% Clear Explanation of Annuity Fees 5 Reduce Cost of Annuity chasis 5 38% 13% 13% Reduce cost of optional riders 13% 75% Fewer Product Changes 75% Incorporate advisor language Very effective Somewhat effective Not effective Demonstrating how annuities can supplement portfolios, and providing training tools to show the value of annuities are the top two ways in which to attract new advisors to the annuity business. Incorporating advisor language is not very effective to gaining the interest of new advisors. Key Implication: In order to gain interest of new advisors and attract them to the annuity business the most effective way to do so would be to demonstrate how annuities can supplement portfolios. In addition, providing training tools to show the value of annuities is also a effective way of attracting new advisors. The practices of the best advisors in the industry are moving away from annuities traditional positioning. Demonstrating how an annuity can create a better client outcome, rather than pitching a new feature or benefit will help to broaden the appeal of variable annuities. Key Findings u 2010 Annuity Distribution Survey u January 2011 u 3

4 Exhibit 4: Factors Impacting the Decision to Place Client Assets into an Annuity by Channel, 2010 Wirehouse Regional IBD/Insurance Dually Registered RIA All Advisors Retirement Income 7 64% 75% 86% 47% 67% Principal protection 61% 57% 63% 68% 41% 58% Tax deferral 3 43% 43% 41% 27% 37% Portfolio diversification 32% 43% % 35% Client request 13% 7% 22% 45% 24% 23% Growth 17% 14% 27% 23% 1 Other 14% 26% 13% Advisor Compensation 9% 2% 5% 5% 4% Sources: Cerulli Associates, in partnerships with the College for Financial Planning, the Financial Planning Association, the Investment Management Consultants Association, Morningstar, and Advisor Perspectives The primary factor for all advisors when deciding to place client assets into an annuity is retirement income. Key Implication: Retirement income is of greatest importance for advisors in the dually registered and IBD/Insurance channels at 86% and 75% respectively. Principal protection follows retirement income in importance when determining to place a client assets into an annuity. Annuities can provide for a guaranteed stream of income which when approaching retirement can be very beneficial. Differences in advisor opinions around annuities can provide guidance for how these products should be positioned in different channels and, in some cases, whether specialized products should be developed. Key Findings u 2010 Annuity Distribution Survey u January 2011 u 4

5 Exhibit 5: Total Annuity Sales by Channel, % 39% 3 22% 14% 14% 1 6% Bank broker/dealer Independent agents or broker/dealer Wirehouses Regional broker/dealer Other Registered investment advisors Insurers named bank broker/dealers (46%) and independent channels (39%) are the top two channels for annuity sales. Registered investment advisors (RIAs) ranked the lowest at 6%. Key Implication: Although reported sales in our survey differ from Morningstar estimates, they do paint a picture of the types of advisors who typically sell variable annuities. Bank channels traditionally have clients that are conservative in nature, presenting as an ideal environment to propose the option of an annuity. The independent channel is comprised of independent broker/dealers, whose advisors are independent contractors. The middle market clientele and commission pricing commonly seen in this channel creates an environment for annuities to thrive in. Of note, regardless of channel, is the advisor transition to fee-based pricing which could represent a challenge for annuities. Key Findings u 2010 Annuity Distribution Survey u January 2011 u 5

6 Exhibit 6: Primary Positioning of Variable Deferred Annuities by Channel, % 33.3% % % 66.7% Bank broker/dealer Wirehouses Independent agents or broker/dealer Regional broker/dealer Registered investment advisors Captive insurance agents Retirement income Asset Accumulation Tax-deferred growth Not applicable Retirement income is the predominant primary positioning of variable deferred annuities across channels, ranking highest in the bank broker dealer and wirehouse channels. Registered investment advisors are the channel with the greatest emphasis placed on asset accumulation. Key Implication: Simply positioning variable annuities as a retirement income solution is not enough. Rather, insurance companies should make an effort to understand advisors' retirement income methodology and fit the product within it. Insurance companies should view a variable annuity as a component of a retired investors portfolio rather than as the sole solution. Key Findings u 2010 Annuity Distribution Survey u January 2011 u 6

7 Exhibit 7: Primary Positioning of Fixed Deferred Annuities by Channel, % 16.7% % Independent agents or broker/dealer Regional broker/dealer Bank broker/dealer Captive insurance agents Wirehouses Registered investment advisors Tax-deferred growth Principal protection Not applicable Asset accumulation Tax-deferred growth is the most widely used positioning method for fixed deferred annuities. Key Implication: While tax deferral is an important component of fixed annuity positioning, Cerulli believes the appeal of these products owes more to principal protection and guaranteed rates of return. To wit, the product set sales records at the nadir of the bear market as investors fled the equity markets for save havens. However, the tax-deferred nature of this product helps to increase rates of return on an after-tax basis. Key Findings u 2010 Annuity Distribution Survey u January 2011 u 7

8 Exhibit 8: Insurance Firms approach to holistic retirement planning % 3 1 Firm has no plans to develop a separate organization unit devoted to retirement planning Firm currently has a separate organizational unit devoted to retirement planning and services 13% Firm has discussed plans to develop a separate organizational unit devoted to retirement planning but has not set a timetable Half of firms have no plan to develop an separate unit to devote to retirement planning. Key Implication: Those firms that have developed separate retirement planning units have done so in hopes of capturing their fair share of the assets of retiring Baby Boomers. However, insurance companies and other product manufacturers hoping to capitalize on the retirement income boom are faced with a tricky conundrum. For the wealthiest retirees, who also control the lion's share of assets, there is often an intermediary involved who is giving advice and recommending products. Although consumer awareness is important, often the gatekeeper to a sale is a retail financial advisor. Firms must have an understanding of advisors, their practices, and their needs if they wish to be successful as a retirement income provider. Key Findings u 2010 Annuity Distribution Survey u January 2011 u 8

9 Exhibit 9: Insurers Annuity Business Conducted Through Electronic Submission, % 3 1 We require no paper information to be We do not conduct any business completed at the point of sale, and rely entirely through electronic submission upon an electronic order with submission of paper forms on the back end after the policy is issued 13% We require the completion of a full, paper application at the point of sale that is submitted as part of the order entry Half of firms require no paper to be completed when selling an annuity, while nearly 4 do not conduct any business electronically. Key Implication: Despite significant education, almost 4 of insurance companies do not conduct business through electronic submission. This remains an important initiative to bring the annuity industry into the 21st century by submitting new business similar to other products, such as mutual funds. However, insurance companies should not view straight-through processing as the cure to all of their ills. Work must still be done on the positioning of annuities in order to broaden the product's appeal. Key Findings u 2010 Annuity Distribution Survey u January 2011 u 9

10 Exhibit 10: Insurers Awareness of the Insured Retirement Institute (IRI) Straight Through Processing Standards, % % Yes No Approximately 7 of insurance companies are aware of IRI's straight through processing standards. Key Findings u 2010 Annuity Distribution Survey u January 2011 u 10