The Federal Reserve’s sharp cuts to interest rates mean that returns on the underlying investment accounts of fixed annuities are also greatly reduced. Insurers are shifting their product mix from fixed annuities back to variable annuities, especially structured variable annuities that offer better performance caps and upside potential. They have restricted the sales of some products and have stopped marketing other products entirely.
Insurers are increasing fees and lowering performance caps on indexed annuities. At the same time, they are reducing indexed annuity commissions to advisors and reducing annual withdrawal and roll-up rates on annuities that offer guaranteed lifetime withdrawal benefits.
Expanding Distribution
Insurers and vendors are promoting annuities sales through advisors. Insurers are offering financial advisors simplified, low-cost products without commissions, through marketing organizations in some cases. Vendors are offering solutions that enable the analysis and marketing of annuities and provide product-specific training alongside other insurance and investment products.
Insurers that offer direct-to-consumer annuities and those considering a direct-to-consumer strategy must enable online applications, including compliance and suitability checking. Recent years have seen insurers offer annuities online. Such initiatives include Brighthouse Financial’s Digital Desk financial advisor fixed and income annuity sales platform that includes e-app, electronic suitability questionnaire submission, and illustrations and Allianz Life, Brighthouse Financial, and Global Atlantic offering annuity product portfolios on Envestnet’s Envestnet Insurance Exchange.
Regulation
The Department of Labor’s fiduciary rule is essentially dead. However, insurers must now contend with the array of best interest regulations from the SEC and states like Arizona, Iowa, Massachusetts, and New York. Insurers must also harmonize compliance with these regulations with NAIC model legislation. Recent federal tax reforms have reduced capital requirements for insurers.
President Trump signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act in December 2019. Notable provisions include:
- Permission for plan providers to offer income annuities within 401(k) plans
- Portability of lifetime income options
- Reframing ERISA safe-harbor standards, allowing plan sponsors to select insurers to offer guaranteed income options
- Annual disclosure requirements for lifetime income options in 401(k) plans.
While not specific to insurance, the Coronavirus Aid, Relief, and Economic Security (CARES) Act offers provisions that may grant tax credits to insurers.
Mergers and Acquisitions
A sizeable minority of companies write individual annuities as their primary line of business, but few companies write individual annuities business exclusively. Similarly, insurers usually include group annuities as one of several lines of business they offer. Several large insurers have spun off or sold their annuity operations, including The Hartford, MetLife, Liberty Mutual, and Voya. Several insurers have reinsured their annuity business to free up capital for other uses.
Distribution and Customer Experience Are Key Areas for Investment
STP enablement or extending existing STP capabilities remain priorities for insurers. Customer preferences and the ability to add personal information will drive educational content in the future, following the retirement services industry model. Insurers are conducting more educational conversations regarding fees to address consumer demand for transparency. AI, chatbots, direct chat, and robo-advisors are playing an increasing role in addressing basic needs and compliance concerns as well as educating consumers. Insurers are also using data and analytics to understand customers’ existing products, needs, and life events that could affect their financial needs and applicable products.
The Future for Annuity Issuers
Many industry imperatives persist unchanged. Producer and customer self-service remain key for cost containment and customer and producer satisfaction, especially as insurers’ compliance workload increases. Business intelligence and core systems investments continue to be critical in improving time to market and product flexibility, both vital for sales growth. IT is partnering with other internal insurer groups such as actuarial, operations, and underwriting to drive efficiency and value for insurers. As staff age out of the industry, insurers are addressing talent management by rotating internal staff and by sourcing talent externally.
For a more in-depth look at the trends in this space, read Novarica’s report Business and Technology Trends: Annuities.
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