Annuities: Resilience, Guarantee & Traction

Paving the Way for growth in 2014

by Douglas Dubitsky

Mr. Dubitsky is Vice President of Product Management & Development for Retirement Solutions at The Guardian Life Insurance Company of America. He is responsible for directing Guardian’s retirement product and service offerings. Connect with him by e-mail:

The annuities industry has faced some very stiff challenges during the past few years. Low interest rates have put pressure on business models and, in some instances, on demand. This has forced insurers to reassess, and in some cases, restructure their thinking around annuities. We saw some companies exit the business, while a few others scaled back on certain product features or pursued other tactics to continue to exist in this environment. Others have reexamined the marketplace and created new products with non-traditional investment portfolios and innovative benefits.

For those that were able to push forward through the storm, they are now seeing great opportunities for growth in today’s annuities market. Looking forward to 2014, there are three major trends taking shape that are paving the way for growth.

One: The annuities business is resilient and niche markets are already showing strong growth
Based on industry data reported on by the Insured Retirement Institute, sales across annuity lines rose nearly 10% sequentially in the second quarter of 2013. The fixed annuity market is starting to regain traction with second quarter 2013 sales rising nearly 15% from the previous three months to just over $17 billion, according to Beacon Research.

Deferred annuities allow clients to accumulate assets with the potential for further growth through tax deferral. This growth can later be turned into lifetime income. Deferred-income annuities are a rapidly growing niche to pay attention to as well. Through June 30, 2013, sales in the segment were up 151% year-over-year to $930 million, according to LIMRA.

Growth of variable annuities will also continue – going back to the basics with a twist, offering variable annuity products designed around investment selection rather than living benefits, and offering non-traditional investment options, such as alternatives.

Two: Consumers are hungry for guaranteed income
Memories of the 2008 global financial crisis are still echoing in consumers’ minds and continue to color the decisions that individual investors are making today. At the same time, consumers are starting to get back to the point where they are gaining some confidence in the markets and see the need to have access to a variety of different asset classes. They now realize that uncertainty is the new certainty and are looking for ways to guarantee their income as they retire
This need for guaranteed income and finding new ways to meet retirement goals are making annuities an even more important part of a person’s overall retirement portfolio.It’ll be important for consumers to understand the value of annuities and how they can provide stable income regardless of volatility in the markets – giving them a lifetime of financial support so they’ll have the money they need in retirement to help maintain their lifestyles
Three: More and more Baby Boomers are reaching the age of retirement and straining government resource
The growing wave of baby boomers reaching age 65 is expecting to swell to over 50 million people by 2020 and then to over 70 million people by 2030, according to Census Bureau data.

While this could lead to increased demand for retirement products like annuities, it could also have other far-reaching implications. This growing number of retirees will put great pressure on the Social Security system and future retirees may see changes made or even their benefits cut to this entitlement program so that it can remain solvent. That could mean a source of retirement income consumers may have been relying on could no longer be available to them in the way they had expected. Annuities can also play a role in helping to fill this potential income gap for them.

These factors combined are creating great opportunities in the annuities market and are opening the door to educate consumers about how annuity products can provide an important layer of guaranteed income as they consider their options for retirement.

Education Remains Key
While opportunities are growing in the annuities market, education for consumers around annuities and retirement planning more broadly is still a stepping stone to success.

Insurers and financial professionals must make a concerted effort to help consumers understand the issues they will face in retirement – whether that’s in a few months, a few years or a few decades – and paint the picture of how annuities fit into their overall retirement plans. Whether it’s through one-on-one conversations, workshops, webinars, social media, consumer-friendly guides and the like, it’s critical that consumers are being reached and that they understand the benefits of annuities and the lifetime income they can provide.

Going into 2014 and in years to come, it’ll ultimately be a game of going back to the basics in terms of education – helping consumers understand what it means to be in retirement, the amount of money it takes to maintain whatever lifestyle they choose, whether or not annuities should be a part of their retirement plans and what steps they’ll need to take to best prepare for the rest of their lives.

Final Thoughts

The bottom line is that the annuity industry has to stay nimble and create a better understanding of annuity products in order to fully leverage the opportunities that exist.

Annuities have the ability to provide solutions that are tailored to very specific, individual needs, and in a time when people are searching for ways to secure their retirement, the annuities message should be a simple one: No matter what your circumstances, the size of your portfolio or the financial life you envision during retirement, you should be considering how annuities could provide a solution to create guaranteed income you won’t outlive.