NAVA Panel Sees So Many VAs, So Much Confusion

A third speaker–who also has the last name of Sharpe–actually likes the product proliferation he has seen. "I think its great," said Michael Sharpe, first vice president and national sales director for annuities at McDonald Investments, Inc., a subsidiary of KeyCorp in Cleveland, Ohio.

When producers understand what the new features are–for instance, the various living benefit features in VAs–they can sell a lot of products having the features, the McDonald executive said.

But proliferation still does pose a problem, Michael Sharpe indicated. Now, he explained, VA carriers need to be sure they educate not just the producers (about the features), but also the support people at the home office and the wholesalers who promote the features to the field.

"If the wholesalers dont understand what they are talking about, how will the producer?" asked the Cleveland sales director.

Another issue, Michael Sharpe said, is that the carriers have to be sure the information they deliver about the new features is correct and fully disclosed.

In some cases, he said, "the information was assumed to be understood and therefore was not in the prospectus." That creates problems, he indicated. "We need full disclosure, so our customers can understand what they are getting."

One area where product proliferation is very active is in the expansion of the number and types of mutual funds offered inside VAs. Insurers have added to the fund mix for several reasons, noted Mark Kowalczyk, managing director at Ibbotson Associates, in Chicago.

These reasons include: to differentiate their products; neutralize the competition; increase recognition of fund names; and bring stronger performers and popular asset classes into the products.

This has created more choices and increased opportunity to hedge against poor performance, Kowalczyk allowed. But it has also led to investor confusion and fund redundancy, he said. Certain new product features also add to confusion, he contended.

Possible remedies might be to tie the new benefits into the risk tolerance questionnaire, Kowalczyk suggested. Also, perhaps offer additional asset allocation models, with the features factored in. And, "if your grandpa cant understand the marketing copy, rewrite the brochure! Simplify it!"

"We have a phenomenal product that can help people accumulate wealth for retirement," concluded Sullivan of Legg Mason.

"But we have to keep it simple, if we truly want to grow this business.

"Dont keep complicating the product. Focus on the professional asset management, tax deferral, underlying guarantees, and lifetime income. As for the other features, they may be helpful to reps but not to consumers, so they wont help us grow the business."

Michael Sharpe advised the industry to "make sure (the reps) understand the product and how it works so they can explain it simply to the client."

The industry needs to be zealous on that, agreed Matthew Sharpe. "We need to show how the product stands in its own space, as compared to anything else."

Reproduced from National Underwriter Life & Health/Financial Services Edition, March 11, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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