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It has been said that there needs to be a revolution in the immediate annuity world to produce products that meet the needs of future retirees. One insurer already has fired a shot in this area by developing a fixed annuity where income is not solely dependent on interest rates and where the consumer has liquidity and choices.
Otherwise, the index annuity world in 2004 was generally a return to the rising commission, illusionary bonus and obfuscated crediting formula environments of earlier years. New product offerings simply were tweaks of earlier designs or creative copying.
And although there will be a couple of interesting and innovative crediting methods introduced in 2005, the real cutting edge next year will not be innovative new products but meaningful penetration of new markets.
Index annuity sales were over $7 billion for the third quarter of 2004 and the estimated year-end total for the industry should hit $22 billionmore than triple the sales of 2001.
However, the index annuity arena always has been a sideshow in the greater annuity carnival. Over 88% of the agents actively selling fixed rate and variable annuities have never sold an index annuity.
Even though index annuities only represented 3% of all annuities sold in 2002 and have risen to capture a projected 10% of total fixed and variable annuity sales in 2004, the question for IAs always has been: "Is this a niche product for a niche market, or is it a mainstream annuity designed to compete in a long-term low interest rate environment?" Next year may decide that question.
