Index Annuity Sales In 2004 Up 67% Over 2003

Shelby Smith, an index annuity wholesaler, says some reps even are deciding to give up their securities licenses and concentrate exclusively on IAs. "I know dozens who have done this," says Smith, who is chief operating officer and senior vice president at BHC Marketing in Houston.

One reason is "reps are up to their eyeballs" with customers who are upset about losses in the equities market, says Smith. "These customers want less risk and volatility in their financial lives, which is to say, they want guarantees." Reps like the index annuity for this market, he says, because clients who keep the contract full term wont have a loss in account value if the market crashes, and the product still has upside potential.

Another reason, he says, is reps are "tired of the compliance requirements from their B-Ds concerning sale of annuities," contends Smith. "Specifically, they are tired of B-Ds wanting oversight on any annuities the rep sells, whether fixed or variable." If they terminate their securities licenses and concentrate on index products, they bypass this issue, he says.

Finally, Smith says reps view the index annuity as positioning well against traditional fixed annuities, which now are paying very low interest. "Clients are saying they know interest rates will rise so they dont want to be locked into todays lower fixed rates." By contrast, with the index annuity, they know there is upside potential.

As for IA sales in banks, 2 key factors are driving sales there, says Robert Wick, vice president-financial institution marketing at Jefferson-Pilot Financial, Greensboro, N.C. His company saw bank sales of index annuities rise to $350 million in 2004 from $160 million in 2003.

One driver that Wick cites for this increase is the same driver identified by Smithtodays very low traditional fixed annuity interest rates. The traditional products sold well in banks before the rates plunged, Wick notes, but not now.

Another factor, he says, is the increasing simplicity in product design. "Banks want to sell easy-to-understand products," he says.

Newer, easier-to-understand product designs have had a "huge impact" on sales in all markets, confirms Allianzs Foley. For instance, in May 2004, his company rolled out MasterDex, a much simpler index annuity than Allianzs previous version. He credits the product with helping Allianz achieve its 60% index sales rise for the year.

Remember, he says, "index annuities are still a relatively new product form, and lots of agents still dont know much about them or understand them." So, when a simpler product comes out with guarantees and upside potential they and their customers can understand, that helps sales.

In general, says Foley, the industrys substantial increase in sales is a sign that index annuities are now firmly established as a "bridge product" between fixed and variable products.

Index annuities grow by 7% to 9% over the long term, he explains. By comparison, the S&P 500 grows by about 11% over the long term, while fixed products and intermediate bonds grow by 5% to 7% over the long term. Furthermore, he says, consumers are seeing that index annuities enable them to gain from market growth with no market risk, helping them better keep pace with inflation.

As for advisors, they are increasingly using IAs as "a strong risk management tool for diversified portfolios," he says.

Todays rising equities market will not hinder index sales, Foley predicts. In fact, "this is a great time to buy," he says, because "people dont buy these for 1- or 2-year periods. They buy for the intermediate termat least 7 to 10 years."

Insurers now entering the index market share the above assessments on the annuities. "Our agents have been asking us for one," says Eric Miller, vice president-life and annuity for Protective Life Insurance Company, in the Cincinnati, Ohio, office. "They wanted a product that is simpler than others on the market, that complements the fixed and variable annuities already in our portfolio, and that offers downside protection plus upside potential."

The resulting productProSaver Index Choicedebuted recently. Distribution is through traditional independent agents, planners and stockbrokers. It is a non-registered policy. In the next year, Protective may also offer a registered index annuity, Miller says, due to the growing B-D interest in index products.

Aviva Life Insurance Company, Quincy, Mass., says the markets growth was a key factor for its decision to enter the market in the 2nd quarter of 2005. Also, "the product will be an extension of our fixed annuity manufacturing capabilities, and it will be a natural fit for our independent agent distribution," says John Bonvouloir, vice president-product management.

Allianzs Foley says the aging of the baby boom generation will help drive future sales. "Boomers are becoming more conservative, and many still are concerned about the loss of significant worth they suffered in the equities market," he points out. For them, the index annuity is increasingly attractive, he says.

"I think were just at the tip of the iceberg on this. The demographics and attitudes of todays consumer are a perfect match for the new index products."

Reproduced from National Underwriter Edition, April 1, 2005. Copyright 2005 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.