VA Buyer Profiles Show Where The Sales Are

Region. On a per-capita basis, sales tend to be higher in the Northeastern and Midwestern states than elsewhere. In fact, market share was 12.5% higher in the Northeast than population figures would suggest. Undoubtedly, demographics contribute to this–e.g., the average age of Northeastern residents is older than that of Western residents. The insurance industry's historical representation probably also plays a role; most insurers originated in the Northeast and Midwest, and to this day, sales forces may be more prevalent there.

Distribution channel. Salespeople working within different distribution channels tend to target or attract different types of VA buyers. Individuals buying a contract from a career agent tend to be younger (average age 54) than those purchasing from independent agents and financial planners (average age 57) or bank representatives (average age 59). The oldest buyers typically buy from stockbrokers at major wirehouses (average age 62).

Average premium varies dramatically across distribution channels, with wirehouses having the highest and career agents the lowest. Relatively younger and less affluent clients tend to predominate in the career agent channel, while other channels tend to serve older and wealthier clients. In the IRA market, career agents are much more likely than other channels to sell VAs with premiums in the contribution range (under $3,500).

Cost structure. B-share cost structures–which generally have a six- to eight-year contingent decreasing deferred sales charge–continue to make up two out of three contracts. They are followed by L-share structures, representing 25% of VAs sold. The L-share structures tend to have shorter surrender schedules than the B-share, and they've grown in popularity. The L-shares also have higher average premium ($89,000) than the B-shares ($79,000). The A- and C-share structures represent fewer than one in 10 VAs sold.

Living benefits. Today's VA buyers are more likely to elect a guaranteed minimum death benefit than a guaranteed minimum accumulation benefit or a guaranteed minimum withdrawal benefit, when such riders are available.

A clear relationship exists between benefit election and age of the electors. People electing GMIBs, which often have a seven- to 10-year waiting period before the benefit can be fully utilized, are slightly younger on average than those choosing not to elect (age 56 vs. age 59). The reverse is true for GMWBs, which can be activated immediately after purchase and which are therefore useful for those already beginning to create income from retirement savings. Moreover, those electing either benefit tend to have higher average premiums than nonelectors. This difference could be driven by asset allocation needs of certain buyers, who want to protect a larger portion of their assets within their VA contract.

In sum, understanding buyer demographics can help carriers and distributors direct strategic development, marketing and sales efforts. Buyer profiles also can help identify future growth areas in currently underrepresented segments.