It's a question that has much significance for the life insurance business: Who holds the "franchise" to best meet income planning needs as baby boomers approach retirement?
The question was raised during a recent overview of the life insurance industry presented at the New York Society of Security Analysts' 11th annual insurance conference and examined by both insurers and mutual fund representatives interviewed by National Underwriter.
During the overview, Steven Schwartz, senior vice president with Raymond James & Associates, Chicago, said he believes life insurers have a "franchise" to meet consumers' need for a regular flow of income in retirement. Experience with mortality as well as new features such as guaranteed income benefits were reasons cited by Schwartz for his position.
One audience member asked why other products such as mutual funds could not do the same things as insurance products.
In interviews, both insurers and mutual fund representatives offer arguments about why they are well positioned to meet the need for regular retirement income.
Robert Goldenberg, vice president of annuity development with AXA-Equitable, New York, points to the guarantees that insurers offer in their products, noting that these features facilitate the creation of an income plan.
As an example, he notes that the guaranteed minimum income benefit allows contract holders to invest more aggressively to produce retirement income because of the minimum guarantee feature in the product.
Steve Norwitz, a spokesman for T. Rowe Price, Baltimore, says the mutual fund family has been focusing on retirement income planning "for some years."
Norwitz notes the recent launch of T. Rowe Price's suite of Advisory Planning Services, which targets saving for retirement, transitioning into retirement and managing retirement income. The services include features such as recommendations on "realistic investment and income withdrawal strategy" as well as investment strategies based on financial goals and risk tolerance.
Garth Bernard, an actuary and vice president-retirement strategies group with MetLife Inc., Long Island City, New York, distinguishes between insurers' franchise to create a guaranteed income stream for a contract holder's life and guarantees of protection against market risk. Bernard says that insurers do have a franchise on the former, but not the latter since options and pure financial instruments can also offer protection from market risk.
"It is a big opportunity for insurance companies. You cannot in a pure investment vehicle cover the risk of an insured living too long," notes Bernard.
What mutual funds are doing is to help people manage their asset allocation in the accumulation phase and make withdrawal recommendations with a goal of making assets last as long as possible, Bernard says.
