The boomers are coming. The boomers are here. By this time, almost all the players appreciate that aging demographics in the United States call for products that address the boomers' focus on how they are going to support not just their current life styles, but possibly their very existence.
The dimension for these investors is economic survival into old age and, conceivably, unanticipated really old age.
Thus far, the insurance industry's primary offering has been traditional variable annuities with optional features providing guaranteed withdrawal, accumulation and income benefits.
With few exceptions, these features–the guaranteed minimum withdrawal benefits, guaranteed minimum accumulation benefits and guaranteed minimum income benefits–have accompanying asset allocation or preferred or specified investment alternatives. One company has a product in registration that utilizes investor private accounts as the funding vehicle for an insurance product; other insurers have creative designs on their drawing boards.
While these individual initiatives are impressive, they are dwarfed by the enormous potential of the retirement market. Therefore, a broader approach to product development could serve all interests. Here is why.
Putting aside important but derivative issues such as costs, profits and tax treatment, the 2 controlling concepts for insurers and investors are investment risk and guarantees.
Boomers are intimidated by the prospect of investment risk that could diminish their accumulated assets during longevity frames.
Insurers, meanwhile, are faced with the creeping reality that variable products with guaranteed benefits no longer shift the total investment risk to investors. They are confronted by uncertainty as to whether they have designed or priced the features to protect their bottom lines from the persistent volatility of the markets. In fact, a variety of actuaries and other commentators have raised concerns about the exposure of many insurers to the economic impact of the guarantees.
As a federal securities lawyer, this author is frequently distracted by the blurring of the already hazy line between what is a security and what is insurance.
