When the final annual sales figures start rolling in from the annuity, life insurance and long-term care insurance marketplaces sometime this quarter, they're expected to show that 2011 was a solid, if unspectacular, year for three mainstays on the insurance industry's product platform.
Drawing from three quarters worth of 2011 sales data, experts who track the life insurance, LTCI and annuity markets say overall sales of each of those products were trending upward, portending not only a strong fourth quarter but also positive momentum for 2012. An impressive turnaround, considering how bleak things looked in certain segments of those markets just two or three years ago.
From hot products and sales channels to innovations on the product development front, here's a look at some of the key trends the experts see fueling momentum in the annuity, life insurance and LTCI markets in 2012.
Trendspotting: Annuities
Sales
Overall annuity sales were expected to surpass $150 million in 2011, according to the Insured Retirement Institute, due in large part to surging demand for variable annuities (VAs), sales of which hit $8.8 billion in the third quarter of 2011, the highest level seen by IRI in 14 quarters. Year-to-date VA sales for 2011 were 18 percent higher than in 2010, totaling $118.3 billion.
Third-quarter sales of indexed annuities also surpassed those of the year-ago quarter, according to Chicago-based Beacon Research. The estimated $9 billion in indexed annuity sales during Q3 marked an increase of 0.4 percent from the same period the year prior and 7 percent from the second quarter. However, indexed annuity sales were down 1 percent for the first three quarters of the year, as were overall sales of all types of fixed annuities, including indexed and traditional fixed products.
Sweet spots
Qualified sales of variable annuities continue to outpace non-qualified sales by a greater than a two-to-one ratio, reports LIMRA. "A large percentag—70 percent of those under 70—of people buying [VAs] are using qualified funds to make their purchase," observes Joseph Montminy, assistant vice president and head of annuity research at the Windsor, Conn.-based insurance industry organization LIMRA. With hundreds of millions of dollars in baby boomer retirement funds expected to be in play in the years ahead, VAs represent "a great opportunity and a growing opportunity" for advisors seeking to help clients find a home for those funds, he adds.
There's no secret about what's fueling the annuity sales surge: guaranteed lifetime benefits. More than ever, investors are willing to pay extra for lifetime income guarantees. Guaranteed lifetime income benefits are now specified with close to 90 percent of all new VA contracts, according to Montminy. The average age of those specifying such a benefit is around 60 or 61, he adds.
Similarly structured guarantee riders also are helping drive indexed annuity sales, he says. As part of an overall move to make indexed annuities more investor-friendly (with shorter surrender periods, lower caps, etc.), providers are offering more living benefit guarantees with indexed annuities. LIMRA has found, for example, that those optional guarantees are available with 87 percent of indexed products and that when they're available, they're elected 63 percent of the time, according to Montminy.
With annual sales projected to surpass $8 billion for the first time ever in 2011, immediate annuities are emerging as another sweet spot. Single-premium immediate annuities are finding new traction in the bank, broker-dealer and wirehouse channels, says Montminy. The age of the average SPIA buyer is 73, he adds, an indication that seniors increasingly see SPIAs as a viable tool for protecting and growing assets—sometimes in conjunction with a variable annuity bearing a living benefit of some sort.
Distribution dynamics
Some big-name insurers—John Hancock and ING, to name two—are backing off the VA market. Meanwhile, others, such as Hartford Life and Symetra, are wading into the indexed annuity market, according to Montminy. Further downstream, he expects to see more wirehouses and big broker-dealers offering indexed annuities to compete with independent agents and advisors.
Product development
As much as investors appear willing to pay extra for annuities with living benefits to cover their lifetime income needs, annuity providers appear just as driven to manage the risk associated with offering those guarantees more effectively. Lately that's been the case, with insurers adjusting living benefits to put more risk, or more costs, or more investment restrictions on the investor.
"A large percentage—70 percent of those under 70—of people buying [VAs] are using qualified funds to make their purchase." -Joseph Montminy, LIMRA.
Trendspotting: Life Insurance
Total individual life insurance premium grew 5 percent in the first nine months of 2011, according to LIMRA, due in large part to surging sales of Whole Life (WL), Indexed Life and Guaranteed Universal Life (UL) products. But there's much more to the story than that, say market watchers like Robert Kerzner, LIMRA's president and CEO. "What consumers are telling us is that they are far more concerned about retirement [issues such as income] and living too long than they are about dying prematurely. There's a message there."
The message, he says, is that consumers want life insurance products that offer the ability to build cash value, but in uncertain economic times like these, they'll sacrifice a measure of upside in exchange for greater certainty in terms of premium, death benefit and principal preservation.
Hot products
Through the first three quarters of last year, Whole Life premium grew 10 percent, reflecting the public's appetite for the certainty of premium and cash-value guarantees, along with lifetime coverage. An overall 6 percent year-to-date increase in WL policy count gives WL policies a 46 percent share of total life insurance policy count, according to LIMRA's calculations.
Indexed UL sales also are surging. "It's the right product for the times," says Kerzner. "People want a safe harbor in the storm and indexed products give them that downside guarantee and at the same time, you end up with more dollars in the till for retirement."
Indexed UL premium was up 35 percent through the first three quarters of 2011, according to LIMRA.
Indexed UL is finding appeal particularly in the expanding 60 to 70 age group, observes Randy Rowray, AAPA, vice president of marketing at the National Benefit Corp. in West Des Moines, Iowa. More insurers are entering the indexed UL marketplace to serve that fast-growing customer segment, resulting in richer participation rates for investors.
Niches to watch
Action is heating up in the Term UL segment, Rowray says, due largely to its attractive pricing relative to traditional UL. Business planning and family wealth legacies are among the areas driving demand for term UL, he adds.
