Independent B/Ds Gain Annuity Market Share
May 3, 2011 by Linda Koco
By Linda Koco
Contributing Editor, InsuranceNewsNet
April 29, 2011 — Independent broker/dealers (IBDs) are raising some eyebrows as they gain some market share in individual annuity sales, according to data starting in 2006.
In the variable annuity market, for instance, IBDs were the top distributors in 2010 with a 30 percent market share, according to LIMRA’s 2010 annuity survey. Career agents came in second with a 24 percent share.
In addition, IBDs have been gaining in variable annuity market share since 2006 when they had a 26 percent share, not much ahead of the career agent channel’s 23 percent share. In 2008, the IBD share grew again, to 28 percent, while the career agents held steady at 23 percent, the LIMRA data for those years show.
A similar, but smaller, trend occurred in sales of fixed rate annuities and indexed annuities.
- In the fixed-rate annuity market, IBDs grew from a 4 percent share in 2006 to 6 percent in both 2008 and 2009.
- In the indexed annuity market, their share bumped up from a miniscule 1 percent in 2006 to an also-miniscule 2 percent in both 2008 and 2010.The indexed annuity bump-up is hardly worth mentioning except for one fact. From 2006-2010, securities interests had waged a business war of sorts, seeking to wrest sale of indexed annuities away from insurance-licensed agents and make sale of the product exclusive to securities reps. They sought to do this by having governmental authorities define the product as securities.
That war ended in early 2010 with the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The sprawling law includes a provision stating that indexed annuities meeting certain conditions are fixed annuities (not securities). As a result, most market watchers have been expecting the IBD interest in this market to decline, if not vanish altogether. The LIMRA numbers suggest this has not happened, or at least not yet.
Based on the above trends, insurance interests will likely keep IBD activity in the individual annuity marketplace on close watch this year and beyond.
The IBDs will face stiff competition should they seek to widen their hold on the fixed marketplace in a bold way. The competition will come from other channels with clear stakes in the market.
In the fixed-rate annuity market, for instance, the LIMRA data show that the bank channel was the market leader with a 40 percent share. That’s down from 2008, when their share was 48 percent, but close to their share in 2006, at 42 percent. Given the prolonged low interest rate environment, the slide is in the expected category.
In view of their substantial foothold in the fixed-rate market, banks will likely remain serious contenders.
The career agent channel also made a strong showing in the fixed-rate market, capturing a 26 percent share in 2010—up from 19 percent in 2008 and 21 percent two years prior. They, too, are likely to stay competitive.
In the indexed annuity market, which turned in record sales last year, independent agents have continued to lead by a very wide margin with an 85 percent market share in 2010. That’s down from 89 percent in 2006 and 88 percent in 2008, but still light-years ahead of any other channel. In 2010, for example, banks came in a distant second in this market with a 7 percent share.
Given their track record in the indexed annuity market, independent agents will no doubt compete—and compete hard—to maintain and grow their market dominance.
It’s worth noting that, in all three markets, the market leaders held their lead in all years that LIMRA studied—2010, 2008 and 2006.
The biggest losers
Some channels did lose a little ground during same years, in addition to independent agents in the indexed annuity market.
In the variable annuity market, the biggest loser was the bank channel; it dropped from a 14 percent share in 2006 to 12 percent in 2008 and 11 percent in 2010, the LIMRA data show. Banks have never been big variable annuity sellers, so this decline is not significant in itself.
In the fixed-rate annuity market, the biggest loser was the independent agent channel, which fell from a 23 percent share in 2006 to 16 percent in both 2008 and 2010. Given the low interest rate environment, the decline is not a buzz-topic.
Even though these market share give-ups were not major, they were progressive over the four-year run. That assures the channels a spot on annuity marketer radars in year 2011.
The income annuity surprises
What about the income annuity market? Sales, though still small compared to the entire individual annuity market, have been inching up in recent years. Which channels are responsible for the growth?
According to the LIMRA data, career agents were sales leaders in this market, growing their share from 25 percent of sales in 2006 to 30 percent in 2008 and 32 percent in 2010.
Independent agents rank second in income annuity sales for 2010, with a 21 percent market share for the year. However, this share represents a noticeable decline from a 35 percent share in 2006 and a 33 percent share in 2008.
Independent agents have given up ground not only to the career agents in this marketplace. They have also given ground to banks—which grew their income annuity share to 14 percent in 2010 from 6 percent in 2006—and to (once again) the IBDs, which grew their income annuity share to 12 percent from just 3 percent in 2006.
As a whole
It looks as if the IDB channel has been pushing into the annuity market place wherever and whenever it can. This is a trend marketers will follow, especially since reps in the IDB channel are making inroads even though they do not represent the largest group of advisors in the country.
A 2009 report by LIMRA estimates that there were roughly 75,000 regional and independent broker-dealer reps at the time. By comparison, there were an estimated 150,000 independent agents in its tally and 171,000 affiliated agents.
LIMRA’s total, for all advisors—including the above agents and also national full-service rep, bank financial consultants and independent registered investment advisors—came to nearly 427,000 in that study. (The numbers were adjusted for independent agents registered with an IBD and independent registered investment advisors who were dually registered.)
Note: Joseph Montminy, assistant vice president at LIMRA, released the market share data cited above during the annual retirement income conference in Las Vegas. Conference co-sponsors were LIMRA, LOMA and the Society of Actuaries.
Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at firstname.lastname@example.org.
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