The (Annuity) sky isn’t falling
April 22, 2020 by Sheryl J. Moore
Part of what I do for my full-time hustle is to track every annuity, its features, rates, and sales. AnnuitySpecs may look like a simple website, but there is A LOT of work that goes into that tool. Almost a dozen people are needed just to keep up with all the product information that goes into making Wink the most reliable resource for product intelligence.
Along those lines, it seems that things have been pretty crazy over the past couple of weeks, in terms of the busy-ness within our offices. A quick glance at the recent rate changes in the annuity industry validated my thoughts: 75 different rate reductions on hundreds of products, just since March 1. Bananas.
Tough just got tougher
And things were already pretty tough when it comes to annuity pricing. The 10-year Treasury, the primary benchmark for fixed and indexed annuity pricing, today stands at a mere 0.763%. That is 1.067% lower than two months ago when annuity rates were already “unattractive,” and 3.177% lower than in 2009, before the Treasury note started to go south.
Compounding the issue is the volatility of the markets. This unpredictable and quickly-changing stock market impacts the options costs on indexed annuities, as well as the pricing on riders and charges on variable annuities. In other words, the tough just got tougher.
I cannot help but think of 2008/2009 when I anticipate how this all is going to affect the products that are available in your toolboxes. Insurance companies are going to start suspending sales of select products. Some smaller companies may even temporarily suspend all sales for a short while. Premium bonuses on annuities will decline or disappear. Guaranteed rollups on Guaranteed Lifetime Withdrawal Benefits will drop, and some riders will be suspended. Commissions will likely be the last features to be negatively-impacted in insurers’ efforts to de-risk during this challenging pricing environment.
Keep it in perspective
The one thing that isn’t going to change throughout all of this is the value proposition. Do you know the #1 fear of Americans? Running-out-of-money in retirement.
Do you know the only single financial services instrument that can guarantee that someone gets a paycheck, every month for the rest of their life, even if they live to be 150? An annuity.
Look- you have all been so focused on the exactly wrong thing about these products. I’ve been waxing until I’m blue in the face for the past eight years about how everyone needs to quit preaching the “upside potential” story. It is misleading. It is disingenuous. Did you know that these ARE fixed annuities? There IS a limit to the growth on indexed annuities, you know; that guarantee costs money.
Every indexed annuity product is priced to return 1.00% – 2.00% more interest than fixed annuities being issued that same day. So, if fixed annuities are presently earning 2.16%, indexed annuities sold today are going to earn 3.16% – 4.16% over the life-of-the-contract; regardless of index, crediting method, or means of limiting indexed interest. Sure, some years, the prospect may earn double-digits. Then again, in other years, they’ll earn a big fat goose egg. However, over a long term it is going to average out to 1.00% – 2.00% more than fixed annuities.
Guarantees for driving sales
Oh, you can’t sell a potential of no more than 4.16%? Sounds like a performance issue. Because if I am going to keep it real, Certificates of Deposit (CDs) today are only paying 0.96%. So, that’s the alternative: a taxable investment paying less than one percent.
You can’t sell against THAT? You can! Let me drop some knowledge right here. It is the GUARANTEES in annuities, which drive sales of these products.
Ever notice how when the market gets volatile, sales of fixed and indexed annuities increase? Guarantees.
Ever notice how companies that have guaranteed rollups on their GLWB have better election of those riders, as opposed to their “income riders” with elusive, non-spreadsheetable indexed gains on the Benefit Base? Guarantees!
Ever notice how prospects ask what happens if the insurance company “goes under” during your sales process? Gare-uhn-tees.
The fact that these financial instruments that guarantee a paycheck, for life, remain THE most attractive form of retirement safety today. Don’t forget it, and your sales won’t falter…despite how bananas the market is behaving.
Sheryl Moore is President and CEO of Moore Market Intelligence, an indexed product resource in Des Moines, Iowa, as well as the life and annuity market research firm of Wink, Inc. Her companies provide competitive intelligence, market research, product development, consulting services and insight to select financial services companies. She may be reached at firstname.lastname@example.org.