Annuity Toolbox Grows As Interest Rates Stay Low

March 08, 2013

By Linda Koco

Why have producers been seeing new annuity tools and strategies popping up from carriers? Dana Pedersen thinks a lot of it has to do with the continuing low interest rate environment.

Those two trends might seem to be unrelated but Pedersen believes there is a direct, and important, relationship.

The low interest rate era has been challenging for many annuity carriers, to the point that many are holding back on launching entirely new annuity products, noted the vice president of annuity product development at Phoenix Companies, in an interview with InsuranceNewsNet.

Instead of rolling out new products, the carriers have been looking at other ways to meet continuing demand for customer value in the annuity marketplace.

The toolbox

That’s where the new tools come in. Some carriers are launching quoting tools, annuity illustration capabilities and packages tied to various planning strategies, Pedersen said.

These tools and strategies join similar initiatives from last year, when a number of firms brought out online guides to annuity resources, e-application platforms, product allocation tools and new policy forms services. Several third-party providers did the same.

Much of this activity is geared toward supporting advisors and clients as they work today’s annuity products into the client’s plan.

As Pedersen puts it, some of the tools can help producers think outside the box by becoming more creative on matching how they can align products with strategies that meet client needs.

She points to illustration software as an example.  Carriers can elect whether or not to offer illustrations, but she has noticed that carriers that focus on how their annuities can provide clients with guaranteed income tend to be the ones that are moving toward offering illustrations.

Advisors do want the illustrations, she said. “It’s nice for them to see the projected performance of a product,” she said. But what producers really like is to see is the worst case scenario, which they need when developing a retirement plan, she said.

They need the information because “they are matching up client retirement expenses with the guaranteed sources of retirement income.”

Product modifications

The low interest environment also is spurring annuity carriers to modify existing products, Pedersen said.

(The 10-year bond rate, a key benchmark that insurers use for interest crediting and setting reserves, has been hovering at or slightly under 2 percent for the past 10 months and slightly above 2 percent for the 10 months prior to that.)

In such an environment, it is difficult for carriers in the indexed annuity market to provide compelling crediting strategies and caps as well as living benefit guarantees, she pointed out.

If rates go up a bit from where they have been, that will give carriers “a little more to play with” in terms of product development, she said. But any increase in the 10-year rate, if it occurs, is likely to be modest, so she believes that the industry is not going to see a lot of new features or products in indexed annuities in 2013.

Instead, carriers will devote resources to developing product modifications than enhance customer value, she said.

Much of the focus on will be on policy guarantees, she predicted, pointing in particular the popular annuity riders that offer guaranteed lifetime withdrawal benefits and guaranteed death benefits.

At the beginning of the year, there was a little pullback on offering guarantees, she noted. But some companies were changing the riders or repositioning where their products would perform best. That includes enhancing benefit performance at certain ages.

“We don’t see a lot of annuitization,” she noted. “People like drawing income through withdrawals. It’s less restrictive than annuitization.”

For many, an annuity with at guaranteed lifetime withdrawal benefit is like “annuitization with liquidity,” she said.

Linda Koco, MBA, is a contributing editor to AnnuityNews, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].

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nick petitte

3/13/2013 2:35:52 PM - chicago

I cannot in good faith suggest 90 % of these annuity products to anyone, and if you really have the interest of your client first you schould not eighter. First of course on the accumulation side --caps--why tie your money up for 10 + years with these low caps ? Second on the income side with all the bells and whistles , most products simple pay you your premium back over 20 + years with no consideration for cost of living or inflation increases. A great deal for insurance companies, use of

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