Debt Deal Could Spur Annuity Sales

August 03, 2011


By Linda Koco
Contributing Editor, InsuranceNewsNet

Annuity sales could climb in the wake of the Congressional agreement on Tuesday to raise the debt ceiling by $2.4 trillion, according to annuity experts.

InsuranceNewsNet reached out to the experts for an early reaction to how the Congressional action will affect the annuity business.

Paul McGillivray, senior vice president for advanced marketing at Creative Marketing, Leawood, Kansas, says he thinks that the annuity industry has a “better chance of having a better market for annuity sales this way than if Congress had not struck its compromise deal.”


All the political debate in Washington over the debt ceiling has opened clients’ eyes to the impact of developments in Washington on the economy and their own finances, McGillivray explains. Many are concerned about what the future will bring, so the flight to safety that began with the recession has increased in recent times, he says.

If there had been no deal this week and the United States had gone into default, “that would have caused another recession,” he says. “But now the odds of another recession are not as great — although we still might have one — and we are closer to times when things will be better.”

That should help annuities, because if business activity picks up, more loans will be made and that will increase interest rates, including rates in fixed annuities. Higher rates in fixed annuities will help the products look more attractive to people who have been keeping money in cash and money market accounts throughout the recession, McGillivray predicts.

Concern about continuing economic uncertainty is what is causing people to sit on cash, he adds. “They are waiting to see what’s going to happen … and they are waiting for an opportunity to lock higher rates, comparable to what they could have locked in three or years ago but did not.” Some who have retired are even putting their money into money market accounts inside their 401(k) plans rather than roll over their 401(k), McGillivray adds.

“A fearful state of mind” has been driving this, he says.

By comparison, if people see higher rates in fixed annuities, this will likely “help” some of these consumers to decide to pull some money out of bank certificates of deposits and money markets and put it into annuity. It might also spur some people to roll money out of their 401(k) and put it into an annuity, he suggests.

Annuity production rising

John Heck, a registered investment advisor (RIA) and president of Adagio Financial Group, Fort Myers, Fla., sees a positive outlook for annuities too. He has already seen his annuity production increase this year compared to a year ago, and he says he expects that to continue this year.

“Clients saw a lot of scary stuff going on in the debate over the debt ceiling,” he says. In fact, even before the debate hit national headlines, people were afraid of how events in Washington were impacting their financial security.

News of the debt ceiling agreement has not made things better, he says. “Many feel that they lost the battle, that there is no real substance in the agreement, and that the agreement did not solve anything. They feel the stock markets are tied into Washington developments, and that the stock market this week has been reacting to more economic uncertainty.”

For that reason, the RIA says he believes there will be a continued flight to (financial) safety, especially among clients who have become engaged with the political struggles over the nation’s debt.

Ten years ago, Heck recalls, when he visited clients’ homes for appointments, the family televisions were never turned on during his visits and there was no political discourse during the sessions. The focus was on the financial plan.

Not today. Virtually everyone he visits has a television or radio going, no matter the time of day, he says, “and it’s tuned to stations carrying news and commentary on the national debt.”

He takes that as a sign of a major change in how people are thinking and reacting to the economy.

“People have become engaged with the issues, and many have developed opinions about the Administration, what they like or don’t like about Congress, and how developments are affecting the economy,” Heck says. “They keep talking about it even after I sit down with them” to go over their accounts.

Can’t avoid it any more

When this first started happening, Heck says he tried to avoid talking about politics or debt ceiling developments with clients. “But people today are so angry and so fired up about the debt ceiling, and also the health care issue, that they ask me for my opinion. I found I was fired up, too, so I started talking about it with them.”

In general, most of Heck’s clients see more economic uncertainty down the road, he says, so they are now actively looking for ways to get their money into safe products.

For instance, he will be visiting a client this week who wants to see some indexed annuities. This is a man who had previously had a bad experience with a variable annuity and who had since professed to “hate annuities.” But the man decided to give annuities another look, due to its safe money features. Heck says he cautioned the client that he probably wouldn’t like the product — because it was an annuity. But the client wanted to see it all the same.

“People are still nervous about the economy, and they are more and more open to fixed annuities,” he says.

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

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Edward Ramias

8/3/2011 8:06:17 PM - Chandler, AZ.

Today and yesterday I had 2 potential clients ask me about the debt problem and were they could place money and have it safe with no risk. I gave them each a video about fixed indexed annuities and am confident they will want to buy one. I have been in this business for 42 years and have never seen such concern from the consumer about losses and the future.

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