Registered reps who have been selling variable annuities will soon be asked to start selling indexed annuities, too.
That could upset some applecarts among registered reps, many of whom have long spurned indexed annuity (IA) products.
But the news should make many traditional annuity agents smile, because they have a long head start on working with the products, say annuity experts.
The triggering event is the pending entry of a few big-name carriers into the indexed annuity (IA) marketplace. The players include Pacific Life and Massachusetts Mutual Life, according to an InvestmentNews report filed this week and confirmed by InsuranceNewsNet. The carriers have already made the filings to regulators.
Another carrier, The Hartford Financial Services Inc., reportedly filed an indexed product but then withdrew it in August, according to Index Compendium, a publication of Advantage Compendium Ltd.
Several industry experts have told InsuranceNewsNet that a few other — as yet unnamed — big carriers are also considering making an IA market entry, either this year or next.
Annuity market experts point out that the new IA entrants are veterans in the variable annuity (VA) market. For this reason, they expect the carriers will distribute their IA products through the registered rep channels through which they have been distributing their VAs.
The product launches are still pending, however, so the distribution channels as yet unknown.
Jack Marrion, president of Advantage Compendium, says he has reviewed the filings made by the new IA market entrants and has found them to be “pretty straightforward.” They offer a fixed account option and the option to a link to the S&P 500, for instance. In other particulars, they differ.
Some die-hard securities brokers are likely to feel some irritation if their broker/dealers tell them to start selling the IA products of big-name VA companies that have just entered the market, says Tim Pfeifer, president of Pfeifer Advisory LLC, Libertyville, Ill.
Many securities reps have long rejected IAs in favor of selling VAs, and with their VA carriers’ support. In recent years, they tended to concentrate on selling VAs with guaranteed living benefit features, he points out. So these reps would view the carriers’ entry into the IA market as a significant reversal.
“Some of these reps have been bashing IAs for so many years that it would be puzzling to them to see their VA carriers start selling those products,” Pfeifer adds. The exception would be registered reps who already have had some experience with selling traditional fixed annuities, he adds.
At the very least, the reps may feel confused. For instance, if their VA carriers ask them to sell an IA that includes a guaranteed living benefit feature, Pfeifer says, “the reps may be uncertain about which product to offer in what situation—the VA with a guaranteed living benefit or the IA with a guaranteed living benefit?”
On the other hand, where independent agents are concerned, the market entries won’t be a big deal, Marrion predicts. “The more big-name VA players that enter the market, the harder it will be for the regulators and the media to say how bad IAs are,” he explains.
Pfeifer agrees. Traditional annuity agents may view the entry of these companies into the IA market as lending continued legitimacy to the product, he says.
Legitimacy and recognition
Other experts point out that traditional annuity agents have always viewed the IA product as a legitimate insurance product. But the bad press that IAs received in their early years hampered agents’ ability to make that case to the customer.
Now that more brand-name players are coming into the market, this should appeal to annuity buyers who want products with big name recognition, comments Al Gray, financial services manager at Underwriting Marketing Services in Mt. Laurel, N.J.
“That could be an important factor for the buyer and also the advisors who are serving those customers,” he says.
Traditional annuity agents may even feel some competitive prowess due to the market entries. Pfeifer points out that many independent agents already know how to sell IAs, whereas reps will have to learn. “Also, many will expect that registered reps won’t sell much of the product anyhow, because of their long-standing opposition to IAs.”
The expected distribution channel for the new players—registered reps—lessens the competitive threat as well. That’s because most reps do not focus on the markets where traditional annuity agents are dominant, say annuity experts.
Significantly, the agency channel is, and always has been, the IA market leader in IA sales. In the second quarter, for example, the agency channel held an 87 percent market share based on sales, according to AnnuitySpecs’ Indexed Sales & Market Report, a publication of Advantage Group Associates.
By comparison, the broker/dealer channel had only a 3 percent market share, as did the career agency channel. Banks have a 7 percent market share, reports AnnuitySpecs.
Other VA carriers already sell IAs
The new market entrants will join several VA carriers that already offer IAs either directly or through subsidiaries or affiliates.
According to Sheryl Moore, the president and CEO of Advantage Group, the existing VA/IA players include: AEGON Companies, American General, Allianz, American National, Ameritas Life, Great American, ING USA Annuity and Life, Jackson National Life, Life Insurance Company of the Southwest/National Life Group, Lincoln National Life, Midland National Life, Minnesota Life, Nationwide Life and Annuity of America, PHL Variable (Phoenix), Principal Life, and Security Benefit Life.
In the first half of 2011, two of those carriers — Allianz and Lincoln — were among the top five sales leaders for IA products, according to AnnuitySpecs. And in the second quarter, two — Allianz and Great American — were in the top five sales leaders in the agency channel.
Why are VA carriers interested in the IA market? Look for some answers and for more about this developing story in the November issue of InsuranceNewsNet Magazine.
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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