U.S. Life and Annuity Insurers Positioned To Address Shifting Tides in 2016

U.S. life and annuity insurers will enter 2016 in relatively good financial condition. Rapid advances in technology, rising customer expectations, and increasing competition will require insurers to reinvent their strategies, services, and processes, according a report by Ernst & Young. Global economic conditions, regulatory and monetary policies, and the political landscape are still concerns for the industry. Life and annuity insurers need to take decisive action to stay ahead of the curve. “After years of bolstering their balance sheets, life-annuity firms are in a strong position to invest in the innovations and technologies needed to fuel growth,” said Doug French, of Ernst & Young. According to the report, life-annuity insurers should focus on these six areas in 2016:

  1. Increase innovation: Insurers should create a culture of innovation, drive innovation through cross-functional teams, and share information openly across departments.
  2.  Reinvent products and services for the new digital customer: If insurers don’t respond to customer demands for greater digital access, better information, and quicker service, they will have a hard time attracting and retaining customers. Priorities in 2016 should include offering multi-device access for customers, providing clearer product information and pricing transparency, delivering more flexible solutions, improving customer engagement, and moving from focusing on products to serving as a trusted advisor.
  3. Adjust distribution strategies for technological and regulatory shifts: Life and annuity insurers may lose market share if they fail to adapt to a multi-channel world. Insurers should adapt services for new distribution models and explore the use of robo-advisors. Insurers need to prepare for new fiduciary standards, as the Dept. of Labor’s proposed fiduciary rule could upend existing distribution models in 2016.
  4. Drive efficiency and market growth: Insurers should determine whether their systems are ready for rapid market change. The assembly-line approach to policy quoting, issuance, and administration can slow application turnaround and detract from the customer and distributor experience. Companies also should ensure that their systems meet new regulatory standards. They should invest in next-generation processes and analytics, revamp IT systems built for simpler times, and consider partnerships to facilitate technology transformation.
  5. Hire the right talent: Insurers need to attract young, diverse workers to match emerging customer demographics and help drive innovation. Priorities for 2016 should include competing for the talent, offering more flexibility in work locations, finding creative ways to motivate and reward employees, and making diversity a priority.
  6. Place cybersecurity high on the corporate agenda: Leveraging social media, the cloud, and other digital technologies will expose life and annuity insurers to greater cyber risks in 2016. Companies will need to take a broad view of potential risks, such as cyber-attacks and reputation risks through social media. Insurers also should establish processes to monitor changing data regulations around the world since their data could reside in multiple jurisdictions and be subject to a variety of laws.

Life and Annuity Need to Adapt to a Changing Market

The consumer market for life and annuities is stressed by demographic, lifestyle and preference changes, according to a study by Conning. Mary Pat Campbell, analyst at Conning, said “Our analysis of the consumer market for life insurance and annuities identified eight key areas of change that insurers must manage. Some of the most pressing right now are the changing age profile and socioeconomic shifts, as they have more immediate affect on life events that typically drive life insurance sales.”

Stephan Christiansen said, “Consumers’ life insurance protection gap actually doubled from 2006 to 2012 due to the affect of consumer changes.” That analysis identifies a growing need for coverage that forward-thinking companies are looking to target with new distribution and product design solutions. At the same time, the market is becoming more diverse, with individual consumer segments developing at different paces. Those insurers that are most agile will create opportunities in this time of change. For more information, visit www.conningresearch.com.

Deferred Income Annuity Sales Break Records in 2012

LIMRALogo2As an emerging market, deferred-income annuities have seen significant growth in 2012, said Joe Montminy, assistant vice president and director of LIMRA annuity research. “We see new companies entering this market and existing players launching new products, targeting younger Boomers looking to create an income stream when they retire. LIMRA estimates that consumers age 45 to 59 have almost $10 trillion in financial assets so we anticipate these products will to continue to have remarkable growth.”

Deferred-income annuity sales topped $1.0 billion in 2012, according to LIMRA’s fourth quarter 2012 survey, which represents data from 95% of the market. Fourth quarter deferred-income annuity sales reached $390 million, which is almost 150% higher than sales in the first quarter ($160 million). However, they are still a very small part of the overall market, representing less than one percent of fourth quarter total annuity sales.

Total annuity sales were $52.6 billion in the fourth quarter, a decline of 8% from the previous year. Annuity sales dropped 8% for the year. Variable annuity sales totaled $147.4 billion in 2012, which was 7% lower than 2011.

Unlike historical trends, variable annuity sales did not follow equity market growth, which increased 13% in 2012, noted Montminy. Variable annuity sales were influenced by companies removing some products from the market, limiting additional contributions into existing contracts, and revising features/pricing on GLB riders.

Total fixed annuity sales fell 7% in the fourth quarter compared to the fourth quarter of 2011. For the year, fixed annuity sales dropped 11%, hitting a 12-year low.

In 2012, indexed annuity sales hit a record high of $33.9 billion — a 5% increase compared to sales in 2011. Indexed annuity sales grew slightly in the fourth quarter, reaching $8.5 billion, an increase of 2% over one year ago. However, this was 2% lower than third quarter sales.

Sales of indexed annuities have been buoyed by the growing interest of equity firms, like Apollo Global Management, Guggenheim Partners, and Harbinger Group, which have invested in companies selling these products.

Guaranteed lifetime withdraw benefit (GLWB) riders for indexed annuities continue to propel sales. A record 73% of consumers elected a GLWB rider, when available. LIMRA estimates that 87% of indexed annuities sold offer GLWB.

Fixed-rate deferred annuity sales (book value and market value adjusted) experienced another quarter of steep declines, down 20% in the fourth quarter and 27% for the year. Annual fixed-rate deferred product sales were $25.7 billion in 2012, the lowest level since 1998.

Book value sales declined 21% in the fourth quarter.  Single premium immediate annuities (SPIAs) grew 5% in the fourth quarter. However, SPIA sales declined 5% in 2012 to $7.7 billion. For more information, visit www.limra.com.

Major Trends Are Affecting the Life Insurance and Annuity Markets

RetiredCoupleMajor trends that are affecting the life insurance and annuity markets are the desire for financial security with flexibility, an evolving market for combination long-term care (LTC) products, risk managed strategies, and tax deferrals, according to a study by Lincoln Financial.

Mark Konen, president of Lincoln Financial Group’s Insurance and Retirement Solutions business said, “With today’s economic climate and our society’s evolving demographics, we see continued interest in financial solutions that offer a level of predictability — whether that’s in the form of a death benefit, a living benefit, asset protection, or the elimination of the use it or lose it risk of some products. As the industry works to deliver on these consumer demands, we believe 2013 is primed to see the development of many unique solutions while also seeing some once-popular products and features re-emerge.”

The following are some trends to expect in 2013:

Non-Traditional Life Insurance Solutions

Three in 10 American households are uninsured and half say they are underinsured. Consumers have various reasons for not purchasing policies, such as competing financial obligations, perceptions about life insurance costs, and a lack of understanding about the need for the coverage. In addition, the low interest rate climate has made many forms of insurance more expensive, making these products unattainable for the average American. To bridge this gap, expect to see innovative life insurance alternatives that balance financial planning needs, flexible coverage, and cost efficiencies with today’s economic climate.

Variable Universal Life Insurance

As a life insurance product of choice in the 1990s, variable universal life (VUL) is primed for a comeback. By balancing death benefits with market-driven cash value potential, VUL products can help consumers protect loved ones while providing a potential source of supplemental income to keep pace with life’s changes. This combination of features in a single solution can be very compelling during these uncertain times.

Life Combination Products

Life combination products continue to rise in popularity as alternatives to traditional standalone LTC solutions. Expect to see growing interest in linked-benefit products with LTC riders offering premiums that can be paid over several years. Linked-benefit products with LTC riders appeal to older clients with substantial savings and the ability to pay a lump sum. The option to spread premiums over time allows younger clients to accumulate assets while protecting against the financial effects of a long-term care event in their pre-retirement years. As the combination market evolves, also expect to see increasing demand for life insurance solutions with accelerated benefit riders (ABR). Linked-benefit products with LTC riders are for clients who are concerned primarily with long-term care. ABRs also serve a growing demand from clients who have a primary need for death benefit protection, but are also concerned about how a permanent chronic or terminal illness could affect their financial well-being.


Americans face the strong possibility of outliving their retirement assets, which will drive the popularity of guaranteed living benefit (GLB) riders with annuities. GLBs provide a minimum guaranteed lifetime income stream that doesn’t require clients to give up control of their assets. Providers will put more emphasis on risk management strategies that reduce equity risk during volatile markets and create more consistent returns. hese risk management strategies may increase the likelihood of growth in retirement income while enabling companies to continue providing compelling GLBs. Also expect to see a renewed emphasis on the tax-deferral aspect of annuities due to recent tax changes, particularly for the affluent. Because annuity assets accumulate tax-deferred, there are no tax consequences until clients take money from their contract, often at lower tax rates occurring during retirement, making this annuity option more attractive to clients in 2013. For more information, visit http://www.lincolnfinancial.com.

Last Updated 12/01/2021

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