Aware of the appeal of variable annuity riders, carriers plan to strengthen their offerings while attempting to meet financial advisers' calls for simplicity.
Aware of the appeal of variable annuity riders, carriers plan to strengthen their offerings while attempting to meet financial advisers' calls for simplicity.
"Advisers want simplicity so the company that can introduce features, and show why and how the features fit, will be the company that they go to," said Marc Constantini, president of variable annuities at John Hancock Financial Services Inc. of Boston.
The fight among the carriers will come down to which can provide a better presentation to their adviser base — not just which has the better benefits, according to Steve Kluever, senior vice president of product and investment management at Jackson National Life Insurance Co. of Lansing, Mich. He predicts a movement toward plain-English marketing presentations.
In a foray into simplification, Jackson last year launched the Living Benefits Selection Center, an online tool that allows representatives to make side-by-side comparisons of optional living benefits to match clients' profiles.
"The products will remain complex, but we'll see a simplification in presentation," Mr. Kluever said. "There will be a marketing battle among providers to the adviser audience for brand recognition."
Total sales of variable annuities hit $136 billion in the first nine months of 2007, a year-over-year increase of 14%, according to LIMRA International Inc. of Windsor, Conn.
Carriers attribute some of the increase to the riders attached to the product, especially the guaranteed-withdrawal and guaranteed-income benefits.
Among the riders that were released last year is ING U.S. Financial Services' LifePay Plus rider. This feature provides a guaranteed 7% increase to the withdrawal base of the variable annuity for up to 10 years or until the withdrawal phase begins.
LifePay Plus, which was launched in August, accounted for 67% of fourth-quarter VA sales of $3.3 -billion, said Chuck Eudy, director of external communications for Atlanta-based ING.VA sales were $1.66 billion in the fourth quarter of 2006, he said.
Philadelphia-based Lincoln Fi-nancial Group's total individual VA deposits rose to $11.93 billion as of year-end 2007, up 27.7%.
Meanwhile, elections for Lincoln Financial's Income for Life rider hit $2.45 billion for the same period, up 47.7% from 2006. The feature has been one of the most successful additions to the company's suite of VA products, according to Mark E. Konen, president of individual markets at Lincoln Financial Group.
"It's an income-oriented benefit that provides you with a floor and lets you continue to have upside," he said. "We can come up with some whiz-bang riders, but having clients understand the situations they're in is where we need to have the thrust."
RESPONDING TO ADVISERS
Although the popularity of the guarantees has encouraged some carriers, such as John Hancock and Lincoln Financial, to think about new long-term-care features, medical-cost coverage and inflation protection, advisers fear that the new riders will affect pricing and further complicate annuity contracts.
"The Hartford [(Conn.) Financial Services Group Inc.] has a product in which you only get so much of the gain, so if the contract goes up by 20%, the benefit goes up by 10%" said Ellen Dorle, a certified financial planner at Dorle Financial in Columbus, Ohio, which manages $65 million. "You would like to keep track of that in some simple way."
Although ING and Lincoln are looking at releases this spring that center on a new guaranteed-minimum-withdrawal benefit, they insist that they have heard advisers' pleas for simplicity and will respond with increased educational efforts.
Lincoln holds quarterly training sessions for its wholesalers right around the time it releases VA features. Quarterly division meetings train these staff members on selling skills to help market the company's three riders — Income for Life, Smart Security and For Later — according to Terrence J. Mullen, president of Lincoln Financial.
Additionally, the carrier reaches out to advisers with roadshows, one-on-one meetings and chats to cover compliance.
ING, John Hancock and Massachusetts Mutual Life Insurance Co. of Springfield also give planners case studies, retirement worksheets and calculators.
Wholesalers stop by as often as every four or five months with new information, according to Mr. Constantini.
"I would like to see companies have one wholesaler for an area for all VA products being offered by the company, rather than the practice of different people for each product," said Suzanne Krasna, a certified financial planner at The Krasna Financial Group, a Walnut Creek, Calif., firm that manages $25 million.
Ms. Dorle used the wholesaler meetings to check out the new developments but would decline to sell the product if it were too expensive.
"American Skandia [Life Assurance Corp., now part of Prudential Financial Inc. of Newark, N.J.,] is usually way ahead of everyone when it comes to adding new benefits," she said. "They always have the bells and whistles, but you have to dig deep to understand them."
Peter Donohoe, an adviser with U.S. Wealth Management LLC in Braintree, Mass., has designed an annuity matrix spreadsheet to compare the pricing of a handful of companies. The firm manages $11 million.
For the sake of simplicity, some carriers are trying to speak advisers' money management language by offering options that mirror asset allocation models and match the client's level of risk averseness, said Valerie Brown, vice president of wealth management and annuities for ING.
"That kind of thought process has been brought to the annuity structures, making it easier for the adviser to use the same thought processes as he does for non-annuity money," she said.
In January, MassMutual added its MML Asset Allocation fund series to provide fund-of-funds investment options inside some of its deferred variable annuities. Industry observers expect to see more of this as the carriers attempt to attract the hard-to-reach audience of registered investment advisers.
Carriers will also look at bigger guaranteed-withdrawal benefits through next year, said Mr. Konen, referring to increasing the benefit to 7%, from 5%, or to 7%, from 6%.
Advisers predict greater costs, especially in mortality-and-expense fees, and more legwork on their part to manage even the most positive developments in the VA field. M&E fees are included in certain annuity or insurance products, which serve to compensate the insurance company for various risks it assumes under the annuity contract.
"The riders are more complicated, and better in some ways, but overall, the fees have been on the rise over the last four or five years," Mr. Donohoe said.
"It's easy to compare mutual funds, but when you have two VAs, there are wrinkles with all the different riders and subaccounts. We're stepping on a minefield," Mr. Donohoe said.
"[Riders] aren't cheap, but I believe if the clients understand the alternative of having a diversified portfolio that's open to risk, versus something that's guaranteed for the rest of their lives, it's only a small percentage increase," said Ron Palastro, a certified financial planner with R.S. Palastro Financial Planning Services Inc., a New York firm with $70 million under management.
"It gives them that ability to put their heads on the pillow at night and know there's income coming to them."
Darla Mercado can be reached at dmercado@crain.com.
