The most recent statistics from reporting agencies indicate that 2007 has started off with a significant slide in fixed-annuity production (including index annuities). Anecdotal evidence from our own distribution channel confirms that market conditions are making it tough to find an interested audience for these conservative retirement savings products.
So the question becomes “How do we, as sales people, respond when selling conditions are not lining up in our favor?”
One answer, which appears to have been widely adopted by independent annuity brokers, is to become cannibals, systematically rewriting as much of the existing annuity business (fixed and variable) as conscience will allow. Brokers are not alone in their support of this strategy. Annuity carriers have become complicit with the wide adoption of products with heavy, up-front bonuses designed to offset the surrender charges being applied by the original carrier. Industry reports that track the source of new business indicate that 80% of the business being written today is generated from section 1035 exchanges.
It doesn’t take an actuary to conclude that this trend can?t be beneficial to anyone. Negative press attention is increasing and there’s a tendency for the public to look at annuity sales with a wary eye. An April 2007 article in Index Compendium was headlined “Index Annuity Complaints Skyrocket.” Consumers are continually being asked to accept new surrender-charge periods, brokers aren’t bringing any new money to the table and carriers are experiencing lapse ratios far in excess of their product pricing.
If we are willing to step into each other’s shoes for just a minute, I think we can see that, regardless of where this pattern is headed, the final destination is a place we don’t want to be. Regulatory bodies are getting tougher on replacement business and nearly every state has a suitability requirement today that is more stringent than just two years ago. The NASD is rattling its saber with the stated intent of becoming the self-regulatory body for the insurance industry and is forcing its current member organizations (the entire Broker/Dealer community) to examine insurance transactions as if the NASD already regulates them. The result is that a number of Broker/Dealer shops have been cracking down severely on variable-annuity replacements and scrutinizing every exchange with a skeptical eye.
Having said all of that, we are still faced with the reality that we all need to pay our bills. If fixed annuities are a major part of your business — for us 100% of our product line falls into that category — we need to find a way to sell in this environment without destroying what we have worked so hard to develop.
Let’s start by going back to the data. Our industry will write somewhere near $65 billion of fixed-annuity business this year; most of that is re-circulated annuity dollars. Currently sitting in certificates of deposit and money-market accounts is more than $2 trillion dollars with a trend line that is moving consistently upwards. Rates are certainly a factor driving this trend, but they?ve been allowed to become the primary driver — sometimes the only driver — in support of short-term investments in CDs.
We have forgotten how to sell the benefits of a fixed annuity! What CD do you know that can offers these benefits?
With the Index Growth Annuity from The Standard, the reinvestment risk is removed completely. Performance tracks every year with the performance of the S&P 500. The only moving part is our rate caps and we protect consumers against big drops at renewal with our 2% bailout provision.
Industry statistics detailing the percent of individuals who have been called on by a financial advisor seem to vary depending on who does the survey. However, the evidence seems clear that a minimum of 20% and maybe as high as 40% of the individuals with significant household net worth have never been called on by a broker.
I knew a general agent several years ago who always offered the same recipe for brokers who were in a slump... and I never saw it fail to work. The formula is simple: Every day you go to work make it your primary goal to call on someone you’ve never met before. As we mature in this business it is easy to forget some of the simple axioms that helped to make us successful. Calling on new people is the key to building a successful practice and bringing new money to the table is the life blood of this industry.
We, as annuity salespeople, offer a product that is unique and provides benefits that are not available anywhere outside of the insurance industry. Unfortunately, the buyers who are most well suited for an annuity aren’t falling all over themselves to buy one... they must be sold. That’s why successful carriers partner with a professional field force to tell their story. We have great marketing tools and great sales aids, but we need you to tell our story. Let us know what we can do for you in this challenging environment to help get our story told to the prospective buyers who have not yet heard it. And I guarantee if you make it a point to call on one new person everyday, you will sell more annuities than we've got on the shelf!
James E. Teague, JD, CLU
Vice President, Individual Annuities
Jim Teague is Vice President of Individual Annuities at The Standard. He oversees the day-to-day operations of the entire product line and truly enjoys helping people to understand the important role they play in planning for a secure financial future