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How 2015 Will Impact the Industry in the Year Ahead

NAFA Annuity Outlook magazine staff asked several industry executives to share their insights on this question:

From your perspective, how will 2015 sales, product and/or regulatory developments impact the new year ahead – for the industry at large and/or specifically for financial professionals?

Sheryl Moore, president and CEO of Moore Market Intelligence, an indexed product resource in Des Moines, IA, is a regular contributor to NAFA Annuity Outlook magazine. She has over a decade of experience working with indexed products and provides competitive intelligence, market research, product development, consulting services and insight to select financial services companies. Ms. Moore shared these insights from her viewpoint:

The year 2015 has been amazing for indexed annuity sales. The first quarter of the year was the second-greatest first quarter ever in terms of sales. And second quarter? It was the same. Just a decade ago, sales for the entire year were nearly as great as they are half-way through 2015 – wow! And what has contributed to the fantastic sales? Historical low interest rates, market volatility, regulatory Armageddon, and consumer’s deep-seeded fears of running out of money before they die.

I have never seen less attractive products in the nearly 20 years I have focused on indexed annuities. And yet, the products will continue to sell; and well! The upcoming year will have more of the same product de-risking what we have seen since 2008. Premium bonuses will drop and commissions will too. Rates likely won’t improve. Guaranteed Lifetime Withdrawal Benefits (GLWBs) will get more expensive and less attractive. Everyone will be working harder just to reach the same commission levels that they did the prior year.

But what’s the alternative, folks? Go buy a Certificate of Deposit (CD) at the bank, yielding 0.25% annually? I don’t think so; hardly worth the time to spend the half hour at the bank, signing the paperwork! How about a fixed annuity that credits 2.58%? Hardly; most would rather put their money under the mattress until rates improve. But indexed annuities give purchasers the ability to earn 1.00%-2.00% greater interest than fixed annuities. Show me a safe retirement vehicle where I am guaranteed to never earn less than 0%, but I can earn as much as 4.58%. PLUS, I am guaranteed an income that I can never outlive! Now that, my friends, is about the best thing going on in the retirement savings market today…sign me up!

The bottom line is that although the annuity market seems stifled, the guarantees of these products truly appeal to the masses!

S. Christopher Johnson, senior vice president and chief marketing officer at National Western Life Insurance Company and is also the current chairman of the NAFA Board of Directors. The following are his perspectives:

Looking ahead to 2016, an election year would typically fill us all with optimism like ringing in any new year. The turn of the calendar always resets sales numbers to zero and brings with it a new set of challenges and opportunities. However, this year we have a wild card in the mix. The Department of Labor’s fiduciary standard rule cannot be overlooked.  We will likely know the results of our yearlong battle by the time this article is printed, but I find it impossible to think about the future without acknowledging the impact this rule may have on how we all do business.  Will we all be held to a new broader definition of the fiduciary standard?  Will insurance producers be allowed to operate under a “standard exception” and continue to serve the markets that desperately need our help?

At National Western Life, we are placing our confidence in NAFA, keeping our fingers crossed for the best outcome, and continuing the annuity business as we all know it.  Preparing for all outcomes of this issue is paramount. We will also continue to focus on typical year-end exercises like product development opportunities and continuing to explore the world of alternative indexes or volatility control indexes.

Ron Grensteiner, president of American Equity Investment Life Insurance Company shared these insights:

It’s no secret that thousands of Baby Boomers are retiring every day. If financially able, they have the desire to retire earlier than previous generations, while they still have their health and can enjoy the fruits of their labor. The Baby Boomers, thanks to healthier lifestyles and medical advancements, will also live longer than the previous generation.  Add to the mix a volatile financial market and low interest rates and you’ll find a generation craving retirement products offering principal protection and guaranteed income for life. Today’s statistics indicate the number one fear of retirees is to outlive their income stream. The only financial product that can solve all of the above concerns is a fixed annuity.

I don’t see demand for our products or demand for the services of retirement planners changing over the next several years.  The wild card is the Department of Labor’s final fiduciary rule. If the final rule is viewed as “unworkable”; fixed annuity sales could decline.  With approximately 60% of today’s fixed annuity sales being IRA rollover business, this could be a substantial impact.  Our hope is that fixed annuities will be allowed to be sold under the DOL’s modified 84-24 Prohibited Transaction Exemption.  While this would cause our current business model to change; we don’t believe the changes would inflict a fatal blow to fixed annuity sales.

Tom Burns, Chief Distribution Officer at Allianz Life Insurance Company of North America noted:

In terms of regulatory developments, if adopted, the U.S. Department of Labor (DOL) fiduciary duty rule proposal will have a significant impact to our industry. The financial services industry will continue to engage with the DOL as they work to finalize the rule.

In 2015, we saw products featuring volatility control indexes garner much attention in the industry and I think they will continue to do so in 2016. Fixed index annuity sales will likely increase as more retirees seek annuity benefits that help them accumulate retirement savings, get guaranteed income, and potentially increase their income. In the year ahead, Americans will use annuities as a solution to help manage taxes and the increasing healthcare costs. The need for annuity products that offer performance potential through variable and index options coupled with a level of protection may also increase in the coming year. I would expect FIA sales to continue to grow in the registered representative channel as well. As American demographics change, more people will use annuities to help them prepare for retirement and take that next step into retirement.

Mark T. Stone, Co-Founder of Insurance Insight Group, Co-Founder & CMO of InVida Financial Network and Co-Publisher of NAFA Annuity Outlook magazine looks at it from a different perspective:

I believe 2016 will be a significant year of change for our industry as carriers and marketing organizations will need to find more cost-effective ways to promote and sell products. Our independent agent base continues to age and our key audiences for product sales and new recruits continue to become more technologically-savvy.

Technology continues to play a bigger part in daily lives, or at least the lives of our key audiences and prospects, and it seems that the insurance industry is either ignoring these trends or moving very slowly to adopt technology enhancements into everyday processes and interactions.

According to a recent report by Flurry, in the second half of 2015, American consumers spent, on average, three hours and 40 minutes per day on their mobile devices. They also noted that 19% of that time is spent browsing Facebook. This holds true to what we are seeing via this magazine (over 50% of readers are opening emails on a mobile device and are also Facebook users). Among my companies’ audiences (over 60% of the emails we send are opened on mobile devices and about 75% of our audiences are Facebook users.)

As an industry, we need to spend more time crafting the design, messages, websites, and landing pages to support the content and data being consumed via phone and social media applications. Even our illustration software needs to fit mobile formats better. The number of companies that still offer Windows-only based software, which only runs on desktops, or laptops, is shocking to me.

While I know many of us have projects in the works to meet newer technology formats and outlets, I don’t think we are moving fast enough to get there. The quicker we make our messages mobile responsive to the needs of our audiences, the faster we can come up with solutions to improve agent recruiting and expand our messages to where more people can get excited about the wonderful products we offer.  Also, we will be better able to defend ourselves against potential legislation that can hurt our businesses.

NAFA, the National Association for Fixed Annuities, is a national trade association exclusively dedicated to promoting the awareness and understanding of fixed annuities. NAFA is the only association whose sole purpose is advocating for the fixed annuity product.

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