TowerGroup Report: Insurers Must Simplify Annuity Products & Sales Practices to Keep Pace with New Generation of Retirees

But new research from TowerGroup shows insurance companies won’t automatically have the biggest potential slice of that retirement asset market. In fact, the research shows that insurers must reduce product complexity and improve both the sales process and suitability screens.

Case in point: more than 40 percent of U.S. variable annuity sales are generated from existing annuity assets. This shows that insurers have not convinced a large percentage of current or future retirees that annuities are central to their retirement plan.

“It is imperative that insurers create an environment where customers and advisors feel secure and comfortable with annuities in order to attain real market growth,” said TowerGroup’s Rachel Alt-Simmons, a senior analyst who authored the research. “Building customer understanding and trust can only be achieved by making both annuity products and business processes more transparent.”

TowerGroup recommends that insurers consider creating a client bill of rights, changing the compensation structure around annuity products, more closely monitoring sales practices, enhancing disclosures for customers, and making it easy overall to do business in this area.

Other key points from the research include:

• Retirement assets in the United States represented an estimated $18.5 trillion in 2007.
• By 2020, the foreign-born population in the United States will reach 15 percent, the highest level in more than 100 years. TowerGroup believes that insurers must address this change by adapting their financial products to better suit diverse populations and cultural habits. 
• Regulations have not kept pace with financial innovation, leaving the possibility for consumers to buy unsuitable products. Regulatory authorities in the United States, United Kingdom, and Japan are creating rules to protect investors from inappropriate investments and unfair sales practices.
  

“Insurance companies must become more accountable for suitable sales and operational practices around annuities,” Alt-Simmons said. “The insurers who take on this challenge will both help consumers and drive growth by providing investments that are appropriate and effective in meeting retirement income needs.”