I sketched this idea out earlier at a local Starbuck’s; I was unable to get a seat at one of the tables, as I usually do, so I ended up seated on a leather sofa near the front entrance, with a low-pitched coffee table with which to set my many papers. It was not ideal for work but just right for a little relaxed reflection. I did other brainstorming and writing as well, to be sure.
About now it’s clear the annuity business is in period of abundance and we know which products are resonating the most: in no particular order they are fixed annuities, indexed annuities and RILAs. It may be that insurers don’t need to do anything special to keep the momentum going, yet I still stopped to wonder what they might do over the next few quarters if they want to capitalize on these current favorable conditions.
Why do insurers introduce ideas when they do? We know products gain and lose favor in cycles, based on interest rate conditions, stock market movements, tax code changes, demographic patterns, shifts in distribution channel tendencies, to name a few.
In my sketch I attempted to answer the question posed above. To start with, an insurer must ask itself whether it wants to compete vigorously for market share or simply maintain its current position; oftentimes those in the latter group possess limited and/or captive-only distribution. If they come up with something new it may be late in the product development cycle and then only to have something on the shelf similar to what cutting-edge players are offering.
I have to think Athene is intent on keeping its No. 1 position best it can, which explains why it has such a broad array of annuities, income riders, premium bonuses. The only space it does not compete in much is traditional variable annuities, but I think it might wade in there over time. Thus, it will be looking to answer what rivals are doing right away.
When competing, I have seen insurers display two main tendencies. Probably the most common is to imitate, if not reverse engineer entirely, products and features that have proven traction; aggressive companies will be the first to do this, of course.
The other is to innovate, or to come out with entirely new ideas, some of which may not work out (I’m thinking of how a certain insurer had a VA with rather complex defined outcome portfolios as sub-accounts); if they do however, said company may hold a competitive advantage for a considerable time.
Yet another tendency is for companies to fill a gap by coming out with certain annuities or riders at the same time other players are scaling back on offering them. This would be to address a lingering demand. This kind of behavior was prevalent as the VA living benefit arms race was winding down, but I think we still see evidence of it every so often, since such benefits have not gone away entirely. I think it was wise for companies that long relied on living benefits in years past to not abandon them abruptly – that would have not gone over well with advisors.
So, what will we see over the near term? Probably more imitation and less outright innovation, since most carriers seem to be doing well enough. What might arise is some variation in the messaging, or “framing” that distributors and advisors use in pitching annuities to clients. Come to think of it, that could be a topic for another blog post, so…stay tuned!
