Annuities Analysis, Pt. 2

Part
01
of four
Part
01

Annuities Aggregators: Regulatory Concerns and Barriers

Goals

To research and gather information concerning regulations and barriers to entry into the Annuity Aggregator market within the United States.

Early Findings

  • Sales of all forms of annuities are subject to state regulation, and in some cases subject to federal regulation as well. As annuities are originated by insurance companies, their origination is subject to the oversight of each state’s individual insurance commission. In order to market and sell insurance products, Individuals and organizations must obtain a license from each state they intend to be active in. The cost of each license is several hundred dollars per state without factoring in training costs.
  • The origination and marketing of variable annuities are not only regulated on the state level, but also by the federal government. This class of annuities is subject to oversight by both the U.S. Securities and Exchange Commission as well as the Financial Industry Regulatory Authority. Individuals and companies wishing to sell variable annuity products must obtain a securities license, passing either the series 7 test ($245) or pass both the series 63 ($135) and series 6 ($40) tests. Regulatory compliance costs will likely be $15,000 — $30,000 alone for platforms wishing to be active across all annuity classes and in all fifty states.
  • For the most part, states enact regulations put forward by the National Association of Insurance Commissioners (NAIC), a voluntary organization attempting to create a more uniform regulatory environment across the country. The most significant and controversial regulatory issue at the present time is the Suitability in Annuity Transactions Model Regulation put forward by the NAIC.
  • The Suitability in Annuity Transactions Model Regulation attempts to more tightly regulate when sales agents may or may not recommend the purchase of specific annuities to customers, and is attempting to fill the void left by the repeal of the U.S. Labor Departments Fiduciary rule that required insurance sales representatives act as fiduciaries toward their customers. The previous nationwide law prohibited the sale of annuities that were not in the best interest of the individual purchasing the contract. The current situation favors the sellers of annuity contracts although there is legislation in the works that may change the current situation.
  • Tax-related regulatory issues may also present a challenge to Annuity Aggregators. For example, for taxation purposes, all annuity contracts generated by the same originator and bought by the same individual with in the same year are regarded as a single annuity contract. The possibility of purchasing annuities from the same insurance companies on multiple platforms may create further requirements regarding the exchange of information between Annuity Aggregators, insurance companies, and individual consumers.

Research Strategy

Our research found that the main barrier to entry into the Annuity Aggregator market was regulatory compliance and licensing requirements. The cost of licensing varies from state to state, ranging from $300 — $600. Multiplying these figures by fifty to ensure activity in all sates was how we calculated the licensing costs.

Proposed Additional Research

  • During our research, the topic of legislation defining the relationship between financial product and insurance sales representatives and consumers was frequently referenced. We propose further research into how likely legislative changes will affect annuity sales overall and Annuity Aggregators specifically.
  • We propose further research into the current licensing requirements to sell annuities for companies, and individuals acting on their behalf. For example, are all sales agents required to pass licensing exams or are they able to act under the auspices of a company or platform-wide license?


Part
02
of four
Part
02

Annuities Aggregators: Consumer Motivations

Some motivations/considerations for U.S. consumers who use annuities aggregators include saving time for consumers, easier and informed decision-making, access to unbiased information, and an all-in-one platform that saves advisory fees for the consumer. These and other details are presented below.

Saves Time for the Consumer

  • The process of buying an annuity involves thorough research and comparison of the different product offerings by different insurance and financial institutions. This process can be time-consuming for a consumer if they have to consult every financial institution in the market. Annuity aggregators offer free quotes and information on a variety of annuities offered by different financial institutions across the United States.
  • Moreover, the consumer can easily compare annuity features, types, and rates on one graph or table from different companies. This saves time that would have been used going through every annuity provider's website or calling for a quote.
  • For example, annuity aggregators' Blueprint Income and Immediate Annuities platforms, have data on over 30 and over 150 insurance companies that offer annuity products across the United States, respectively.
  • According to Immediate Annuities, it only takes a customer less than 3 minutes to get annuity quotes from top-rated companies after providing basic details such as the amount to invest, age, gender, state, and required dates.

Easier and Informed Decision Making

  • The annuity aggregators' aim is to provide in-depth information on the different types of annuities available in the market. Their goal is to help the consumers find the best annuity that fits their financial goals, objectives, and overall financial portfolio. This information helps the consumers to be well-informed about the different product offerings, hence, making informed decisions.
  • For example, Annuities.com and Immediate Annuities aggregates over 40 and over 150 annuity providers respectively and provides information and up to date data on each one of them. This enables consumers to compare the different options and make informed decisions easily within one platform.
  • Moreover, besides quotes and rates, the annuity aggregators' platforms have calculators, libraries, and tables as knowledge tools for the consumers.

Access to Unbiased Information

  • Unlike financial institutions, whose primary goal is to sell their products, annuity aggregators' core goal is to provide the consumer with accurate and valuable information that will help them make the best financial decisions. Most annuity aggregators are independent of any financial institutions and provide unbiased information on the different annuities.
  • Financial institutions may consciously or unconsciously leave out some information on fees and commissions applicable until its time for them to close the deal with the consumer. This may sometimes lead to consumers making decisions that may not favor them in the long term.
  • For example, the cost of an annuity, usually given as a percentage, maybe spelled out by a financial institution as low, such as 0.5%. This may also seem quite low in the eyes of the consumer. However, with the help of an annuity aggregator, the consumer is able to understand that the long time gap between the time of buying the annuity and when it pays out, results in significant fees adding up.
  • Moreover, annuity aggregators are able to provide information on annuity insurance provided by the financial institutions, which is not provided by FDIC like for the savings and checking accounts. In addition, they provide information on the amount of coverage applicable per annuity and per state. For example, in New Jersey, the cover limit is $100,000, while in New York, the cover limit is $500,000.
  • Annuity aggregators such as Annuity Gator, provide in-depth and unbiased reviews on the different annuities, hence giving the consumers an accurate view from people who already own them before buying theirs.

All-In-One Platform that Saves Advisory Fees

  • Before making a decision on whether and which annuity to buy, consumers without adequate annuity know-how may consider consulting an agent or advisor. This translates to additional consultancy costs, which may be discouraging to the consumer. Therefore, a consumer will consider using an annuity aggregator that provides all the relevant information they require as well as live support.
  • Some aggregators such as All Things Annuity and Find Your Annuity have highly qualified specialists, who are well-trained to answer consumers' questions and guide them over the different types of annuities as per their goals, needs, and risk tolerance. One in four annuity consumers is more likely to buy if they are able to speak to a licensed advisor during the process of buying or researching.
  • According to a Deloitte survey report, one in three individuals would consider buying annuity if they had the ability to compare the different product offerings by different companies on a single platform. Moreover, one in four claimed to expect a discount if they did not use an agent or advisor.

Part
03
of four
Part
03

Annuities Aggregators: Over- and Under-Served Markets

Baby Boomers are the largest segment of purchasers of annuities and therefore are the biggest focus for annuities companies and annuities aggregation companies; this market may be nearing saturation as most of these individuals made their retirement savings decisions years ago. Three segments that are under-served are older GenXers, above-average income Millennials that are married (or single) without children, and married individuals who have the potential for major illnesses later in life (but are now healthy).

OVER-SERVED: Baby Boomers

  • According to the previous research and additional research conducted, annuities are mostly marketed to Baby Boomers because they have long-demonstrated that they are the biggest purchasers of many types of annuities. Notably, this marketing focus does not apply to Baby Boomers with high wealth, strong portfolios, or large retirement accounts.
  • The majority of this generation (78%) is using employer-sponsored retirement programs, with most of them beginning to save for retirement at about age 35. The estimated median retirement savings for this group is about $152 K. A full 61% of this generation believe they are currently saving an adequate amount of money for their retirement.
  • Unfortunately, only a quarter (26%) of this generation have a back-up plan (or enough savings to survive) if they are forced into early retirement for any reason. These individuals are also very “skittish about equity markets” and suffer from “feelings of financial insecurity,” so they are looking to find the most reliable sources of retirement income and annuities are often the answer to that search because they “are the only product that can insure against outliving retirement incomes.”
  • Additionally, research shows that Baby Boomers are one of the biggest users of the media outlets where annuities and annuity aggregators are frequently discussed and advertised. These include publications like: Senior Living, Retirement Living, and New Retirement. For example, Retirement Living posted this article outlining their research-backed choices for the top three annuity companies for 2020 (Blueprint Income, Annuity Gator, and AgeUp); articles like these serve as educational for the most-likely-to-buy demographic segment.
  • Another example is this article from Senior Living educating Baby Boomer (and older) readers on things to keep in mind when considering the purchase of a fixed annuity.

UNDER-SERVED: The Oldest GenXers

  • GenXers would be the perfect under-served candidates for annuities. Logically, they are next-in-line to be the biggest purchasers of these items (behind Baby Boomers), as many still have two or more decades or work-life left in them. Now in middle age, these individuals would be considering longer-term issues more seriously (like ramping up retirement funds), as well as what will happen to their partners if/when they die early. This is especially true since this generation has already survived the housing crisis / Great Recession and the dot.com bubble, and ensuring they have plenty of money to live on now as well as when they retire is definitely on their minds.
  • Notably, “GenXers hold significant power and influence despite their position as the smallest and most overlooked generation.” These individuals are set to inherit about $48 T from Baby Boomers over the next quarter-decade, and this doesn’t include the monies they’re earning (and saving/investing) themselves now.
  • Additionally, nearly half (41%) of GenXers have reported they will be depending on their own savings and IRAs for retirement funds, though just half (51%) believe they’re actually saving enough to make it. One survey showed that a whopping 81% of GenXers believe they will struggle to financially survive during retirement (more so than their parents have or are). If they don’t expect their pensions to cover their retirement expenses, or want to ensure their partners are cared for after their deaths (as pensions typically stop after death), then annuities would be good possibilities for them.
  • This generation has enough to deal with from aging parents to kids that won’t leave (or move back into) home to paying off student loans and other debts. They also follow the news, and know that the country’s social security reserves are expected to be reduced (and therefore future payments will be reduced) due to legislative payout changes expected in the near future. Because of these and other reasons, they would be great candidates for the “guaranteed and predictable income” that annuities provide.
  • Lastly, with Baby Boomers being the biggest purchasers of these, and that age/generation being one of the most influential on GenXers, those who have already purchased annuities and reaped benefits from them would be great word-of-mouth enthusiasts for the generation behind them, and could serve as examples of how to do retirement right.
  • Of note, it will be important to weed out GenXers with the highest incomes, those who prefer to control how their monies are invested, or those who are scared of potential fees or the stipulations attached to the annuities. Also, weeding out those who do not make enough money or whose debt-to-income ratios are low will also be key to narrowing down the huge list of potentials to only those most likely to become purchasers.

UNDER-SERVED: Millennials (Above-Average Incomes, Single or Married, No Children)

  • Millennials are “getting an early and strong start with their retirement savings,” especially compared to their GenX counterparts, and have a median savings of about $23 K in their current retirement accounts. This group shows high engagement levels in retirement planning, with nearly a quarter of them (21%) “frequently discuss savings, investing, and planning for retirement with family and friends.”
  • For those who have maxed out their work-based IRA contribution limits and would like to stash more money into retirement savings like many Millennials with higher-than-average incomes might be or those with larger chunks of monies in their IRAs, annuities would be the perfect next-step or alternate solution.
  • Nearly half (45%) of Millennials report intending to rely on an IRA or 401(k) to support them through retirement, and experts state that the “quality of retirement” for this group will largely depend on how much money they are able to save/how well they are able to prepare. Of interest, however, only about half (55%) believe they are currently saving enough for retirement.
  • Interestingly, most Millennials (72%) admit not knowing enough about retirement investment options and have stated they would like to know more about the options available to them. This presents the perfect opportunity to pitch annuities to an already-engaged audience looking for the best places to put their monies.
  • Additionally, many in this generation may fear the stock market (after seeing it fluctuate so wildly over the course of their early lives, as well as with recent events). Good Financial Cents notes that annuities are smarter investments for those afraid of the stock market fluctuations, and for those wishing to have a more-stable investment that will be “fully intact” in the future when they tap it. The older the Millennial, the more this is likely to be true.
  • Millennials consider retirement to mean more “freedom,” more “enjoyment,” and a more “stress-free” life, so the “guaranteed and predictable income” offered by annuities might suit them well (for different reasons than it would appeal to GenXers).
  • Weeding out those with high debt-to-income ratios, high student debts, or “unmanageable amount[s] of debt” or about 31% of US Millennials will be key to finding the right potential annuity buyers.

UNDER-SERVED: Individuals w/ Potential for Illness w/ Partners

  • US News notes that people who are healthy and want the “security of a stream of income you can’t outlive” are strong candidates for annuities, and caution against people with health problems from purchasing annuities unless they have partners they wish to provide for after their deaths. Considering this, individuals who are currently healthy, but may be at-risk for an illness in the future, are an under-served market, especially if they have a significant other in their lives.
  • An example would be a younger GenXer or older Millennial with lifestyle factors that might lead to health problems later in life. Information and data from health and insurance companies on those that smoke, are obese, engage in risky behaviors, or are potentials for other major health issues later in life would be key in identifying the ideal candidates falling into this range. These people sometimes cannot qualify for affordable life insurance policies, making them more interested in finding stable, long-term income like that offered by annuities.
  • If this person is married or has a significant other, many annuities provide for continued payments to the spouse if the account holder dies. Some annuities even offer riders for additional payouts after death; each of these could be used as selling points to this market. Additionally, “some death benefits guarantee a return of premium, regardless of investment performance,” which would be very important to people considering whether their lives will be shortened, and their loved ones will be left without adequate financial stability.
Part
04
of four
Part
04

Annuities Aggregators: Buying and Shopping Habits

Annuities aggregators are platforms and marketplaces where consumers look for annuities service and information about annuities. Annuity aggregators play an important role nowadays when choosing an annuity insurance. According to Respect Group, nearly 90 percent of life insurance quotes started on aggregator sites. Below we present five shopping habits of U.S. consumers who use annuities aggregators.

A Greater Demand For More Clarity

  • According to an Insurance Barometer Study that was conducted in 2019, 38% of the respondents stated that they need an annuity. However, only 12% of those who participated in the survey owns an annuity. One of the main reasons is that U.S. consumers are very confused when it comes to buy an annuity, because they are not aware of the process and making the wrong decision could result to severe personal costs. Therefore, they tend to be very careful and sometimes their lack of knowledge repulses them from buying annuities. According to a study from Deloitte, consumers would have more trust in an insurance provider and its annuity offerings, if they could compare scenarios that clearly show what are the benefits of an annuity over its alternatives. Around 33% of the participants stated that they would like to have the ability to compare products offered by different companies on one site. This is also a reason why the popularity of annuity aggregators has increased among U.S. consumers.
  • A 2017 study that took place in the U.S. mentions that Americans are positive in the idea of a retirement option that offers a guaranteed income. However, almost half of the surveyed consumers knew that annuities can provide that benefit. Consumers were interested in annuities when advisors described their features in a simple and clear way. In addition, an older study had shown that consumers are more likely to choose an annuity over other, similar products when it is presented in a consumption frame.

Insurers Rating Matters

  • Another reason why U.S. consumers use annuities aggregators is the insurance rating that is usually provided through these platforms. The financial strength of an organization appears to be very important for consumers, with better rated companies leading to significantly higher preferences than those that have low rating scores. This is because consumers want to feel more secure with the insurer they will decide to collaborate with.

Human Factor Is The Most Influential

  • U.S. consumers seek for information in different channels about how to buy life insurance products. In a survey that was published in 2018, the 25% of the respondents said that they would trust more an independent agent when buying life insurance, while the 24% stated friends and family, making it the second most influential factor.
  • Advertising appears to be a relative non factor, since just 2% of the surveyed consumers in a Deloitte's survey, mentioned that they were influenced to buy an annuity by an advertisement that they had seen. However, according to the industry experts, that percentage could be much higher if insurance companies were investing more on multimedia campaigns, meaning that their media spending was relatively low. The latest results show that this percentage has increased significantly. In 2019, a study from LIMRA stated that 57% of consumers could recall a life insurance advertisement, a percentage that goes up from 35% that was previously measured in 2014.

Direct Online Sales Are Unpopular

  • According to the results of a Deloitte's survey, 17% of the annuity owners had considered in the past buying an additional annuity online. The reason is that they were afraid that they will do a mistake and therefore they would like to complete the purchase with the help of a professional advisor. As a matter of fact 25% of the participants stated that they would proceed to an online purchase, only if they could speak first to an advisor, who could answer to further questions that might have.

Low Brand Awareness Of Life Insurers

  • A study conducted by LIMRA in 2019, mentions that 25% of Americans are not able to name a company that sells life insurance products, while 56% of the U.S. consumers cannot name three insurance companies in total. This means that both awareness and loyalty for life insurance companies is relatively low. Based on the results of the same study, this is happening because U.S. consumers buy life insurance products maximum twice in their lifetime. In addition, according to the company's data, more than 25% of the products sold are by independent agents, who are not connected to a specific organization.
  • Regarding Life Insurance Brands, another survey states that U.S. consumers when choosing a brand do not focus on price. While price is the most important factor contributed to the success of the UK aggregator channel, in the US, consumers are looking for personal advice as they believe it adds more value to their purchase and they would be willing to pay more for this service.


Sources
Sources

From Part 04
Quotes
  • "Health insurance ownership is 87 percent, while annuity ownership is 12 percent. "
  • "38% stated that they need an annuity "
Quotes
  • "One respondent suggested that it would increase trust and confidence in a provider and their annuity offerings if the consumer had access to “comparison scenarios that clearly show the benefit of an annuity over alternatives.” Ideally, this shift in approach would be implemented not just at an individual company level but also, perhaps, as part of an industry-wide initiative"
  • "Current advertising efforts seem to be a relative nonfactor; only 2 percent of our surveyed buyers said they were prompted to consider buying an annuity by an advertisement. However, that percentage might be bolstered if insurers were to conduct more explicit multimedia campaigns and direct outreach efforts Appeal directly to consumers with more proactive education, marketing, and sales initiatives that explain the potential uses for and value of annuities, particularly compared with other options such as mutual funds, which were cited as the top alternative choice among nonbuyers"
  • "Nearly one in three said they wanted the ability to compare products offered by different companies on one site. "
  • "One in four would expect a discount after eliminating the intermediary"
  • "One in four would buy online if they could speak with a licensed advisor during the sales process to answer questions"
  • "About one in five said they would want a single point of contact at the company in case they need more information."
  • "On the one hand, our survey revealed that only 17 percent of current annuity owners were either somewhat or very likely to consider buying another annuity directly over the Internet, without a professional financial intermediary shopping for them or advising them"
Quotes
  • "Price isn’t everything. Price can be credited with much of the success of the UK aggregator channel, but in the US, price isn’t the only important factor. Advice has value. When asked if they would be willing to pay to get personalized advice or assistance when purchasing auto or home insurance, more than one third of customers answered yes. Younger consumers are more willing to pay for personalized advice. Age is not the great divider. Age is not a decisive and consistent predictor of channel preferences. Thirty-two percent of customers aged 18 to 24 said they prefer to obtain a quote in person. This number was surpassed only by the oldest respondents—39 percent of which preferred to obtain a quote in person."
  • "when asked who do you trust more for a life insurance advice 25% said an independent agent and a 24% friends and family"
Quotes
  • "Finally, company financial strength rating is also important to consumers, with AAArated companies leading to significantly higher preferences than those with only an AA rating. The preference for AAA-rated companies adds to prior evidence that consumers consider insurance company financial strength during the purchase"
Quotes
  • "According to Comscore, aggregator websites (which pull together information from various websites) provided 78 percent of online life insurance quotes in 2010. Most, if not all, aggregator sites focus on term rather than whole life insurance sales. In 2011, the Customer Respect Group reported nearly 90 percent of life insurance quotes started on aggregator sites"
Quotes
  • "A new study, conducted by Jackson National Life Insurance Company and the Insured Retirement Institute (IRI), has found that while most Americans are interested in financial strategies that provide guaranteed lifetime income, many are unaware that annuities can provide it. "
  • "Additionally, 90% of all consumers who responded, and 95% of those 35 to 44 years old, said that they are very or somewhat interested in receiving lifetime income. Great news for the annuity industry, right? Not necessarily. Despite the general positive perceptions of the benefits of guaranteed lifetime income, only one in four participants age 45 and up actually plan to purchase an annuity."
  • "It’s more critical than ever that our industry overcomes the existing bias toward annuities, simplifies the language used to describe them and increases the overall understanding of the power of a well-structured modern annuity so Americans will be more receptive to using them to reach their financial goals,"
Quotes
  • "But because annuities are extremely complicated, many consumers don’t know where to start when buying one. And making the wrong purchase can come with high personal costs"
  • "But the problem is that many annuities are so complex that it is difficult for individual investors to understand how they work."
Quotes
  • "In fact, a 2017 U.S. study, showed that most Americans prefer the security of a retirement option that offers a guaranteed income for life. The problem is, less than half of surveyed consumers were aware that annuities provided that benefit."
  • "The study largely suggests that more needs to be done to simplify language related to wealth-management tools like annuities. Making the retirement process easier to understand is important to help consumers make educated decisions that maximize their financial goals."
  • "In the 2017 study named The Language of Retirement 2017: Advisor and Consumer Attitudes Toward Securing Income in Retirement, consumers expressed strong interest in annuities when advisors described their features without referring to the product by name. The study determined that the mere mention of annuities likely puts a bad taste in consumers’ mouths simply due to misconceptions about the product."
Quotes
  • "the vast majority of individuals prefer an annuity over alternative products when presented in a consumption frame, whereas the majority of individuals prefer non-annuitized products when presented in an investment frame. To the extent that the investment frame is the dominant frame for consumers making financial planning decisions for retirement, this finding may help to explain why so few individuals annuitize. "
Quotes
  • "A new LIMRA study finds 1 in 4 adult Americans cannot name a single company that sells life insurance and a majority (56%) are unable to name three life insurance companies. As discouraging as this may sound, it does reflect an uptick in unaided awareness of life insurance brands among U.S. consumers (chart), compared to 2014 results."
  • "One of the biggest challenges for life insurers is that consumers generally buy life insurance only once or twice during their lifetime, and according to LIMRA sales data, more than a quarter of policies sold are by independent agents and advisors, unaffiliated with a specific company. In these cases, it may be consumers are more aware of who sold them a policy than the company that underwrites it."
  • "The top two factors driving consumers’ awareness of life insurers are advertising (46%) and whether the consumer owns a product from that company (34%). A company’s reputation is also a key driver of brand awareness. Over the past five years, as life insurers have increased their digital advertising, more consumers report seeing advertisements for life insurance. In 2019, 57% of consumers said they recalled seeing an ad for life insurance in the prior three months, up from 35% in 2014."
Quotes
  • "Aggregators are simply comparison shopping sites — like kayak.com for insurance. They allow consumers to easily compare product features, carriers, coverage and price. They aren’t the only distribution disruptors, but new developments are making them more potent. Comparison sites come in three general flavors: lead generators, call-center-based agencies and digital agencies. From their websites, it can be difficult to tell them apart, but they operate differently and appeal to different investors."