Building a viable, profitable annuity product line that meets the needs of Baby Boomers and can compete with the plethora of annuity players already in the market is possible if you’ve got the right market conditions to support you, the right products, and the right approach.
Take a look at the strategy advice that follows as a guide for how to break in and succeed in a crowded market.
The typical annuity client is a Baby Boomer getting close to retirement who is looking for asset growth while also reducing volatility, says Chad Burns, senior vice-president of national accounts for CBLife.
There’s too much riding on the steady income stream for retirement-aged clients to invest their money in anything that seems remotely unstable.
“Trust is huge in the annuity space,” says Burns. “Clients have to be able to trust that the company can pay out benefits,” and they have to have faith in the brand. “CBLife has been around for years,” so the focus has been on building brand recognition for CBLife as an annuity provider, he adds.
“We are hearing from agencies and broker-dealers who say that before now, we were not at the top of their list—we weren’t even on their EKG screens,” says Chip Robison, national account manager for CBLife.
“We are now getting calls from people who are hearing what we have on the market and have an interest in knowing how they can establish a partnership with us. That’s an extremely positive development in that up to this point, CBLife is not a name in the annuity marketplace that would roll off anybody’s tongue. We are now starting to make waves which makes it positive as we move forward.”
A limited offering test in late 2017 yielded positive results which will play into the full-blown launch in early 2018.
“We confirmed that we had the right product, rate, structure, and support to viably meet a lot of needs out there in the marketplace,” says Robison. “The key for us is to have a good, positive, consistent client experience.”
Taking Slices of the Annuity Pie
Fixed-rate annuities, also known as MYGAs (multi-year guaranteed annuities), are part of CBLife’s annuity launch model.
Fixed-rate MYGAs are generally set up for three, five, seven, 10, and 15-year periods and offer guaranteed interest rates that match the surrender period, as in five percent interest guaranteed for each of the five years for a five-year MYGA, with no surrender penalties and tax-deferred interest, according to AnnuityFYI.com.
Fixed-index annuities are set up to grow at the greater of two rates: (1) a guaranteed minimum rate of return or (2) a return from a stock market index. A key consumer benefit from fixed-index annuities is that in a down market, you don’t lose principal which gives a measure of safety to the investor, according to AnnuityFYI.com.
“A fixed-index annuity gives you a guaranteed rate tied to a stock market index, so you get the upside while limiting the downside,” says Robison.
With our fixed-rate MYGAs and with a fixed-index annuity product, we have the potential to do annuity business that hits a billion dollars as the first hurdle and then ultimately the $2-3 billion a year range, says Robison.
Being the new annuity player doesn’t mean there’s naiveté about strategy. Here’s a look at the methodology:
Be thoughtfully aggressive in execution.
Most insurance companies are very slow, but we’re agile and tech-driven and can put out products a lot quicker than most, says Burns. That’s key when you’re working with a commodity product like a fixed annuity. So the innovation really is in time to market, he adds.
Risks are measured carefully.
“We’re focused on the fact that you can take educated risks but you don’t want to disappoint and make major mistakes because this is a business where you don’t have a chance to make too many first impressions,” says Robison.
Consistency, doing what you say, and being responsive to market trends are all critical, says Robison. With CBLife’s current size and scope, “we can certainly be as responsive as anyone and probably more responsive than most,” he adds.
Understand how to meet the needs of the annuity customer.
In a marketplace where there are a lot of “me, too” products, whether or not you can effectively educate customers can be a make-or-break metric.
It’s a matter of educating consumers that “they need something that’s guaranteed to grow and, while protecting the downside risk, never go down in value and also create income opportunities that are guaranteed,” says Robison.
“No other investment can do that. Annuities allow you to ensure that no matter what happens, you can structure annuity investments to produce income you can never outlive, overcoming longevity risk.”
Judiciously assign your annuity rates.
“You will live or die on the rates,” says Robison. “There are various approaches in the industry. I’m hopeful we will be consistently competitive and offer a great experience to both advisors and their clients.”
If the the rates are too high that the annuities offer, the company will never be able to afford it, he adds. And that’s where you see organizations get into trouble as they are in and out of the market.
“If the rates are too low, you won’t be able to compete.”
The CBLife annuity strategy is to have consistent, competitive rates and maintain a commitment to the long-term. This strategy fits hand-in-glove with the philosophy of CBLife’s parent company, Global Bankers Insurance, says Burns.
“If you look at the financial strength of the parent company, and its buy-and-hold philosophy,” he says, which includes very long-term commitment to its companies, the same is true of CBLife and its annuity products.
“Our message is we don’t want to be a company that’s in the marketplace for short periods of time with bonus rates or just promotion rates,” says Robison, who adds that there are three types of companies in the fixed-annuity marketplace:
- Those that are consistently competitive;
- Those that move rates up and down on a regular basis for promotion or for short periods of time. “This practice makes it very difficult for partners and clients to get a good handle on where things are going,” says Robison; and
- Those “that just plain aren’t as competitive for whatever reason—they can’t afford the rates, they don’t put the rates out there, or the products aren’t as competitive and the rates affect that,” he explains.
2018 rate watch
Investors can expect competitive rates in the annuities launching this year.
“There’s no doubt that one of the things that’s resonated in the market, even in the limited offering, is that we had a very competitive rate,” says Robison. “We know that to break in, we have to have that, and that rate is based on a pretty unique organization and investment style that will give us a slight competitive advantage.”
Commit to good partnerships.
“A large portion of the annuity business is rollovers or 1035 tax exchanges,” says Robison, “which means you’re taking business and rolling it into annuities” and in turn you need business and banking partners to help facilitate that.
It’s really about establishing good relationships, Robison adds.
“It’s nothing new. I can’t say we have a brand new partnership arrangement that is cutting edge. We’re using everything from direct relationships to third-party contracting relationships to gain access, so it’s a combination of what’s always been done.”
Getting a firm foothold in the annuity market includes partnering with marketing organizations that have contracts with carriers and appoint insurance and annuity agents to do business through them.
“We’re really excited to be on a roll-out of four select IMOs and FMOs—marketing companies with producers who write only fixed annuities,” says John Muscolino, president, U.S. annuities, CBLife.
These producers are certified financial planners, money managers, or fee-only investment advisors who work without commissions, he adds.
“They’re the type of producers who have customers who’ve sold a business for $2.5 million and want to put a portion of that into a fixed annuity, so we certainly want to be one of those options for them.”
The key players have access to 5K agents doing $3 billion in sales with all the carriers they work with, says Robison.
“If we can have agreements with 3-5 players that can do $2-3 billion in sales, and we get 10 percent of that, we’ll get there.”
It’s critical to have the right distribution plan with those organizations because they’re doing business with multiple partners, he adds.
Teaming with Banks
Banks are also part of the partner network.
“We’ve recently expanded into regional banks to offer annuity options for customers looking for better returns than they’re getting for their certificates of deposit,” says Muscolino. “It’s a great partnership arrangement which functions as an additional channel for us, and we have plans to continue that expansion.”
Staying the Course
A central 2018 goal for fixed-rate sales is to ensure a positive client experience for the agent advisors and for the policy holders, say Burns and Robison, and that gets back to having the right distribution partners.
“There are two broad approaches in this industry,” says Robison. “One is to try to work with everybody and contract with anyone who calls in and says ‘I’d like to represent your product.’ The other is to have real dialogue and an agreement on the mutual relationship, which quite often is a partnership commitment giving the sales team support that is mutually beneficial for the relationship.”
You want a commitment to great customer service for the financial advisors, stresses Burns.
“Customer service can make or break you on the sales side. If advisors have a bad experience, they’re not going to sell your product. We want advisors to get the service they’re expecting.”
And this year’s sales targets are attainable, says Robison. Once CBLife reaches a $1 billion a year in annuity sales, “a lot more doors become open.”
The challenge will then be staying agile and able to act quickly as the business grows.
“When you’re doing a billion dollars a year or two billion for five years, and you have a thousand people in the company versus 200 people,” you have to be really intentional about maintaining that the same responsiveness and speed, Robison says.
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