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Indexed Annuity Industry Faces Challenges, But Sees Opportunity As Well

There is a lot going on in the annuity industry right now, particularly when it comes to fixed indexed annuity products. LifeHealthPro’s Kristen Beckman interviewed Allianz Life’s Eric Thomes about the state of the industry in the article “Allianz Life exec: Index variable annuities address market volatility fears.” LIMRA SRI’s annuity sales survey put Allianz Life Insurance Co. of North America as the 4th highest annuity seller during the first quarter of this year. The company had $3.3 billion in annuity sales, $2.8 billion of which came from fixed annuities. They had the 3rd highest fixed annuity sales and the top sales for fixed indexed annuity products. Allianz Life’s $499 million in variable annuity sales was the 14th highest for the quarter. Thomes discussed three main topics for the article, including current challenges facing pre-retirees, annuity myths, and how the Department of Labor’s fiduciary rule will affect the industry.

When asked what the biggest issues facing pre-retirees are, Thomes said that there are a number of things to worry about. Market volatility affecting your portfolios and low returns on your fixed income investments and two major concerns. There is also the issue that people are living longer and working to finance a much longer retirement. Inflation and the rising cost of living in your retirement is another significant issue. Half of the Americans from a recent Allianz Life survey said that they are either “terrified” or “very concerned” that inflation will significantly impact their retirement. Americans are searching for ways to make their income last for decades of retirement and account for inflation as well. Annuities are one of the only ways to account for these retirement issues. They offer guarantees for retirement income that will ensure your fixed living expenses are paid and your money is protected from the markets. Some annuities also account for inflation risk.

We have addressed annuity myths many times in this blog because there always seems to be annuity misinformation out there. Thomes points out that many annuity myths exist because people have not familiarized themselves with how much the products have changed, even in the past few years. The big myth is that annuities are too complex. Thomes says that the math may seem complicated for some products, but the guarantees are straightforward. You pay an insurance company and receive guaranteed income or interest rates for a predetermined amount of time, sometimes the rest of your life. Many people think that annuities have high fees or hidden expenses. All of the annuity costs are detailed in the prospectus and should be discussed with you by your financial advisor. Annuity fees are often higher than the fees for other products, but the guarantees are also much greater. Annuities offer principal protection, guaranteed lifetime income, and potential increases in income. Understanding the value is much more important than only looking at the fees. You have to take the fees and benefits both into account. The final myth discussed is that your money is out of your hands once you buy an annuity. Some products offer more flexibility than others and a surrender period before you receive income, but not all annuities tie up your money and most of the others are only for a short time.

There are two important trends in the annuity industry that are affecting sales and interest, particularly in the indexed annuity marketplace. Consumer demand is the first. Consumers are searching for guarantees as well as market downside protection. There is also a change in the distribution channels. Sales through registered reps and broker-dealers are increasing significantly. Three-quarters of Allianz Life’s fixed indexed annuity sales are now through registered reps and RIAs. More people are being exposed to the importance of annuities as the number of financial professionals using them increases.

The DOL fiduciary rule is affecting those selling fixed indexed and variable annuity products, something that Thomes discussed with LifeHealthPro. He said that Allianz Life has been closely following all developments and is working with their distribution partners, particularly broker-dealers and independent agents, to manage the necessary changes. He said that it’s far too early to forecast how this rule will change the industry, but points out that the need for guaranteed income is greater than ever as 10,000 Baby Boomers retire every day. There will always be a market for guaranteed lifetime income for retirees. One of the other challenges facing the annuity market right now is related to market volatility. Americans are struggling to finance decades of retirement and many people need some market growth but are not willing to risk their savings to achieve it. Thomes says that the index variable annuity (IVA) is a new product designed to meet this need. There is potential for growth along with market protection, but you take on more risk than you would with a fixed indexed annuity. You get some market protection along with higher upside potential. He thinks these products are worth looking into if you are concerned about market volatility and growing your money.

There are challenges facing the fixed indexed annuity industry right now, but there is also a lot of opportunity and potential to meet consumer demand, especially with newer products like the index variable annuity.

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