The indexed annuity price war revisited
By Joe Anzalone
Asset Marketing Systems
Producers, IMOs, and carriers fight on as the skirmishes continue.
Some of you may recall this piece I wrote in 2009 about the sort of tactics we’ve seen in the indexed annuity price war. In the last two years, the fight between consumer value and feasible pricing has continued. Producers, mired in a more difficult battlefield, have seen their choices diminish; caps, commissions, pricing strategies and other such “allies” in the fight have all suffered to some degree.
The tactics, though, have largely remained the same — albeit under shifting conditions. Let’s revisit the tactics we covered, discuss the adjustments we’ve seen in strategy, and make some determinations about how this costly and unpredictable war will affect all of us in the coming years.
The new Blitzkrieg: income
Carriers, and often their affiliate IMOs, have shifted their blitzkrieg to the income space. According to the estimable Sheryl Moore, income rider products have accounted for over 60 percent of all indexed annuity sales in 2011, a significant shift in the landscape.
Many generals (the carriers) have rolled these new products onto the battlefield, giving firepower for their armies (IMOs) to train their soldiers (producers) to use. The occupied populace (consumers) have responded in kind by welcoming these new weapons, which seem to provide them with future protection from an uncertain and volatile market.
These new products, under today’s oppressive battle conditions (low interest rates), have filled a growing need admirably. By providing the populace with more reliable income choices, the populace has eagerly armed themselves with these innovative income choices as the old products (accumulation vehicles) have become less appealing in the current environment.
Divide and conquer lives on
The carrier generals and their allies (affiliate and owned IMOs), as we’ve seen in previous years, are prone to keep their eyes on increasing the territory they can capture.
When we last studied the war, these imperialistic tendencies were rampant; today, they have continued in a more targeted fashion. Some generals and their diplomats (wholesalers) have formed wide-ranging alliances with their allies and many different “friendly” armies, unveiling new weapons with the intention of protecting and expanding their territory. This strategy has proven difficult, and its success depends on their ability to train such a disparate group of soldiers to use these new weapons (products).
Can these generals, diplomats, allies and soldiers explain these new weapons to the populace through the use of a simple, effective story? Indeed, if they prove difficult to understand and implement, the strategy may suffer in the short run.
We have seen some evidence of this in recent product development. In the current interest rate landscape, the generals are caught between building products that will appeal to the populace and ensuring that these new weapons will still function properly in the long run, when the landscape inevitably changes. These more noble generals have worked diligently to protect the populace in the future, even at the cost of present-day sales, because they realize that the cost of a future product “misfire” is too great for all concerned. As in any war, it is admirable and wise to avoid collateral damage to the populace.
Other generals, however, can’t help themselves. They have chosen to build weapons for short run expansion and optimum popularity with their soldiers, allie, and populace, with less regard for their long-term viability.
Hence, one particular product has been introduced to do just that — achieve a measure of income-related territorial dominance in a constricted pricing environment, and enrich its allies (affiliate IMOs) with the treasure lying within their captured territory. Its features, which include a gaudy compound income rollup percentage, seem unsustainable under current battle conditions, especially as other generals have been forced to modify their weapons’ firepower downward.
This weapon has been built with expansion of power and influence in mind — and power corrupts. The product relies on the mad scramble for a higher compound yield, so prevalent today among producers and consumers alike. Again, large swaths of territory will be captured, but at what cost?
In any war, the fallout of such rapid territory expansion could prove detrimental to the long-term health of the populace; but today’s soldier-producer, eager for the type of weapons-grade yield they have seen in the past, has found it difficult to resist shouldering and firing this new income cannon.
Once again, the market-share war game can be fraught with dangers. What should producers consider as they inspect these gleaming new weapons?
- The manufacturer — Use your common sense. Is this a manufacturer with a long-term track record in the indexed annuity space? Or does it possess features that appeal to the wrong things? As you consider your consumer populace, it may be wise to choose traditionally reliable manufacturers.
- The design — The consequences of future product “misfire” are often greater than the short term benefits of simply making another sale. Does the design of this product make sense in the current manufacturing environment? If not, ask yourself why it was priced this way, and consider your previous experiences with appealingly priced designs in the first couple of years of rollout.
- The consumer — Are they properly diversified? Have the manufacturers you’ve chosen evidenced a history of reliable, predictable performance during previous iterations of their product line? Do they even have previous iterations? Think about the future conversations you’re going to have in your client reviews if a product you sold was not properly built, with its long term viability in mind.