By Paula Aven Gladych
Traditional life insurance
is not the primary business of many companies in the life/health insurance industry, either by premium income or by assets, according to a new report by Celent on North American Annuities, 2012.
Instead, with increased attention to America's retirement needs, sales of annuities have drastically increased.
In 2011, annuities outsold traditional life insurance by a factor of 2.6 to 1, and the individual and group annuity market accounted for about half of the total life/annuity/health market with total premiums of $326 billion, which was the same level as 2007 premiums.
are contracts that accumulate funds and/or pay out a fixed or variable income stream. An income stream can be for a fixed period of time or over the lifetimes of the contract holder and his or her beneficiaries, the report stated.
The U.S. annuity market has been affected by the economic downturn as consumers shied away from fixed and variable annuities. It has picked up in 2012 due to the popularity of indexed annuities, a relatively complex product tied to an equity index guaranteeing a rate of return.
Celent estimates that indexed annuities and a host of other annuity products introduced over the past few years will help total annuity sales grow to $368 billion by 2014.
The top 10 insurance companies control more than 64 percent of total annuity sales. Since Celent’s 2007 report, four of the past market leaders have fallen off the list as the economic downturn and low interest rate environment caused several insurers to stop selling variable annuities
Celent estimates that U.S. annuity writers will spend $11.9 billion on IT in 2012, growing to $13.9 billion by 2014, that’s because new innovations in the annuity industry have fueled a need for more modern technology.
Although annuities have struggled in sales through the economic downturn, annuity premiums as a percentage of the total life insurance market have exceeded life insurance premiums since 1986. In 2011, annuity premiums exceeded life premiums by a factor of 3 to 1. From 2001 through 2011, annuities accounted for about 50 percent of the total life/annuity/health market.
“The annuity market is poised for continued growth, despite the real challenges of increased regulatory scrutiny and the slowdown of new money inflows. For annuity writers, the challenges are staying ahead of the curve in product innovation, managing critical producer relationships and improving customer service to become comparable to the levels provided by other wealth management providers,” the report concluded.
Celent believes the annuity market in North America will continue to consolidate, both due to the economy and due to an attempt to reduce the competition for distributor shelf space.
Originally published on BenefitsPro.com