Demographic trends and product development that addresses both guaranteed income and principal protection will help drive the growth of annuity assets to $2.6 trillion by 2011, a 39 percent increase from the current level, according to the latest Cerulli Quantitative Update.
“Growth of the retail annuity business is not without significant challenges,” a press release from Cerulli stated. “A troublesome trend in the annuity industry is the low ratio of net sales relative to gross sales – less than one-quarter of both fixed and variable annuity sales are derived from money that is new to the industry. Failing to monitor 1035 exchanges and not tracking net sales of all products may also hinder the development of adequate conservation plans.”
Cerulli in the report charged that the insurance industry also needs to revamp its distribution strategies, most notably the standalone, transactional nature of product sales, to facilitate the inclusion of annuities as part of a larger, advice-driven, income plan.
According to Cerulli Associates’ proprietary adviser survey, only 9 percent of fee-based advisers frequently recommend variable annuities to their clients, compared with 26 percent of commission-based advisers. Additionally, 48 percent of fee-based advisers will not consider annuities for qualified rollovers versus 19 percent of commission-based advisers.