Banks seek to refine number of annuity insurers

Oct 9, 2006 @ 12:01 am

By Gary S. Mogel

NEW YORK - One-fourth of large banks thought that the number of their annuity insurers was too big, another fourth thought the number was too small, and half thought it was just right, according to a survey to be released this week by ING US Financial Services in Atlanta.

The study, "Rightsizing Carrier Relationships: The Direction of Bank Annuity Distribution," conducted by Kehrer-LIMRA Inc. in Windsor, Conn., involved 32 banks representing about 80% of sales of fixed and variable annuities through the bank channel.

Banks on average sell the annuities of 21 insurers, but some of those insurers became "inactive" following mergers and acquisitions. "Inactive" means that the bank continues to serve the insurer's annuity clients but doesn't sell additional annuities of that insurer.

"Often, the banks march all of the incumbent insurers through a request-for-proposal and price negotiation process," said Kenneth Kehrer, director of Kehrer-LIMRA. The acquiring bank doesn't simply do away with the acquired banks' insurers, he said.

One bank sold the annuity products of 42 insurers, while another used just five. Banks with 30 or more insurers in their annuity stable were the most likely to want to make cuts.

Bank managers are paying more attention to annuities in anticipation of retiring baby boomers' wanting to buy more of them, Mr. Kehrer noted. "Refining annuity offerings helps the bank advisers simplify how they present annuities to customers," he said.

Typically, banks concentrate their annuity business with 10 insurers: four that sell fixed annuities only, two that sell variable annuities only and four that sell both.

"Bank advisers don't attempt to master all of the products - they usually have their favorites, based on the different types of client needs," said Chad Tope, senior vice president of ING's fixed-annuity distribution.

"Some banks are trying to reduce the number of insurer products they offer, because many of the products look alike and provide similar solutions," said John Harline, senior vice president of ING's VA distribution through the bank channel.

Bank advisers are capable of serving customers' annuity needs, as many received their training from life insurers and wirehouses from which they were recruited, according to Mr. Kehrer.

Also, bank advisers have become more focused on providing advice, as opposed to executing transactions, Mr. Harline said, partly as a result of training provided by insurers.

Insurers with top financial ratings are the ones most likely to be retained or added, according to the survey. A top-rated insurer is generally one with an A+ rating from A.M. Best Co. Inc. in Oldwick, N.J.

But some banks also use their own actuaries to determine insurer financial strength, having been burned by inaccurate third-party ratings, Mr. Kehrer added.

A strong second in the insurer selection process is the company's commitment to annuity distribution through the bank channel.

Many bank managers became wary of insurers that stopped taking deposits on some types of fixed annuities when interest rates were low, the survey noted. They felt the same way about VA insurers that abandoned some types of living benefits during the bear market in stocks.

Product offerings also ranked high on bank annuity managers' radar screens. Preference was given to new insurer products that aren't simply enhancements of products the bank already offers.

Such enhanced products "cannibalize" the bank's existing annuity business, the survey pointed out.

Increasingly sought are insurers offering equity index annuities, especially by the one-third of banks whose insurers don't sell this kind of annuity.

"Banks were slower than other distribution channels to get into EIAs because of the perceived taint of these products," Mr. Kehrer said. "But now that there are more consumer-friendly products available, that's changing."

Support from insurer wholesalers was also mentioned by bank managers as a factor in determining which companies survive their annuity rightsizing process. Wholesalers were more important to managers who didn't plan to change insurers, indicating that satisfaction with wholesalers is a prime reason for their loyalty.


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