Challenges are ahead for variable annuity sales: Cerulli

Carriers think variable annuities are an attractive area for growth, but the product line faces some hurdles that may dampen sales.
While gross sales of variable annuities appear to be rising modestly, much of that growth seems to be coming from product exchanges, rather than inflows of new money, according to a report on the annuity and insurance industry from Cerulli Associates Inc. Gross sales of variable annuities reached $138 billion last year, reflecting a 2% annualized increase from $113 billion in 2001, the research firm found.
Life insurers believe that low interest rates have taken the spotlight off of fixed annuities and immediate annuities, highlighting variable annuities as the product line for which the most growth is projected.
However, most advisers aren’t using the products: Just 35% of 334,160 retail financial advisers actively recommended variable annuities in the past year, Cerulli noted.
About 18% of financial advisers sell at least a dozen contracts a year and are responsible for generating nearly 70% of adviser-sold VA transactions, according to Cerulli.
Annuity wholesalers also tend to spend a lot of time with VA high rollers, concentrating on advisers who generate a lot of business, instead of prospecting or finding new asset sources, according to the report.
Still, VA wholesalers vastly outnumber their asset-management-selling counterparts. Sales forces for variable annuities average out to 57 external wholesalers and 45 internal wholesalers, with the largest armies boasting more than 200 internal and external wholesalers each, Cerulli found. In contrast, the largest wholesaling teams for asset managers have fewer than 100 salespeople.
Cerulli is bullish on how advisers will react to fee-based variable annuities. Adjusting the pricing to fit onto a fee-based platform is only one step toward getting those advisers accustomed to the products, said Bing Waldert, director at Cerulli Associates. The wholesaling effort will have to change entirely and concentrate on how advisers can use the product, instead of the annuity’s bells and whistles, he said.
“Reinventing the variable annuity isn’t repricing; it’s repositioning,” Mr. Waldert said. “It doesn’t mean more features and benefits, but more about putting the product into the adviser’s business and demonstrating the advantages of the annuity.”
Annuity wholesalers tend to spend more time comparing their products to competing annuities and less time asking about the adviser’s client base or talking about generating income, Mr. Waldert said. Insurers need to overcome that challenge in order to make a strong impression on fee-based advisers, he added.
The research firm also hypothesized that advisers would turn away from variable annuities as insurers leaned toward tamer subaccount investments. The average variable annuity contract had 36 investment options and 14 different fund managers at the end of last year.