Annuity confusion crimps customer satisfaction, finds JD Power

A new study from JD Power reveals that a significant portion of individual annuity customers face challenges regarding their financial health and a clear understanding of the products they are purchasing.

According to the 2024 US Individual Annuity Study released Thursday, 59 percent of annuity holders are struggling with their financial well-being, and many lack full comprehension of the complex financial instruments they own. That gap, the firm says, has direct ramifications for how satisfied customers ultimately end up in the long run.

"Long-term customer satisfaction with individual annuity products is directly linked to customers’ understanding of a fairly complex financial product," Breanne Armstrong, director of insurance intelligence at JD Power, said in a statement.

In one key finding, the study found 43 percent of customers had their applications completed entirely by their advisor, which correlated with lower overall satisfaction. The implication: those who file the paperwork without explaining anything to clients or customers aren't doing them any favors.

"True understanding goes deeper than just filling out forms and signing on the dotted line," Armstrong said.

Of course, annuities are notoriously puzzling products, with some being so complex that they can end up abused or misused by well-meaning advisors. But on the plus side, many annuity providers offer resources such as educational videos and tutorials to help clients grasp their products. Advisors can play a pivotal role on that front, JD Power said, as customers who received guidance on navigating their provider’s website or mobile app during the onboarding process were more likely to have a stronger grasp of the fees and terms associated with their annuities.

Based on responses from 3,914 individual annuity customers collected from April to July, USAA claimed the top spot among individual annuity providers this year with a score of 780 out of a possible 1,000 points. Pacific Life followed with 708, and New York Life ranked third with 688.

The study’s methodology was updated for 2024, making year-over-year comparisons with previous reports a bit fuzzy. Similar to previous findings in 2023, this year's research showed digital tools and capabilities having a large impact on the overall customer experience and relationship with the insurer, but it's difficult to say if users are using those resources more or less than before.

"I can say that 66% of annuity customers have had a digital interaction within the past 12 months. Their overall satisfaction is 74-index points higher (on a 1,000-pont scale) than those who didn’t have a digital interaction," Armstrong said in an emailed statement to InvestmentNews. "This is especially true of those who used the mobile app in the past 12 months, as overall satisfaction is 114 points higher than those who haven’t used the mobile app."

Compared to the two-thirds of annuity customers who've leveraged digital tools, just 28% of annuity customers have used their annuity provider’s app in the past 12 months, Armstrong said.

The study measured customer experiences across eight key areas, including trust, value for price, and ease of doing business. According to Armstrong, the trust and value pieces were the most important drivers of satisfaction. And while the survey specifically asked about customers' trust in the provider, that perception could still be colored by their experience with the advisor.

"As an example, we ask questions about the relationship with the agent/advisor to see how that impacts their overall experience. One such question is: Does the Agent/Advisor help customer understand value of annuity," she said. "If the annuity customer strongly agrees with this statement, their Trust with the brand is 183 points higher than those who don’t strongly agree with the statement."