Matt Mendez, Vice President, Director of Insurance & Annuities
A lot has changed over the past several years in the world of insurance and annuities that has led to record sales, improved efficiencies, and much more consumer-friendly solutions. You may not realize how much has changed for the better when it comes to these important protection strategies. Here are some current trends helping to drive these changes, as well as items continuing to drive growth.
Will the record annuity sales continue its momentum?
Annuity sales have soared to record levels this year, fueled by demand for products to help protect against market volatility. LIMRA reported that U.S. annuity sales totaled $88.6 billion in the second quarter of 2023 (preliminary results), up 12% on a year-over-year (y-o-y) basis from the second quarter of 2022, according to its own release.1 Total annuity sales stood at a record $182.9 billion in the first half of 2023, an increase of 28% from the first half of 2022. For the past two years, annuities have enjoyed record flows with there being a higher preference to buy more protection-focused products versus income-focused products. Higher interest rates have pushed the attractiveness and consumer interest in nearly all types of annuities over the past couple of years, with the majority choosing a deferred annuity. With more and more baby boomers entering the retirement phase, the interest in deferred annuity products that can provide protection against market declines and guaranteed lifetime income should only continue to propel sales going forward. A deferred annuity is one that delays payments until the owner chooses to receive them, while providing an opportunity for growth of the account value and the future income during the deferral period. There are several types of deferred annuities, each providing different features based on an individual’s goals and objectives. When incorporated properly, they can be a valuable tool in a retirement income plan.
Will other states follow Washington state’s lead in creating a state mandated long-term care insurance program?
In 2019, the state of Washington signed into law the Washington Cares Fund to provide access to a lifetime benefit amount that can be used on a wide range of long-term care services and supports. This is a payroll tax for WA state W-2 workers that began on July 1, 2023. Currently, there are several other states that are actively considering legislation to address the high cost of long-term care, potentially through a long-term care state payroll tax. It can be difficult to imagine now, but chances are you’ll require assistance with personal care at some point in your life. You may suffer from a disabling accident, chronic illness, or simply reach the age where you are no longer able to care for yourself. The average cost of long-term care in the United States is increasing, and it is important to have long-term care insurance to cover these costs. The median cost of just one month in a nursing home is $7,908, according to Genworth’s Cost of Care Survey.2 Given these facts, it’s no surprise some states are looking for ways to help alleviate the potential financial burden. We want to be clear that subsequent legislative action would need to be taken before any program could be established, that there is no enactment date or deadline to buy long-term care insurance at this time, and all details are yet to be determined. It is important for you to be aware that these potential programs are speculative at this time to avoid any potential misleading communications provided to you regarding urgency to purchase a long-term care policy. Long-term care insurance is evolving. There are many more products available today that are based on innovative designs, all of which have the same purpose: to fund a plan to protect those the client cares about. Each have pros and cons based on your planning goals, as well as provide different levels of LTC coverage based on the product design. It is important to work with an insurance licensed professional to determine whether a long-term care policy may or may not be appropriate for you based on your potential situation and overall objectives.
What role does technology play with the business of insurance and annuities?
When the COVID pandemic hit, the insurance and annuity industry had to quickly move and adapt to the virtual world that was thrust upon us. This was a long overdue shift in how business was conducted and has created some great opportunities moving forward to make it not only quicker to get a policy in place, but also much easier to manage your policies once they are in force. There has been a big shift towards the use of electronic applications, helping reduce the number of potential errors when completing an application and also becoming more consumer friendly by allowing these documents to be signed electronically.
Specific to life insurance, we have seen carriers increase their offerings for what are known as “Simplified Issue” life insurance. A simplified issue life insurance policy can be an option if you’re looking to get life insurance as fast as possible. As the name suggests, simplified issue life insurance uses a simple form of underwriting. Applicants must answer some questions about their health and lifestyle but do not have to take a medical exam. Insurers will then use third-party sources to gather additional information about applicants, such as their prescription drug history and driving record. So, you don’t have to wait for weeks to find out whether you’ve been approved for coverage, as you would with a fully medically underwritten life insurance policy. You might even be able to get approved instantly. Simplified issue life insurance can be a fast and easy way to get life insurance. However, that convenience comes with trade-offs. These trade-offs can include higher costs, limited coverage, and limited availability.
Given some of these trade-offs, technology has also helped insurance companies usher in a new form of life insurance underwriting known as “accelerated underwriting.” This process collects more information from applicants and third-party sources than simplified issue underwriting does, yet it’s faster than traditional underwriting because it uses data modeling to assess the risk of applicants. You can generally skip a life insurance medical exam if you’re young and healthy. Yet, you might be asked to take a medical exam if you are older or there are questions about your health.
Lastly on the technology front has been the increase in e-delivery and online self-service. In the past when your life insurance or annuity policy was issued, you needed to safely store your hard copy policy—which could be the size of a small novel—in a fireproof safe or storage container to ensure it was kept safe. You still have this option, but many insurance companies now offer e-delivery of these important documents to help save space and make it much more convenient to manage. Online access through a customer portal also makes it easier to manage your policy for many important updates that can be done yourself.
These are only a handful of positive trends that will continue to shape the future of an industry that has been long looked at as outdated or “behind the times.” With the innovations taking place with insurance companies and technology, we are optimistic that consumers will continue to be more open to these protection discussions to continue to drive the growth.
1 Preliminary U.S. Annuity Second Quarter 2023 Sales Estimates
2 Genworth Cost of Care Survey
This material is being provided for educational and informational purposes only. D.A. Davidson & Co. is a registered broker-dealer and registered investment adviser that does not provide tax or legal advice. Information contained herein has been obtained by sources we consider reliable but is not guaranteed and we are not soliciting any action based upon it. Any opinions expressed are based on our interpretation of the data available to us at the time of the original article. These opinions are subject to change at any time without notice. Copyright D.A. Davidson & Co., 2023. All rights reserved. Member FINRA and SIPC.