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Disruption Leads to Innovation in the Annuity Market
1/12/2017
“The concept of disruption is about competitive response.” - Clayton M. Christensen
There is little doubt that the Department of Labor’s (DOL) fiduciary rule will disrupt the existing financial services’ business structure. New LIMRA Secure Retirement Institute research indicates that this disruption will lead to innovation in annuity product design.
The new study, The DOL Fiduciary Rule: Retail Annuity Manufacturers’ Perspective (2016, DOL Viewpoints), finds that 45 percent of annuity manufacturers have or will introduce new annuity products in response to the DOL fiduciary rule. Moreover, at least 1 in 4 variable annuity (VA) writers and 1 in 3 fixed indexed annuity (FIA) companies expect to be more innovative with their product design in 2017.
Much of this innovation has to do with the way advisors are compensated for selling annuities. Three out of four annuity manufacturers either have or plan to build fee-based annuities. Specifically, 53 percent of VA writers have or plan to introduce a fee-based VA and half of FIA manufactures will do the same in 2017.
To date, only four distribution firms have publicly stated they will switch their practices to fee-based products only. Yet 65 percent of annuity manufacturers believe there will be a moderate increase in their fee-based VA product sales in 2017 and half believe there will be a moderate increase in their fee-based FIA product sales in 2017. Currently, fee-based products represent less than one percent of overall VA and FIA sales.
The Institute has predicted a 10-15 percent decline in overall annuity sales in 2017 but expects the market to stabilize in 2018.