Reports highlight market appeal of VAs in current environment and address manufacturing and distribution challenges
NEW YORK – 04 August 2009 – Variable annuity writers need to focus on streamlining products and distribution in order to take advantage of changes in the market that make their products more appealing than ever, says two new reports by Novarica (www.novarica.com), a research and advisory firm serving insurers and wealth management companies. The report results will be presented in a webinar on August 26th at 2 PM ET. Interested attendees may register online at https://www1.gotomeeting.com/register/670396833.
Lead author of the studies Robert J. Ellis, principal and head of Wealth Management at Novarica, said, “Complexity and frequent product redesign hurts variable annuity sales by extending the sales cycle when compared to other types of investments, as well as increasing compliance costs and confusing distributors. Based on our research with both distributors and manufacturers, we believe that product simplicity and less-frequent redesign will lead to greater profitability.”
Mr. Ellis’ first report, Trends & Issues in Retailing Variable Annuities: Moving from Tax-Advantaged Investments to Desirable Retirement Planning Tools looks at the major impediments to improving VA sales. Findings include:
- VAs are no longer being sold solely as a tax-advantaged investment, instead they are now recognized as an important retirement planning tool.
- The product sale is all about the guarantees and at what cost; the wrapper and underlying investments are less important.
- High prices and high commissions are the causes of much of the negative associations of VAs.
- Complexity of the products and frequent product redesign hurts sales.
- The sales cycle to the investing public is too long; it needs to be more like mutual funds.
The second report, Improved Retailing of Variable Annuities: Product & Process Enhancements outlines process and product improvements to increase sales, including:
- The common practice of raising rider charges to reflect the current market environment of low returns and rates is counterproductive.
- VA contract-writing insurance companies need to improve profitability through a process improvement chain. rationalize product lines and simplify products, add break points on M&E fees, lower commissions, eliminate multiple share classes, and consider cheaper types of subaccounts.
- As a result of the product improvement chain, sales will increase, compliance issues and E&O costs will decline, and VAs will become more appreciated for their virtues by the press and the regulators.
- The use of improved technologies in manufacturing and distribution will increase speed to market and sales.
Novarica provides information, insights, and perspective on markets, operations, and technology to financial services executives and project teams. The company delivers its service through published research, retained advisory services, and project-based consulting. Novarica’s research includes market and trend analyses, best practices research, case studies, and independent analyses of software vendors including the Novarica Market Navigators� and Novarica ACE (Average Customer Experience) Rankings. Novarica is a division of Novantas, LLC, the leading management consultancy and information services provider for the financial services industries. www.novarica.com