U.S. Insurance Market Gearing up for Retirement Push

by Robert Stone

The first Baby Boomers turn 60 this year, which will begin a tidal wave of new retirees in the coming years. Unfortunately for these retirees, the long–term funding of Social Security is unclear, defined benefit plans cover fewer and fewer of today's workers, and defined contribution plan savings rates are generally not high enough to compensate for a lengthy retirement.

This wave of retirees presents a growing opportunity for the insurance industry. Even so, numerous continuing education sessions have been presented at meetings in the last five years on single premium immediate annuities. These have included a convincing presentation of the demographic situation facing the market (boomers approaching retirement) with statistics showing a flat sales market for immediates. The closing statement was usually along the lines that no company has yet "cracked that nut."

The tide appears to have turned, in that the insurance industry is rising to meet the retirement crush. One industry magazine appears to be splitting its 2007 coverage into subtracks, one of which is "Retirement Planning and Products. The 2007 NAVA (National Association of Variable Annuities) Marketing Conference theme is "Communicating the Value of Insured Retirement Income Products." Even core insurance products like life insurance are discussed in terms of protection and accumulation versions. It is a natural extension to take accumulation products and position them as a tool for retirement planning.

Reflecting industry interest in this market, income product choice appears to be at an all–time high. Consumers have guaranteed living benefits like GMIBs and GLWBs available in some variable and indexed annuity products. Immediate annuities come in variable, indexed, traditional fixed, and substandard varieties. Longevity insurance is also a developing market. Of course more vanilla partial withdrawal options are standard in many deferred annuity and life insurance contracts. It seems likely that product offerings will continue to evolve while offering an ever–wider array of liquidity, inflation indexing, and other product features.

While industry mobilization is great, the marketing job ahead is huge. Few insurance products aside from term life insurance and immediate annuities get positive media coverage. Deferred annuities and permanent life insurance are often vilified in the personal finance pages of national publications as expensive, poor–performing vehicles. The life insurance industry will have a big job just in combating these negative influences.

The marketing job only begins there, however. Insurance products are generally complicated, so consumer education on products will continue to be a substantial hurdle (albeit one usually left to the financial representative doing the selling). From a retirement planning standpoint, though, the education is a little more basic. Pick up any article touting the "looming retirement crisis" and it will outline how little money the general public thinks it takes to retire. This doesn't take into account the portion of the population who hasn't even thought about a retirement age, much less an amount to save for retirement. The bottom line would seem to be that mobilizing people to save for retirement (and thus look at products the insurance industry has to offer) will require getting them to think about an amount and an age for retirement.

For actuaries such planning is fundamental to who we are (and what we frankly enjoy). For most other Americans, creating a spreadsheet of savings projections isn't considered recreation. Helping consumers see their own needs, however, may be the only way to help them consider what our industry has to offer. To achieve marketing success in a retirement planning push, getting down to basics may be the key to driving sales success for the industry.