Sales of annuities, the once largely disparaged investment instrument, have been off the charts for the last several years. Consumers, mostly retirees or those close to retiring, have turned to annuities in record numbers, fueled by the seemingly reassuring financial features but also by the insurance companies that heavily market them and are eager for the fees and commissions they carry.
How gangbusters are the sales? Total U.S. annuity sales were $215.2 billion in the first half of 2024, a 19% jump from prior year results, according to preliminary results from LIMRA’s U.S. Individual Annuity Sales Survey. LIMRA forecasts annuity sales for the year to set records as well.
Annuities have been the saving grace of insurance company financials with many, if not most, reporting double-digit volume sales in the first half of 2024. Individual annuity sales increased 23% at Equitable, 45% at Ameriprise, 68% at Corebridge Financial, and 83% at Prudential Financial. The number one seller of annuities, Athene, said its annuity sales rose 72% year-over-year, putting it far and away the top seller. One out of every five annuities sold in banks were underwritten by Athene in the first quarter of 2024. And even though it outsells all its competitors, Athene holds just 13% of the total annuity market, an indication of how large the retail opportunity is for the products.
The role of demographics
“We know that there is a demographic trend here where we have more Americans turning 65 this year and for the next four years than we ever have in history,” said Ellen Cooper, chairman, president, and CEO of Lincoln Financial, where annuity sales were up 48% in the second quarter this year. “And so, you really have a need for deferred savings and for retirement planning.”
Lincoln’s $3.8 billion second-quarter annuity sales prompted one financial analyst to question whether the numbers could be reasonably be sustained and were even “rational.” “We are, from best that we can see, being largely rational,” said Cooper. “And we are ensuring, importantly, that we are achieving our target returns.”
Cooper credited “significant consumer demand” for the exploding sales, and there’s no doubt interest rate changes and economic anxiety have bolstered the attractiveness of fixed and variable annuities.
Why consumers are flocking to annuities
But there’s more at play here. Asked why consumers are flocking to annuities, one financial manager said it was essentially because they don’t know any better. “They may not know enough to ask the right questions, the answers to which may be so revealing that they would steer clear of them,” said Ed Mahaffy, president and senior portfolio manager at ClientFirst Wealth Management, in Little Rock, Ark.
In many cases, Mahaffy said, buyers don’t have a fiduciary financial advisor who could offer alternatives and instead deal only with insurance agents who aren’t prohibited from using terms like “guaranteed returns,” and who stand to receive hefty commissions. “They may trust the salesperson or advisor and may be unaware of the lucrative commissions that may influence recommendations as well as the operating expenses of their investments,” he said.
Indeed, consumer understanding of annuities is wanting. A recent study by Athene found annuities remain highly misunderstood among nearly 25% of respondents to a commissioned Harris Poll, with the same group indicating they do not even know what an annuity is. Mahaffy and others said annuities are typically pitched as a worry-free way to invest because the contract may feature a “guaranteed return.”
‘Capping the upside potential’
“This guarantee can come at a huge price, namely capping the upside potential one would have if they simply maintained a balanced portfolio of cost-effective index funds of stocks and bonds,” Mahaffy said.
That isn’t to say annuities are not good investments for some people. Money managers contend the bulk of annuities are being purchased by lower-to-middle-class consumers who haven’t saved much for retirement, may not even have an employer-sponsored retirement plan, and don’t have access to certified fiduciaries and financial planners.
The latest data on annuity shopping from J.D. Power show that among people who shopped for an annuity in the past 12 months but didn’t buy one, 19% said it was because their advisor or other financial professional recommended against it, and 24% decided to go with a different type of product. Of those who purchased an annuity, 42% said it was because they wanted a steady stream of retirement income and 38% said it was to protect their retirement income.
Breanne Armstrong, director of insurance intelligence at J.D. Power, said the potential to save money by buying annuities from insurers who offer bundling discounts for home and auto policies may also be contributing to the sales boom.
“Some carriers even give a specific discount on the auto/home policy for having an annuity with them,” she said.
Technology’s role in annuity sales
Technology may also play a part in the increasing annuity sales. Insurers have been racing to upgrade their online presence and add mobile apps and digital sales platforms to make it easy to market and purchase their products.
“Critical to this continued growth is a focus on enhancing the digital experience for financial professionals and consumers to strengthen understanding of an annuity’s value to a confident and secure retirement,” said Laura Prieskorn, president and CEO of Jackson Financial, whose retail annuity sales rose 36% in the second quarter this year. “Technology, we believe, has contributed to the competitive cost structure and exceptional service delivery for financial professionals and their clients. This allows us to connect to an advisor’s platform of choice, making annuities more accessible for financial professionals and their clients, and making it easier to do business.”
How long will the bull market last for annuities is anybody’s guess but it’s a question top of mind for investment analysts and insurance company executives.
“I think consumers are actually late to the game,” said Richard Craft, founder and CEO of Wealth Advisory Group, in Berwyn, Pennsylvania. “I think annuities probably declined in real value a couple of years ago, but yet people are still buying them because people are selling them. That’s really what it comes down to. People sell annuities because they make a lot of money selling them.“