Variable Annuities: Where’s the perceived value? In the gap!

In his award winning book, United States, Gore Vidal wrote, “Once a man’s image, good or ill, is set in the public’s mind, he can contradict himself every day and still be noted for consistency.”

This quote reminds me of today’s generally negative public perception of variable annuities and how difficult it has been to alter it. The articles and commentary driving this continue to grow like compound interest. With the exception of occasional positive notices given to immediate annuities, deferred annuities are almost universally condemned as “bad investments.”For both fixed and variable annuities, public perception resides in the gap between the image of annuities set in the public’s mind and the actual present state of the annuity industry. This is unfortunate because variable annuity contract design has continued to evidence substantial improvement. The result of this is that annuities have taken on increased relevance and utility. New guaranteed income riders that build upon traditional features offer new advantages to retirees.

Critics of annuities, of course, still hammer away at what they perceive as high costs. Yet, York University Professor, Moshe Milevsky, writing in the January 2007 issue of Research, states that insurers are likely not charging enough for the increased economic value they are providing through these contractual guarantees. Surrender charge periods on some contract designs have been reduced. Still others have reduced investment fees and expenses. Some have limited basic expenses (and commissions) to not more than those of A-share mutual funds.

Jackson-National Life recently issued a variable annuity contract under the Curian Capital brand (I was so intrigued by this variable annuity- Curiangard- and the improvements it offers in terms of expense reductions and investment options- ETFs, target date funds- that I personally endorsed it. Visit to view the video.

“What we have here is failure to communicate!”

Actor Strother Martin’s famously-delivered line from the movie Cool Hand Luke supplies the answer to the question, “Why are variable annuities generally regarded negatively in the press and among many financial advisors?” At the recent NAVA Marketing Conference in Tucson, NAVA President & CEO, Mark Mackey, opened the gathering with a very eloquent and candid review of the current state of the variable annuity business. Mackey pulled no punches; he was unambiguous in his exploration of areas where improvements must emerge including in the realm of public perceptions. I came away from the NAVA conference with the conviction that the variable annuity industry suffers mightily from the disease of ineffective communications. The product’s logical and accurate positioning vis-à-vis other investments is not well understood, it’s true value proposition is underappreciated, and its resulting level of new sales can be described as potential yet to be realized.

The keynote address on the opening morning of the conference was made by MetLife’s, Joe Jordan, who delivered an enormously powerful presentation. Jordan is one of those rare individuals with the ability to both elevate and transform beliefs- including the prevailing current wisdom among people within the annuity industry. In his presentation Jordan pointed to reasons why variable annuities are so often criticized. He described historical and ill-advised efforts to position variable annuities alongside other investment alternatives such as mutual funds. This ill-conceived selling strategy ignited expected attacks on the basis of both income tax treatment and expenses.

Interestingly, Jordan incorporated about eight video clips into his presentation. The footage very poignantly conveyed that insurers’ products have the potential to touch peoples’ lives in special ways. Not only was the multimedia content exceptionally compelling and convincing, it drove home to audience members how effective video storytelling can be when applied to the financial issues and challenges customers experience.In this regard Jordan’s presentation became a model for what should be standard operating practice in helping customers better understand complex financial subjects.

We live in a digital-centric society in which the preferred manner for learning isn’t reading as much as it is watching. This is a fact that financial services companies – including variable annuity providers- must recognize and prepare to deal with. I took from Jordan’s remarks that he believes (and I agree) that annuities incorporate benefits other investments don’t offer, and that they should be both positioned and appreciated for their differences rather than their similarities. Incorrect comparisons and poor product positioning of the variable annuity’s inherent benefits serve no good purpose and invite criticism. The variable annuity is really an insurance vehicle capable of helping to manage important retirement-related risks- like not running out of income when you’re old! When the product’s complete and accurate value proposition- along with its costs- is eventually conveyed correctly, an appropriate number of advisors will embrace the product and its true sales potential will finally be realized.

After his presentation I told Jordan that too few people in the annuity industry are capable of delivering a conceptually-driven, needs-based presentation on variable annuities with so much power and conviction as he. As a result, not much changes over time. I also told Jordan that if he had the means to somehow deliver his message on only one occasion to, say, 5 million Americans, the variable annuity industry would be forever changed… for the better. Jordan doesn’t run from the identity of “insurance”, he extols it, proudly.

The variable annuity industry needs to marshal its resources behind a massive effort to revolutionize its consumer-facing messaging. Kill the jargon, rider initials, complexities and confusion. Substitute for those conceptual, value-based messages that speak to the real financial risks that people face. To boost variable annuity market share, there’s nothing that the industry’s advisors need more than effective assistance in explaining the product properly. This change cannot occur until technology is used to deliver engaging and compliant content to the vast Boomer (and older) audience of consumers who really need the benefits annuities provide.

©Copyright 2007 David A. Macchia. All rights reserved.