As the new tax law sends sales of insurance products soaring, banks are cashing in on the action.
Generally, summer is a slow selling time for insurance products, but some companies reported their best months ever.
"Sales went up to an all-time high for us in August," said John M. Smith, senior vice president of equity products at the Guardian Life Insurance Co. in New York. During the first six months of the year, sales were up 40% from a year earlier, Mr. Smith added.
Industrywide Trend
Such spectacular growth isn't unique. Industrywide, sales of variable annuities and traditional insurance products were up 42% for the first half of 1993, compared with 1992's first half.
While sales of insurance products are up overall, a huge rise in sales of variable annuities is leading the way.
Variable annuities are insurance contracts that invest in underlying securities or mutual funds. Though their value fluctuates, they provide an income stream and are tax-deferred until tapped, making them especially appealing for people who want to build retirement savings or reduce their tax exposure.
By shifting money into annuities or insurance, people facing a big tax hike can reduce their burden. As a result of the tax advantages, people are flocking to variable annuities.
At Metropolitan Life Insurance Co., variable-annuity sales are already equal to 90% of the company's total sales last year, said Joe Jordan, vice president of the New York-based company.
"We've noticed a very dramatic switch from fixed-income to variable annuities," Mr. Jordan said. "Right now, about 70% of Metlife's business is in variable annuities, compared with 35% a year ago."
Bank Sales Soar
Sales of variable annuities through banks are booming, too.
"Our variable-annuity sales are doing extremely well, both in the bank market and in the broker-dealer market," said Bayard Tracy, vice president at American Skandia. The company has developed a proprietary variable annuity for Fleet Investment Services, a division, of the Providence, R.I.-based bank.
Sales of variable annuities at First National Bank of Chicago have come on "very strong in the last 60 days," said First Chicago's Richard Davies.
In the first half of this year, sales of variable annuities reached $19.5 billion, according to R. H. "Rick" Carey, publisher of the Variable Annuities Research Data Services Report. Bank sales were 6% to 10% of the business, Mr. Carey estimated.
"It's a relatively big jump from last year," Mr. Carey said. As of midyear, sales of variable annuities were 68% of total sales for all of 1992, he said.
Further Growth Expected
Industry analysts expect sales of variable annuities to continue to grow. "I'm estimating a $40 billion year," Mr. Carey said. "And 1994 is going to be even bigger."
And it's not just insurance agencies that are licking their lips in anticipation of increased investment assets.
Variable-annuity sales will reach $100 billion a year by 1995 or 1996, Mr. Carey predicted. At the same time, he said, there will be "a whole new generation of products called immediate variable annuities, which will have a big impact on bank sales."
Mr. Jordan of Metlife forecasts that banks will sell variable annuities more in the future: "Banks will evolve from selling fixed-income products to mutual funds to variable annuities."
No Extra Marketing
While sales of insurance products allowing tax deferral got a boost from the President's tax program, they were rising even before the plan passed.
Despite the sudden surge in popularity of insurance products, Mr. Smith said his company is doing nothing new in marketing.
"We think what the government has done is pretty good," Mr. Smith said. "Any undue emphasis on marketing at this time might be counterproductive," he added, and even draw attention to one of the few remaining tax breaks.
"We see no need to underscore the benefits of these products," he said. "The market is doing enough of that itself."
"If someone is going to give you a tax deduction for saving," Mr. Jordan advised, "take it."
