Companies that help banks sell investment products say their annuity sales through banks have been on the rise, given the favorable interest rate environment and development of customer-friendly products.
"In the last year, annuities have gotten a real shot in the arm with rising interest rates," said Jack R. Handy Jr., a senior vice president at Financial Network Investment Corp., a firm that sells investment products through 140 banks and credit unions. "And for the right investor, who may be very conservative and for whom this is the first investment after a CD, that's the natural product for them."
Financial Network Investment, based in Torrance, Calif., last year sold $400 million of variable annuities, about 40% more than during the previous year, said M. Shawn Dreffein, the company's head of insurance.
Companies like Financial Network Investment, known in industry lingo as third-party marketing firms, are riding the wave of annuities' increased popularity among bank customers. Last year, sales of annuities through banks rose 36%, to $18.4 billion, according to Kenneth Kehrer Associates, a consulting firm based in Princeton, N.J.
"We predict that annuity sales through financial institutions will double, or even triple, by 2000 because of the increased distribution of these products," said Michael McCoy, a senior vice president at Holden Group, a Los Angeles-based investment products marketer that sells through 100 banks.
By acting as intermediaries, the marketing companies say, they can help banks and insurance companies work together on creating products that bank customers will like.
Mr. McCoy's company, for example, owns Security First Life, a product developer whose nine annuities - eight fixed and one variable - Holden Group markets through banks.
Because of this close relationship to the product creator, Mr. McCoy said, his company in January came up with a variable annuity that can be issued instantly. (While most fixed annuities are issued this way, variable annuities are not.)
But Ms. Dreffein said insurance companies, once known for their unwieldy bureaucracies, are themselves recognizing the need to streamline and to produce easier-to-digest products.
Ms. Dreffein, whose company works with 24 insurers, cited the example of shorter surrender charge periods - the time before a policy owner can surrender an annuity. She said that, until five years ago, these periods were as long as nine years. Now, they're down to between five and seven years.
Ultimately, third-party marketing firms said, annuities are selling better in banks because their features have become more customer-friendly. Annuities are easier to understand and easier to tap into when liquidity is badly needed, mostly because bank customers have demanded changes.
"The bank customers are telling us what they want, and insurers are reacting to that," said James D. Corbin, head of product development at the Laughlin Group of Cos, Beaverton, Ore