Insurance companies looking for an edge in the competitive retiree market are creating early-withdrawal options for their variable annuities, largely to attract baby boomers nearing retirement.
Insurers say early-withdrawal options can help banks and other annuity providers customize retirement strategies. But an analyst said the new options may confuse bank salespeople.
John Diehl is the vice president of advanced markets at Hartford Financial Services Group in Wayne, Pa.
"It seems to us that the number of withdrawal benefits versus other types of benefits has just exploded over the past few years," Mr. Diehl said Thursday. Many insurers are introducing early-withdrawal options to capture a larger share of retiree wealth, particularly as the baby boomer generation approaches retirement, he said.
Jackson National Life Insurance Co. of Lansing, Mich., believes its recently expanded lineup of withdrawal benefits will help it address the needs of retiring baby boomers, said Steven Kluever, the vice president of product management for Jackson National Life Distributors of Denver, its distribution subsidiary.
"The first boomers are hitting age 59-and-a-half, and people are starting to contemplate retirement very seriously," Mr. Kluever said.
But Carmen Effron, the president of the CF Effron Co. bank insurance consulting firm in Westport, Conn., said bank salespeople, who typically focus on more traditional bank products, such as savings and checking accounts, may find it difficult to grasp the nuances of early-withdrawal options.
They may not know whether such benefits are appropriate for customers unless they do in-depth financial planning sessions with them, Ms. Effron said.
"These features are not easy to explain, particularly if you're using a transactional approach rather than a consultative approach," she said.
Annuity providers should offer educational materials for bank salespeople, particularly because regulators are scrutinizing variable annuity sales harder, Ms. Effron said.
Mr. Kluever said Jackson dispatches its wholesalers to educate bank representatives on-site, because it recognizes that they may have trouble deciphering its menu of variable annuity options.
Jackson also offers banks a five-step guide to determining which variable annuity features might be appropriate for customers. It also provides an optional benefits questionnaire and a 10-question risk-profile questionnaire for banks to use with their customers.
The company, which has had three early-withdrawal options for several years, added a fourth and fifth, AutoGuard and MarketGuard 5, last Tuesday.
Both permit annual withdrawals of up to 5%, regardless of the annuity's performance. AutoGuard also provides upside potential through investments in equity and bond markets and lets investors increase the size of the annuity contract automatically every year for 12 years.
Hartford has also added early-withdrawal options in recent years. Mr. Diehl said the 2001-02 market bust made investors want the ability to make such withdrawals.
"The traditional way of thinking was just to invest your client in mutual funds and take a systematic withdrawal every year," he said. "That was fine in the 1990s, when you could pull a 6% cash flow and the market would always return 20%.
"Then you had 2001 and 2002, when people who were needing to retire were faced with the reality that with drawing down on assets you could really face the possibility of running out of money."
Investors also like early-withdrawal riders because they offer a more flexible cash stream than strict annuitization does, Mr. Diehl said.
"They're a bridge to the income-planning problem," he said. "They offer another solution to people who need some form of income guarantee."
Like Jackson, Hartford offers tools to help bank salespeople understand and explain the options. "We try to provide clear marketing materials to explain the differences between the benefits we offer," Mr. Diehl said.
Hartford introduced its first withdrawal benefit rider, Principal First, in 2003. It allows investors to withdraw 7% per year, with total protection of principal. Customers can expand the annuity contract every year for the first five years.
Principal First Preferred, introduced last year, allows withdrawals of 5% each year but not the opportunity to increase the contract.
Sun Life Financial U.S. of Wellesley, Mass., introduced an early-withdrawal benefit in 2003. It allows investors to withdraw 7% per year and expand the contract every five years.
Mary Fay, the company's general manager of annuities, said it relies mostly on its wholesalers to explain the features and benefits of its variable annuities to banks and other distribution partners.
"Complexity has come up as an issue," said Ms. Fay, a vice president, but Sun Life's wholesalers, who average 14 years of experience in the field, can do the educating.
The company also provides easy-to-understand marketing materials for customers, Ms. Fay said. Consultants review the materials to ensure that they are written in "plain English," she said.
Sun Life also offers a continuing-education program for retail representatives, including bank salespeople, to explain the features and benefits of its products, Ms. Fay said.
