CONFERENCE CALL: Variable annuity business moves into the fast lane

The variable annuity industry is doing just swell, thank you.

Perhaps no better proof is needed than an impromptu poll taken by talk-show host Jay Leno, who was a featured speaker at the National Association for Variable Annuities’ annual marketing conference.

On a balmy evening earlier this month in Rancho Mirage, Calif., near Palm Springs, he asked people in the audience what kind of car they drive. To contented laughter, one after another called out: “Mercedes, Mercedes, Mercedes.”

“This is truly the Golden Age of variable annuities,” beamed Mark J. Mackey, Nava president and CEO. U.S. assets under management in variable annuities have topped $1 trillion.

grand times

Sales grew more than 21% in 1999, continuing a strong upward curve through the decade. Rick Carey, president of the Vards Report in Marietta, Ga., predicted net new premiums of $150 billion this year. Mr. Mackey also announced a new Nava consumer website (www.retireonyourterms.com) and a national advertising campaign to promote the business.Another sign of grand times is that companies can afford big name speakers who have nothing to do with annuities. Companies from insurer Conseco Inc. to mutual fund tracker Morningstar Inc., to banking company Delaware Valley Financial Services Inc. have brought in speakers like Mr. Leno to entertain their conferees.

Former New York Gov. Mario Cuomo, now with the New York law firm Willkie Farr & Gallagher, poked genial fun at the audience by quoting what he grasped when he asked one member what a variable annuity is: “It’s de dee da do de dum de do — and then you die.”

Mr. Cuomo’s theme was “The American Character and Values,” a talk ending with an eloquent reminder of the dark side of this golden age — lack of adequate health care and income disparity, among other continuing ills.

“This is the speech that defeated me in 1994,” he cracked.

internet prominent

Later he commented to InvestmentNews about his nationwide corporate speech-making, “You do what you can do. But you make a real impression now only on TV, and soon on the Internet.”

Indeed, the Internet was prominent at Rancho Mirage, with industry leaders emphasizing that despite the upheaval from consolidation and the competition from the Internet, the personal link between advisers and their clients will not falter.

“There’s a bright future for advisers,” said Thomas Marra, executive vice president of the investment products and individual life divisions at Hartford Life Inc. He predicted that a decade from now, 85% of variable annuities will still be sold by financial advisers.

increasing investment

Wade Dokken, deputy chief executive and president of marketing at American Skandia Life Assurance Corp., agreed. “We don’t see the Internet as the near-term distributor. Retirement plans are complicated,” he said. “We see the Internet as being a profound help, with its tools, but we’re not looking anywhere but the advisers.”

Still, Skandia is increasing its Internet investment tenfold this year and urges the rest of the industry to do likewise.

“As an industry,” said Mr. Dokken, “we don’t have the technology platform that the mutual funds do. By the end of this year, if your customers can’t do everything they want on an Internet site, you will no longer be competitive.”

Yet more than websites and marketing campaigns will be needed to continue the growth of variable annuities. “There will have to be improved products,” Mr. Dokken noted. “Variable annuities have got to be painless. People want choice. They want to get their money out if they decide to.”

Mr. Marra admitted that his own mother was frustrated by some aspects of her variable annuity. “It drives her crazy that she doesn’t know month-to-month what her deposit is,” he said. “We have a ways to go.”

On other fronts, Market Metrics Inc., a research firm in Cambridge, Mass., released results of a December survey of 2,400 registered reps that suggests how variable annuity companies can improve their use of the Internet.

“The companies that we believe will be victorious in the next five years,” said president Steve DeLano, “will be those that integrate their websites into all their operations.”

He said he was surprised at how quickly the Internet has been adopted in the reps’ work. While wirehouse and regional brokers had earlier used the Internet “clandestinely, at home,” he noted, now fully 72% get research, quotes and performance data and read online publications from their offices.

Less of a surprise: 86% of financial planners use the Internet for work. Mr. DeLano urged variable annuity companies to put more effort into their websites, emphasizing simple organization, constant updating, minimal technical problems and promotion.

“The `Field of Dreams’ strategy –build the site and they will come — doesn’t seem as effective as a promotion that drives people to your site,” he advised.

Charles J. Cavanaugh, senior vice president and national sales manager for Ameritas Variable Life Insurance Co., used the Internet himself to dig up a poem called “Plastiphobia” (“The planet is turning plastic….there will soon be plastic beer so we can hoist a plastic toast….”) which he read as chairman of a panel called “The Resurgence of Polyester in the 21st Century.”

sales growth

His elaborate spoof emphasized that life insurance, in its variable incarnation, is about to make a spectacular return to the consumer marketplace — along with the life-insurance salesperson.

He cited sales growth of variable life insurance at 15% to 17% annually for the past few years, with it now holding 38% of life insurance market share. Career insurance agents still sell most of the variable life policies — 58% — but he noted that independent brokerages are “coming on strong,” currently with 35% of sales, and showing faster growth than career agents.

He added that 37% of financial planners now sell variable life insurance. “By the end of this decade, this will be called NAVL –the National Association of Variable Life insurance,” Mr. Cavanaugh predicted.

First, though, an education effort is needed, said Jerald Hampton, executive vice president for estate and trust services at Salomon Smith Barney. The biggest deterrent he has found to brokers selling variable life is that many don’t understand how it works.

“Brokers won’t bring up insurance if they think they’re going to look stupid,” he said.

On the bright side, he’s noticed an advantage to brokers who can explain variable policies.

Whatever they’re selling, will insurers and financial advisers still be driving Mercedeses in 10 years?

Mr. Dokken is optimistic. Though he predicts that average fees will decline, assets under management will grow dramatically.