The Great Recession has fostered portfolio losses, which in turn have reduced the reserves needed to cover inforce business and support new annuity sales. Fixed annuities are heavy reserve users; thus, issuers are discouraging, or in some cases refusing, new annuity business. The carriers that are still accepting new annuity business are developing strategies to stretch the use of their reserves to support more annuity business. In the past several months, these strategies have resulted in reduced commissions, withdrawal of less-profitable and reserve- rich products, lower maximum issue ages, stopping the appointment of new agents, raising the suitability standards, increasing rider costs, rationing the business taken from marketing companies, and purposely making their annuity products less attractive. These actions have diverted business away from the carriers closing their doors toward those with less onerous adjustments. Those companies still openly accepting business are finding their pipelines filling rapidly and their reserve burn increasing. If current conditions persist – and it appears they will – expect even lower commissions and additional nooses to strangle new business. Also, do not be surprised if more carriers stop accepting new business or switch their efforts to reserve-efficient life insurance. If you’re new to the business, these are bewildering developments that threaten to lower your income.

In the meantime, producers are having difficulty finding homes for their annuity business. Plus, the increasingly stringent requirements imposed by the open-for-business carriers are causing many cases to be rejected and returned. The carrier-owned marketing companies are pleading with the open-for-business carriers for a distribution agreement, but in most cases these carriers are not willing to bail out marketing companies owned by competitors. The suddenly-orphaned producers who were associated with captive marketing companies are scrambling to find independent marketing companies to take their business. While this situation has developed silently without much notice by many writing producers and marketing companies, it will no doubt worsen over the months ahead. If you’re new to the business, this unanticipated development may be a serious challenge to your livelihood. You need to make contingency plans today if you intend to offer annuities throughout 2009.

It’s necessary that you act on several fronts to protect your business. First, carrier diversification should be a top priority so that if your current carriers move to the sidelines, you will have backup carriers and a plan B. Also, if your business is now concentrated in one carrier, you should immediately start placing some of your business with another carrier just in case. If your favorite carriers stop taking business – and such is a real possibility – you’ll get little attention from a backup carrier unless you have previously given them meaningful business. You not only need backup carriers that you’ve given business but also a solid relationship with your marketing company to insure that you’ll get preferential treatment. If a marketing company is forced to ration shelf space with a carrier, they’ll take care of their loyal and active producers first. Accordingly, if your current carrier appointments and business are scattered over several marketing companies with none getting a majority share of your annuity business, you may find yourself at the end of the line. Carrier diversification with marketing company concentration is your best insurance policy. But, make your selections carefully to avoid future disruption.

At BHC Marketing, we represent over twenty annuity companies, but we concentrate our business with six. These six primary carriers were carefully chosen. None own competing marketing companies which guarantees that BHC will get equitable treatment if sales are rationed. Recent developments have proven that BHC has wisely selected carrier affiliations, because all of our primary carriers are open for and eagerly seeking new business. Also, by concentrating business in only six primary carriers, each gets substantial volume that makes BHC a key and loyal partner worthy of special treatment in trying times such as now. At this point, BHC has room for additional producers who are willing to develop a multiple-carrier relationship and start placing business with us. Thus, if you find yourself on the outside looking in and are willing to appoint with or transfer existing appointments to BHC, we are willing to give you a safe harbor to protect you from the rough seas that have developed in the annuity business. Also, we can help you grow your business with programs that are field-tested and effective. Give us a call if you’re in need of a new home.

Shelby J. Smith, Ph.D.
May 2009  

« PREVIOUS ISSUES »

« SUBSCRIPTION PAGE »