Needham, Mass. – The U.S. population expected to be 65 years old by the year 2025 has been mistakenly portrayed in the popular press as the unstoppable yet ever-growing population of zombies walking stiffly forward in a scene out of the 1968 movie classic “Night of the Living Dead.”

The humor in this notion flies in the face of this group’s reality. The more than 20% of the U.S. population expected to reach 65 in the next 15 years or so will be diverse and very much alive, and will need financial products that can guarantee an income stream during what many industry experts are deeming a long retirement.

This reality, however, has not escaped some insurance companies that, according to TowerGroup, a Needham, Mass., research firm, will be well-positioned to meet retiree needs with annuity offerings, but only if they make some strategic changes in their approach to this growing market.

Currently, more than 40% of U.S. variable annuity sales are generated from existing annuity assets. This statistic indicates that insurers have not yet convinced a large percentage of current or future retirees that annuities are central to a comprehensive retirement plan, according to TowerGroup.

“It is imperative that insurers create an environment where customers and advisors feel secure and comfortable with annuities in order to attain real market growth,” said Rachel Alt-Simmons, a senior analyst in TowerGroup’s Insurance practice and author of the research. “Building customer understanding and trust can only be achieved by making both annuity products and business processes more transparent.”

Alt-Simmons believes that insurers will have a better chance of capturing the bulk of this incoming business if they focus on reducing product complexity, improving the sales process and improving suitability screens. And scaling up for this effort will require strategic planning, dedicated effort and the right technology.

Speaking of scale, according to TowerGroup’s research estimates, retirement assets in the United States represented $18.5 trillion in 2007, a market ripe for the taking.

TowerGroup’s research also revealed that in addition to demographic shifts relative to aging, ethnographic changes also are reshaping the country. By 2020, the foreign-born population in the United States will reach 15%, the highest level in more than 100 years. TowerGroup believes insurers must address this change by adapting their financial products to better suit diverse populations and varying cultural habits.

And, says the research firm, regulations have not kept pace with financial innovation, leaving the door open for investors to purchase unsuitable products. This has led regulatory authorities in the United States, United Kingdom and Japan to create rules aimed at protecting investors from unsuitable investments and unfair sales practices. Insurers who don’t play by these rules face tough penalties. In February, Minneapolis-based Allianz Life Insurance Co. of North America reached a $10,050,000 settlement with the California Department of Insurance over allegations that it sold senior citizens unsuitable annuities.

To appeal to this changing, yet growing retirement market, insurers must reconfigure and enhance their annuity offerings—reducing product complexity by returning to the basics. TowerGroup recommends that insurers consider: creating a client bill of rights; changing the compensation structure around annuity products; more closely monitoring sales practices; enhancing disclosures for customers; and making it easier overall to do business in this area.

“Insurance companies must become more accountable for suitable sales and operational practices around annuities,” added Alt-Simmons. “The insurers who take on this challenge will both help consumers and drive grow h by providing investments that are appropriate and effective in meeting retirement income needs.”

And unlike zombies, these over-65 consumers have every intention of taking an active role in their financial planning, say experts, before it’s too late.

Source: TowerGroup, INN archives

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