The people who owned fixed annuities were protected when the bottom fell out in 2008. Ironically, the companies that issued those annuities have not been so lucky. Insurance companies are continuing to feel the effects of the bad economy more than two years later.
Most notably, the record low interest rates we’ve been experiencing have severely squeezed companies’ ability to turn a profit. Last year, many carriers responded by actively working to curb production. This year we’re seeing companies reducing fixed interest rates, reducing benefits and even pulling out of the market altogether.
It’s important to remember, none of this is isolated to any one carrier and it doesn’t mean these carriers are financially unstable. In fact, the very reason insurance companies are financially viable is because they have the foresight to take such actions.
Aviva has been reducing guaranteed rates on the Balanced Allocation Annuity (BAA) and BPASelect in recent months and just recently lowered bonuses by 1% and the roll-up rate on their Income Advantage rider from 8% to 6%.
As the oldest insurance company in the world, Aviva has had to make tough decisions like this before. Companies like Aviva that are in it for the long haul will do what’s necessary to stay not only solvent, but profitable. Living up to the promises that have been made to policyholders is paramount.
We understand that in the short-term these product changes put agents in the difficult position of having to go back to your clients and explain that some of the details have changed, but in the long-term they really shouldn't matter that much.
The success of the BPASelect and the BAA (or any other quality Fixed Indexed Annuity) has never been about rates. It’s time to get back to the fundamentals of why people actually buy these products and why we sell them.
Principal Protection — This is still the most compelling story you can tell about fixed indexed annuities: In 2001 and 2008 when the market dropped by nearly 50%, not a dime was lost in fixed indexed annuities.
Guaranteed Lifetime Income — People who are retiring now are looking for a way to convert their assets into income. FIAs offer an efficient way to create an income stream they cannot outlive.
Tax-deferred Growth — Even though the rates are low right now, you can still talk to your clients about how tax deferral will help them accumulate money faster because they earn interest on dollars that would otherwise be paid as taxes.
Participate in market gains, not the losses — This is a powerful benefit as well — especially with fixed rates so low. Participation in market gains gives your clients the opportunity to achieve more than a 2% or 3% gain without any of the risks associated with the market.
Plus, the BAA and BPASelect add even more features.
Uncapped participation in the Balanced Allocation Strategy — The BAA and BPASelect are not subject to the caps and participation rates seen in many FIAs.
Track values daily — This ensures that your clients always receive full value for their annuity up to the day. With annual reset products, they would lose any gains on dollars taken out before the 365th day.
Family Endowment Rider — The BAA and the BPSSelect are the only FIAs on the market that offer a guaranteed death benefit rider. When you consider that 80% of annuities end up being inherited, this issue should be critical to your clients.
Even with the recent changes, all of these advantages are still in place. So the story you are telling to your clients should not change.