Annuity Insurers Must Increase Commitment With More Education, Better Products -- Speakers at Tillinghast - Towers Perrin Briefing Warn of Missed Opportunities --.

Business Editors

NEW YORK--(BUSINESS WIRE)--October 20, 2000

Insurers need to immediately commit substantial time and resources to education, marketing, product design, and distribution of payout annuities in order to benefit from the coming boom in the annuities sector, according to five speakers at a Briefing on Retirement that was sponsored by Tillinghast - Towers Perrin yesterday in New York City.

"Planning for retirement has never been so important," according to John M. Fenton, principal at Tillinghast - Towers Perrin in Atlanta. "With individuals retiring younger and living longer, the insurance industry needs to develop payout annuities that are more responsive to the unique needs of the modern retiree, who is actively looking for income that will supplement Social Security."

Mr. Fenton was one of the featured speakers at the Tillinghast - Towers Perrin Briefing on Retirement, along with Nancy M. Kenneally, Jonathan Hecht, and Charles Wolstein of Tillinghast - Towers Perrin, and Farrell Dolan, Senior Vice President of Marketing at Fidelity Investments. The speakers also noted that the insurance industry, though faced with a customer population that is ready for multiple retirement products, does not yet fully understand how to tap into this burgeoning market.

"While the amount of assets built up in some retirement products has grown dramatically in recent years, the payout annuities market has not yet fulfilled its potential," according to Mr. Hecht. "Given the available choices, such as deferred annuities, IRAs, 401(k) plans, and mutual funds, it is surprising that there has been so little growth in the sector. Even with current asset levels in excess of $6 trillion, there is still room for improvement. The industry needs better education, better marketing, better products, and better distribution."

"You need to change some attitudes before this market grows to its potential," Fenton said. "Customers need to recognize how annuities can supplement their savings and pensions. Insurers need to make these products more attractive for customers and distributors. It can be done, but someone has to take the first step."

The briefing examined some of the barriers to acceptance in the annuities market, including:

-- Lack of product knowledge: In general, the population knows very little
about payout annuities, how they work, and when they are appropriate.

-- The complexity of annuities: These relatively complex products come in
several forms, such as fixed versus variable and have multiple payment options.
Consumers may have difficulty understanding the differences, according to the
speakers.

-- The mindset problems: In addition to changing the emphasis from savings to
income, there are other issues involved. For example, purchasers who invest in
annuities may feel a lack of control over their own money. Also, there may be a
gap between the perceived needs and the real needs of an individual's
retirement plans.

In order to overcome these obstacles, the speakers called on annuity insurers to develop a four-part strategy for success, consisting of focused education, repositioning products in the retirement planning process, redesigning current products in order to make them more attractive and more practical, and implementing reliable distribution channels for the products.

Focused Education: Since both distributors and consumers have limited knowledge of payout annuities, insurers need to focus on educational tactics such as specialized marketing materials, agent training, and dedicated newsletters. "People are hungry for information," Wolstein said. "And we need to develop reliable distribution channels for getting it to them."

Reposition Products in the Planning Dialogue: Both insurers and distributors need to consider how annuities should be positioned in discussions of retirement, Fenton and Wolstein said. "Retirees need to know how annuities can fit into their big picture," according to Wolstein. "If the financial planning community were to embrace these products, we would see a quantum leap in activity."

Redesign Products: Kenneally noted that, although current annuity offerings have several features that could make them attractive to the average retiree, including lifetime income and favorable taxation, insurers need to develop more payout options in order to make them even more enticing to customers and distributors.

Develop Reliable Distribution: The industry needs to develop reliable, renewable methods of distribution for products and information about them. This means that marketing, sales, and administration must all be coordinated for maximum effect and benefit, according to Wolstein.

"According to Tillinghast - Towers Perrin models, the immediate annuities market has the capacity to grow from $5.6 billion in year 1999 to $19.2 billion in year 2003," Fenton said. "That's a potential tripling, or more, of investments in payout annuities. To get there, we need to start now. This opportunity may not happen again."

Tillinghast - Towers Perrin provides management and actuarial consulting to financial services companies worldwide. In addition, the firm's risk management practice consults to a wide range of companies beyond the financial services industry. Tillinghast - Towers Perrin's consultants help clients improve business performance through quantitative analysis, insight and execution. They work with clients to develop strategies that are tailored to their needs. Tillinghast - Towers Perrin is part of Towers Perrin, one of the world's largest independent consulting firms, with a staff of over 8,000 in more than 20 countries.