Wooing baby boomers: insurers should try new products and approaches to reach baby boomers nearing retirement age.

While life insurers have been fairly active in the retirement income marketplace, their activities have focused more on product solutions rather than addressing broad-based consumer needs.

The traditional product offerings in the retirement marketplace have been immediate annuities and annuitizations from existing deferred annuity or life contracts, typically requiring a lump sum payment. Sales of these products have been disappointing to date. In response, insurers have introduced a variety of products with new payout features that offer promise to help boomers prepare for retirement.

One example is the guaranteed minimum withdrawal benefit for life feature. Consumers who meet the minimum age requirement (generally between 60 and 65) are allowed to withdraw 5% of their payment base annually for as long as they live. Although this does not provide as high of an annual payment as immediate annuities (typically equal to 7% to 10% of the deposit), it provides for ongoing upside participation in the separate account options. Some products allow the payment base to grow with interest if withdrawals are not taken (for example, 5% a year for 10 years) and to be reset to the account value periodically.

In order to improve their position in the retirement income market, life insurers should continue to offer innovative products and take a bolder approach to make their presence known in the marketplace. For instance:

* Apply customer segmentation/triage. Companies that have more direct access to their customer database should consider segmenting the insurer's customer database and focus on those individuals who have the greatest need for the company's retirement income products. This may consist of focusing on retirees and near-retirees whose greatest concern is protection against longevity risk. It might include finding a way to access consumers who are not readily identified by other financial advisers (perhaps individuals with invest-able net worth of less than $250,000 to $500,000).

* Create comprehensive financial planning software. Expand the use, perhaps working jointly with other financial services firms, of software that would allow working individuals to build detailed projections of their retirement income needs; track assets from a variety of financial services providers; and perform a number of what-if scenarios, including probability distributions on key parameters, such as life expectancy or equity return. This should allow consumers to gain an appreciation of the money they will need in retirement and what steps they can take to be better prepared.

* Make annuities more appealing. Media coverage of annuities, and variable annuities in particular, generally has been unfavorable. Contributing factors are the perception that annuities contain high fees and excessive product complexity. Perhaps the time has come for life insurers to consider reducing fees on certain annuities, such as variable immediate annuities, with the reduction funded by lower distribution costs.

* Create and deploy innovative products. Continue to create and deploy innovative payout annuity products. Those that offer guaranteed lifetime income with equity market participation and underlying performance guarantees have appeal.

* Enhance the quality and quantity of educational materials. The industry needs to continue creating and distributing quality educational materials, such as brochures, case studies and public interest advertising. Raising consumer awareness of the need to save for retirement and use appropriate financial products will enable the industry to distinguish itself as a viable option for customers who are in the market to buy and are seeking assistance.

* Offer flexible, broad-based solutions. Rather than advising individuals to invest all of their money in an immediate annuity, recommend investing a portion of their assets (perhaps 15% to 35%) in immediate annuities, and possibly consider other longevity risk products. The balance of assets would be kept in other, more conventional, financial products.

* Expand into alternative markets. Refocus sales efforts outside of the same markets/distribution channels used to sell variable deferred annuities; consider expanding into other markets such as 401(k) plans and association groups

* Use an alternative distribution and sales model.

Instead of continuing to push business models that promote only asset accumulation, introduce and encourage (through incentives) the use of models that emphasize decumulation of assets. This would apply to both agents and wholesalers who support the business, although it may be challenging to do in situations where insurers do not own distribution.

With more appealing products that better meet the retirement needs of consumers, the industry can grab a bigger share of what promises to be a booming market of boomers for years to come.

Best's Review columnist John Fenton is a Towers Perrin principal and consultant for the firm's Tillinghast practice. He can be reached at [e-mail].