By: Matt Carey
Matt Carey is co-founder of the online annuity marketplace Abaris and former policy advisor at the US Department of Treasury.
With an aging population and a declining portion of Americans who are covered by a pension, the annuity market should be stepping in to fill the gap. But the reality is much different. Luckily, technology is making annuities easier for insurers to sell and a better value for consumers.
The idea behind a life annuity is simple. It’s the closest proxy in the private market for Social Security or a pension. Social Security often doesn’t go far enough and fewer Americans than ever have pensions, meaning there’s a financial gap to fill for many retirees. But according to LIMRA, the total annuity market is 10% smaller than it was in 2008. The retirement of Baby Boomers suggests a market that should be thriving, not one that is well off where it was seven years ago, before Baby Boomers started entering retirement in droves.
So why aren’t annuities accounting for a bigger portion of retirees’ retirement income planning? Let me offer a reason that I’ve become very familiar with recently: the traditional annuity buying process is more antiquated, opaque, and expensive than it needs to be. To borrow the words of Dick Thaler, “buying [an annuity] can be scary and complicated.”
So what’s the silver lining? Today’s challenges are solvable through technology. Technology need not replace humans in the annuity buying process, but it can go a long way to supplement it. And that technology exists today.
Bringing Technology To Annuities
Here’s are three reasons why the annuity market is in need of a reboot and how technology can help.
- The process needs to start with unbiased information, not a sales pitch. “Annuities are sold, not bought” passes for conventional wisdom amongst many insurance agents. But if they are such powerful tools to prevent outlasting your retirement savings, shouldn’t they sell themselves? In the long run, real advice benefits everyone. Those consumers who eventually buy are a better fit, and therefore more likely to recommend it to their friends or coworkers.
- How Tech Can Help: It often isn’t economical for agents or advisors to invest a lot of time with top-of-funnel prospects. But not only can online product education and discovery be more economical, it can also be more tailored. Using Youtube, SlideShare, and Khan Academy-like learning modules, it’s possible to deliver this.
- Potential buyers should be able to easily compare across providers. Today, investors can execute trades on eTrade in seconds. But the kind of quoting and purchasing developments in the stock market are just starting to happen in the annuity market. Have you tried to connect with insurance agents representing every major carrier and get a quote you could compare across them? I have. Thirty phone calls over two weeks yielded fewer than ten quotes, half of which were not for the parameters that I had requested.
- How Tech Can Help: With some basic information (fewer than 10 questions), our platform can both help users begin to figure out whether they might be right for an annuity and collect all the information necessary to provide a real-time quote. Our tech has cut down that two-week process to about two minutes for seven insurance carriers and we hope to be able to provide a view of the entire market soon. We’re uncovering price discrepancies for some quote parameters of up to 15% between insurance carriers with the same credit ratings.
- The process needs to be more transparent. Why are you being recommended one product over another? Is it in your best interest or in the agent’s? Both proponents and opponents of the new application of the Fiduciary Rule by the Department of Labor have one thing in common–they almost all have said that consumers deserve to be receive advice that is in their own best interest.
- How Tech Can Help: Technology will make it easier to comply with a DOL final rule that would require advisors to do a full market check before making a product recommendation.
The Future Of The Annuity Market
A more tech-enabled annuity market benefits everyone. Insurance companies will have more efficient distribution partners (a cost saver) and a better way to connect with the growing share of web-savvy consumers (a revenue grower). For consumers, the advantage is clear. Better education, more comprehensive product comparison, and a joyful buying process. And for the most effective distribution agents and advisors, technology represents an opportunity to focus on the core business of providing value-add advice and finding new clients.
It’s time for a new dawn in the annuity market and tech must be at the core of it.
This piece was originally posted on September 10, 2015, on the Pension Research Council’s curated Forbes blog. To view the original posting, click here.
Views of our Guest Bloggers are theirs alone, and not of the Pension Research Council, the Wharton School, or the University of Pennsylvania.