Mining The Annuity Distribution Opportunity
June 3, 2013 by Cyril Tuohy
For Lincoln Financial Group, growth in 2013 will come from strengthening its relationship with distributors who sell the company’s life and annuities products, according to the company’s chief executive.
As one of the nation’s top sellers of life and annuities, deepening the reach into the distribution channel is to be expected, but the nuances matter. What products is Lincoln planning to tweak? With whom is Lincoln proposing to deepen its distribution reach? What forces are driving these trends? Is Lincoln ahead of the competition or reacting to it?
“Scale is clearly important but having a high-quality distribution group that can enable our overall product strategy is critical,” Dennis R. Glass, Lincoln Financial’s president and chief executive officer, said in a speech to shareholders during the company’s annual meeting.
Recent developments that were announced previously reveal exactly where and how Lincoln wants to develop its distribution relationships.
Earlier this month, Lincoln Financial Distributors, Lincoln Financial Group’s wholesale distribution arm, announced new investment options for its Choice Plus Assurance and American Legacy variable annuity product lines.
Beginning July 1, Primerica advisors and representatives will be able to recommend Lincoln’s Choice Plus Assurance variable annuity and Prime Income Optimizer, a new fixed indexed annuity.
On the group retirement side of the business, Lincoln said it would expand its partnership with Bank of America Merrill Lynch’s Advisor Alliance program for employer-sponsored retirement programs by offering a variable annuity option, targeted at small businesses.
The strategy is to pivot from individual life to products that carry higher returns, Glass said, and to manage the transition in annuities to risk management funds, and push for stronger sales in group protection.
With interest rates low and pressure on interest margins affecting the life insurance industry in general, annuities with variable investment options are more attractive than ones with fixed rates. Fee-based products like those sold for the group retirement programs also help to offset the low interest rates, analysts said.
The changes are part of how life insurance companies are re-evaluating their risk appetites to reduce their exposures to interest rate and market fluctuation.
Lincoln Financial reported first quarter net income of $239 million, or $0.86 per diluted share, on revenues of $2.84 billion, compared to $243 million, or $0.82 per diluted share, on revenues of $2.71 billion in the year-ago period.
New or revamped products to be rolled out this year include expanding the company’s Risk Portfolio Management Funds in the company’s annuities business, and making changes to its universal life product portfolio and MoneyGuard product line.
Though pricing for variable annuities has gone up while the coverage terms have contracted, demand for the products remains strong, Glass said. “To help us maintain profitable growth through all of our businesses, we have initiated several pricing and/or benefit changes as well as shifting to products that produce better returns in a low interest rate environment,” he said.
Glass also said that consulting firms that previously did not place any business with Lincoln now account for 50 percent of the company’s sales pipeline in the mid- to large-client segment.
Lincoln’s expansion of its distribution channels, helped by big investments in front and back-office systems to improve customer experience, now comes to more than 8,000 retail advisors, 600 wholesalers, and 500 worksite specialists. As a result, 65,000 independent producers chose Lincoln products for their clients last year, Glass said.
“We have actively expanded distribution over the last few years, particularly in our retirement and group segments, which has meaningfully contributed to sales growth to these businesses,” Glass added.
He explained that the company would “continue to build on our strategic investments in distribution with an eye to expanding an already powerful resource.”
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at Cyril.Tuohy@innfeedback.com.
