Life insurers have been seeing hefty rates of redemption in segregated funds, but as baby boomers begin to retire in large numbers, insurers see sizeable opportunities to provide other innovative new retirement savings and income vehicles.
In a panel discussion at the Canadian Association of Independent Life Brokerage Agencies (CAILBA) annual meeting in Toronto, insurance company representatives said sales of segregated funds have been gradually trending lower over time. Industry gross annual sales fell to $11.4 billion in 2012 from $15.7 billion in 2007, according to Trevor Archer, head of guaranteed investment products research and development with Manulife Private Wealth.
“The trend in the last five years has been alarming,” he said. “We’ve seen sales drop off.”
Largely contributing to this trend is the rapidly evolving market for segregated funds that have guaranteed minimum withdrawal benefit (GMWB) features. As insurers have been taking steps to raise the price and dial back the guarantees associated with these products, sales have taken a considerable hit.
“We’re seeing it in our sales numbers,” said Archer. “They’re just not coming around and buying it in the same numbers that they once did.”
Some carriers have pulled these products from their shelves altogether, as it became clear that the guarantees associated with the products carried too much risk in weaker economic environments, and as capital requirements have continued to climb. Others have simply tweaked the features in an effort to make the risks more manageable.
Archer pointed out that Manulife has launched three different revised versions of its IncomePlus GMWB product since 2009, in response to the challenging market conditions.
“The products weren’t designed for a falling interest rate environment; they weren’t designed for volatility,” said Archer.
He said insurers such as Manulife are now going back to the drawing board to develop income products that are more sustainable in the long run. “Income is where we’re focusing a lot of our dollars right now, a lot of our attention,” said Archer.
Specifically, they’re designing products that are more flexible in nature, and which can adapt to changing economic and interest rate environments. “Products that have payout features are going to need to adapt,” he said. “We have to be able to adjust the guarantees over time.”
The goal is to find a balance of features that is attractive for clients and advisors as well as manufacturers, according to Kirk McMillan, regional vice president, sales retail markets with Standard Life.
“I don’t think we’re done with the iterations of what GMWBs look like,” he said. “I think it’s going to continue to go until we find that balance.”
Given the vast number of Canadians who are headed into retirement, insurers see huge opportunity in the retirement income market. Specifically, 4.4 million Canadians will be retiring in the next 10 years, Archer said.
“Financial wealth is going to remain concentrated, in the next 10 years, with those over 65,” he said. “You have money, you have masses, you just need the right products to give them income.”
As products continue to evolve, advisors will play a critical role in helping clients choose the income solutions that best meet their needs, according to Paul Holba, vice president, retail investments distribution with Empire Life Insurance Co.
“I believe that the real opportunity for the advice channel is taking products and working with the individual in putting together a plan that works for them, combining all the different elements of all the different products that are available to them,” he said.