The financial systems of the US and the world have experienced a peril not seen our lifetime. In this environment, greed has been replaced by fear; optimism by pessimism; confidence by doubt and gain by pain. For the first time in generations people are genuinely more concerned about the return of their principal than the return on their principal. Safety and security is suddenly more important than risk and return.
However, with every negative there is a positive. This is a bad time to be a bank or investment firm, but it is a great time to be selling old-ashioned, boring, safe, fixed annuities. In fact, if you can’t sell fixed annuities in this environment you couldn’t sell ice water to a safari in the Sahara. Which would you rather be now: An insurance agent selling fixed annuities or a stock broker selling securities?
The irony is that in an effort to compete during the high-flying financial times insurance companies moved away from the strength of fixed annuities to offer products that sought to mimic investment products. We know now that approach was a mistake. The current financial reality check is an opportunity to get back to the fundamentals of the annuity contract and sell them for what they do best – as a vehicle for safely accumulating money on a tax deferred basis for later payout as income. No longer do we have to feel like we are putting lipstick on a pig. In times like these, boring is beautiful. Suddenly, we have the prettiest girl at the dance.
In the 1950s, during the height of the cold war, companies made millions selling backyard bomb shelters designed to protect families against potential nuclear attack. Thankfully, real nuclear war never happened, but today consumers are faced with a real nuclear financial meltdown and the only shelter available to protect them and their funds are fixed annuities.
Let’s use this opportunity to get rid of the gimmicks and artificial add-ons that have attracted negative legal, regulatory and media attention to our annuity products and get back to highlighting what the annuity product does best – providing safety and security at a justified and reasonable return. That does not mean that we can’t be innovative and creative in product design, but it does mean developing better true annuity products, not products that try to impersonate investment products.
It is time to get back to offering fixed annuity products that are based on real value rather than some obscure indexed potential performance. If the insurance industry will use this crisis as a time to develop and market fixed annuity products that offer the safety, security, benefits and value that only insurance companies can promise, then these products will sell well in both good and bad times. Just as our great-grandparents never quite trusted banks after the bank failures of the 1930s Great Depression, those living today and experiencing this financial crisis will never again be quite so trusting of the high-flying investment community. Shame on us in the fixed annuity industry if we fail to take advantage of this opportunity to fill the void of trust lost by investment products that offered the exuberance of eternal sky-high returns only to have the sky fall.
The insurance industry was the only segment of financial services that could proudly claim that not one policyholder lost one dollar deposited with an insurance company during the Great Depression. For this record the insurance industry was reward by the consumer with a half-century of tremendous growth. Today the insurance industry has another opportunity to stand proud and offer products that do what no other financial products can do and that is to perform consistently, safely and securely in both good and bad times. If the industry does so, then the insurance companies and their agents can look forward to another half-century of success.
(This article bylined by Bob MacDonald was originally printed in Insurance Marketing, the premier source for marketers of life, health, and financial products.)