The FIDx Five: Life Insurance and Annuity Customer Satisfaction

Retirement, Annuity, & Fintech Insights 

In this week's edition of The FIDx Five, we look into annuity industry satisfaction, more news on rising interest rates, as well as an increase in social security. 

Life Insurance and Annuity Customer Satisfaction
According to a new report from the J.D. Power 2022 U.S. Individual Annuity Study, customer satisfaction declines soon after their products are purchased. In turn, this leads to a low likelihood to purchase more products. Robert M. Lajdziak, Director, Global Insurance intelligence at J.D. Power, says, “It’s clear from our data that insurers are struggling to maintain regular contact with customers and to reinforce a unique value proposition during the length of the relationship. That not only limits potential future sales opportunities, but also exposes incumbents to competitive threat from insurtech start-ups that are leveraging digital to deliver a more multi-channel approach to client engagement that is resonating with customers.” Annuity providers still rely on snail mail for a majority of their customer communications, while only 8% are used via mobile apps, which leads to the highest level of satisfaction. 

(Press Release, jdpower.com, October 13th, 2022, Both Life Insurance and Annuity Customer Satisfaction Decline as Pandemic Fears Wane, J.D. Power Finds, Link)   

Rising Interest Rates are Benefiting Annuitants in Fixed Annuities
While the Dow is down nearly 20% since the beginning of January, lifetime fixed-income annuity payouts are up nearly 30%! Annuities are once again in the spotlight. Investors are watching their portfolios shrink and have been fleeing to products with guarantees. “A lot of people thought the (stock) market was at a high and took some of their money off the table last year," said Peter Longo, vice president and director of insured solutions consulting at Janney Montgomery Scott, headquartered in Philadelphia. "So annuities were popular when the stock market was roaring and they're popular now for when the market has been plummeting."  In fact, buying an immediate annuity now is more lucrative to the annuitant than it was a year ago.  According to the Cannex Financial Exchange, a woman aged 65, who purchased an immediate annuity this year, is receiving a payout that is 29% higher than if she purchased the same annuity last year.

(Kathleen Doler, Investor’s Business Daily, September 30th, 2022, How Does A 7% To 8% Payout For Life Sound? Link) 

From Baby Boomers to Gen Z: We’re all feeling the stress of saving. 
Today, there are four generations in the American workforce actively saving for today and for retirement.  Research from the Transamerica Center for Retirement Studies helps us understand their similarities and differences.  In fact, Baby Boomers and Gen Z have more in common than you may think. “Today’s workers are emerging from a pandemic and navigating megatrends such as population aging, increases in longevity, workforce disruptors, and concerns about Social Security,” notes Catherine Collinson, CEO and President of Transamerica Institute and TCRS. “Despite an unclear future, workers of all ages are envisioning and saving for an active and purposeful retirement—but are they adequately preparing?” Even though 89% of workers value their employer’s retirement plan, fewer Baby Boomers (84%) and Gen Z (82%) value their plan, compared to Gen X (92%) and Millennials (90%).  That trend continues when it comes to valuing new job opportunities.  Gen X (85%) and Millennials (83%) will consider the retirement benefit offering a major part of the decision-making process compared to Gen Z (71%) and Baby Boomers (70%). Whether saving for today or saving for the future, it’s important to understand how your clients plan on saving.  

(Ted Godbout, NAPA-net.org, October  12th, 2022, Perspectives from 4 Generations of Workers Preparing for Retirement, Link) 

Waiting for the 8.7% increase in Social Security benefits is the hardest part
Inflation was low over the previous decade, 1% or 2% each year. Then came last year when inflation reached 5.9%, a 40-year high. This year, we’re looking at 8% inflation. If you are on a fixed income, those price increases are impacting your spending today, and the 8.7% Social Security increase in January 2023 cannot come soon enough. An extra 8.7% will make a difference for many people on Social Security, “but it’s hard when people have to wait for the increases to show up in their benefits,” said Kate Lang, director of federal income security at the nonprofit Justice in Aging. “People are dealing with increased costs, right? That’s not free money, that’s money that they need to pay for their basic living expenses.” The article highlights two individuals in their 70s, residing on different sides of the country and living different lifestyles.  Each has its own obstacles to overcome and a set of concerns if there is a need for an unexpected expense. 

(Samantha Fields, Marketplace, October  10th, 2022, Social Security recipients to get their biggest cost-of-living raise in over 40 years, Link) 

Don’t Forget the Psychological Aspect of Becoming a Retiree
Saving isn’t easy. We watch our 401(k) and other savings accounts like hawks. Am I saving enough for an emergency? Am I saving enough for retirement? The markets are down 20% this year, am I in the right investments to make my money grow and last? Now imagine you’re not getting a paycheck every two weeks. You’re no longer putting money into your retirement accounts, but you still need to have money saved for an unexpected expense. That pot of money you’ve been working for your whole life, with some help from social security or a pension, is supposed to last you for the rest of it. Factors like inflation, market returns, life expectancy, and health issues can be stressful to manage. “Now you have this lump sum and have to draw it down. For some, it’s almost physically painful,” said David John, a senior strategic policy advisor at the AARP Public Policy Institute. In fact, a study by BlackRock found that the vast majority of retirees still have at least 80% of their savings after two decades in retirement. CFP Kyle Newell, CFP John Edminsten, and Senior Director of Policy Advisor at AARP Public Policy Institute, David John, provide guidance on how to manage your clients’ angsts and practical steps clients can take to help ensure their money works for them in retirement.

(Jeanne Sahadi, CNN Business, October 10th, 2022, A Surprisingly hard part of retirement: Spending what you worked so hard to save, Link)

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