DIAs: The Next 'Big Bang' for Boomers?

Perhaps I’m starting to really understand it, or maybe I am just closer to the footsteps of those 10,000 baby boomers who each day are reaching age 65 in the U.S.  Either way, retirement and retirement income are top of mind for many who are considering departing the workplace in the next 5 - 10 years.

Those who are just now turning 65 or 70 can expect to live longer on average than ever before; thus, many are seeking guaranteed income options that they can’t outlive to minimize longevity risk. The shift from traditional defined benefit plans to defined contribution plans has placed even more responsibility on workers as they plan for retirement.  

So how is the insurance industry reacting?  Data recently reported by Morningstar, Inc. and Beacon Research indicated that overall Q2 2013 U.S. annuity sales increased to over $56 billion, nearly a 10% increase compared to Q1 2013 ($51.7 billion). “This quarter’s results are encouraging for the annuity industry – every product line improved from the first quarter in 2013,” reported Joseph Montminy, AVP, LIMRA Annuity Research. “Observing the economic improvements, including interest rate increases, we believe variable annuity sales have stabilized while fixed annuity sales will continue to improve for the remainder of the year.”

Products such Deferred Income Annuities (DIA) are also being introduced. In 2012, only six insurers offered this new product. That number has now doubled and continues to grow as more products are being filed.  Lincoln National, already a top annuity writer, just announced the release of their first DIA product.  DIAs are similar to Single Premium Immediate Annuities (SPIAs) which typically provide an income stream within the first 13 months of purchase. However, DIAs allow for multiple deposits such as 401(k) and IRA rollovers, and the start of the guaranteed lifetime income may be deferred as long as 40 years after issue.  

DIA product sales reached an estimated $1 billion in 2012 and have continued to grow during the first half of 2013, according to "Deferred Income Annuities: Insuring against Longevity Risk," a new report from the Insured Retirement Institute (IRI). It further states, “While sales continue to increase, total DIA sales volume is still a relatively small percentage of the total annuity market, accounting for less than 1% of total annuity sales. However, with the introduction of new products and expansion into new distribution outlets, IRI projects solid growth of DIAs in the upcoming years”.

So are DIAs really the next new big trend in annuity sales? Will they propel your overall new sales? The Annuity Industry is at a pivotal point today following several years of declining sales and waning interest rates as innovative insurers seek to develop new products and capture wallet share. With the IRI predicting DIAs to be the fastest growing annuity products in 2013 and 2014 based on percentage increase, what’s holding you back?