Annuity Marketing and Sales

Buying a house is undeniably a major financial decision.  As a result, most people will spend some time researching and understanding the basics of the process before making a purchase: what is the role of agents; what are the transaction costs; how do mortgages brokers and title companies fit into the picture; what type of mortgage makes sense; etc.  

The same level of basic awareness and preparation should apply to any annuity purchase.  Part of the preparation should involve understanding the various players in the world of annuity marketing and sales, and how the annuity purchase process might differ from other retail shopping experiences.  

As discussed in the previous section, it is in your best interest to be aware of the basics of the whole process because it will help you qualify the information you receive.

Annuities are Sold rather than Bought

There is a saying that insurance is a product that is sold rather than bought.  In other words, people don’t line-up to buy insurance on the weekends they way they do for the newest Apple product release.

This logic generally applies to annuities.  Marketing and sales efforts are required to generate awareness and sell annuities because the purchase is voluntary and is not something that most people are eager to rush into on their own.  This dynamic is somewhat unique in an era of comparison shopping, information transparency and consumer empowerment.

The basic point and take-away is that many of the tools and concepts that apply to the purchase of consumer products and services—comparison shopping, independent research and reviews, always low prices, etc—are not yet prevalent in the annuity purchase process.

Annuity Marketing and Sales are Heavily Intermediated

There are loads of people and companies that operate in between the manufacturer of annuities (the insurance company) and the buyer of annuities, and in contrast to many other industries, direct-to-consumer sales (the insurance company selling directly to the consumer) of annuities are not prevalent.

Unlike the computer company Dell which both manufactures and sells its products, the insurance companies that make annuities tend to outsource much of their marketing activity and essentially all of their sales efforts.

There are actually some good reasons for this high level of intermediation:

• An annuity sale is knowledge intensive.
• An annuity sale is time intensive.
• Annuity sales involve local knowledge.
• Annuity product knowledge is complex and tends to be highly specialized.
• Acquiring or establishing relationships with new customer is very expensive.

The bottom-line is that the system of specialized intermediaries serves a purpose and adds value—it would not exist in this era otherwise.

Insurance is Regulated by States

All annuities—including variable annuities—are insurance products that are created by insurance companies.

In the United States, insurance is regulated by each individual state.  All states have a department of insurance that is responsible for overseeing insurance products and the companies that offer those products.

As a result, each insurance product is essentially unique to the state in which it is offered, and you need to make sure that any product of interest—even if it is promoted on a national level—is actually available in your state of residence.   

Distinguishing Marketing from Sales

Annuity marketing can involve large, expensive brand awareness campaigns such as the television ads sponsored by large life insurance companies during a sporting event. Marketing can also involve: product positioning; channel and distribution strategy (whether to distribute through brokerage firms or independent registered investment advisors), and; customer acquisition activities such as telemarketing and Internet lead generation campaigns.

Annuity sales involve discussion, education, recommendation and the actual purchase of a product by the consumer.

Distinguishing Retail from Wholesale

A wholesale fish market exists to distribute or sell fish to retailer such as restaurants and supermarkets.

Similarly, there are wholesalers and retailers in the annuity industry.  An annuity wholesaler represents certain products and companies to financial advisors—educating them on the benefits of selling their products to customers.  Financial advisors are considered the retailers because they sell products to the actual end consumer.