Why Advisors Must ‘Tailor’ Client Talks on Annuities, Longevity in the Pandemic: Milevsky

COVID-19 is “a sudden shock to mortality,” and the uncertainty it’s caused makes annuities “more valuable than ever,” argues retirement expert Moshe A. Milevsky.

Still, many investors don’t see annuities this way. Fewer financial advisors are selling annuities because, for one, virtual meetings make sales difficult to close, says Milevsky, a tenured professor at York University’s Schulich School of Business in Toronto.

Milevsky argues that due to high uncertainty and fear of death from COVID-19, prospects see scant reason to buy annuities.

Plus, some companies that sell variable annuities are exiting that business because of near-zero interest rates. Other firms are considering if they should stay in the annuity arena or not.

Yet, Milevsky sees greater value in annuities today more than ever: As the coronavirus reduces life expectancy, the products’ utility value has increased, since longevity risk has gone up.

A person’s chronological age and their biological age aren’t identical. In other words, biologically you can be either younger or older than you are chronologically, as Milevsky explained in his 2019 book, “Longevity Insurance for a Biological Age: Why Your Retirement Plan Shouldn’t Be Based on the Number of Times You Circled the Sun.” 

Related: The New Road to Retirement Income

In terms of the coronavirus, if one’s biological age is higher than their chronological age — most likely because of an underlying medical condition — the virus’s impact will be worse. This fact of life is clearly a big negative for annuity sales.

Milevsky, a popular industry speaker and consultant, recently published the book “Retirement Income Recipes in R: From Ruin Probabilities to Intelligent Drawdowns (Use R!)” — a how-to on creating simple scripts for retirement income planning in the “R” coding language. 

His current consulting work includes working part-time as chief retirement architect for Canadian money manager Guardian Capital Group and writing white papers for insurance companies, like Jackson National and Athene.

New Approach Needed

When Milevsky spoke with ThinkAdvisor recently, he said financial advisors’ annuity pitch today must address “the fears of the individual client” rather than using a one-size-fits-all approach.

He also offered his forecast on significant changes in the annuity product mix as a result of the pandemic, and a reason for the popularity of the relatively new Registered Index-linked Annuity (RILA). 

While sales of individual annuities were down 7% in the third quarter of this year vs. the year-ago period, RILA sales rose 29%, according to the Secure Retirement Institute.

“COVID is turning us into winners and losers in many dimensions: She has a safe job; he doesn’t. He’s in great physical health; she isn’t,” Milvesky said. 

“You have to tailor your message to the audience. That’s just as important now as it ever was,” he added.

Here are excerpts from ThinkAdvisor’s recent interview with the retirement income expert:

THINKADVISOR: Is now a good time for people to reassess their retirement plan?

MOSHE MILEVSKY: Yes, because everyone is obsessed with longevity and mortality. Everyone knows someone that got COVID and survived and another person who got it and didn’t survive. 

In the few years after the [1918] Spanish Flu [pandemic], the life insurance industry had phenomenal sales and went through an unprecedented boom. Now, once again, [mortality] is suddenly in [people’s] consciousness.

But amid all the uncertainty, why have overall sales of annuities, an insurance product, decreased? 

COVID has made annuity sales more difficult to close. Every insurance company in the U.S. has laid off wholesalers — whether it’s Jackson National or Pacific Life [etc.] 

There are now fewer wholesalers, because there are fewer advisors selling annuities.

What’s your take on that trend?

When an advisor tells me they’re having a tough time positioning annuities because of all the uncertainty, my response is, “Quite the contrary. 

Because of COVID, annuities are more valuable now than ever because of the uncertainty. Utility value has increased, which is how much people [connect] with the benefits of the insurance.

But why does the uncertainty make annuities more valuable?

Annuities are insurance against longevity, and that is an uncertainty that’s greater now. 

Look what’s happening! We really don’t know if we’re going to live a long time. Longevity risk [has increased]. That makes annuities more valuable.

What else is impeding advisors’ annuity sales?

My understanding is that, anecdotally, it’s more difficult to communicate about annuities virtually. For instance, it’s much easier to cancel a Zoom meeting than one at a broker’s office. 

Advisors tell me they need three times more calls in order to close business, because of the ease with which people can cancel or defer meetings.

What else is negatively impacting annuity sales?

The emotional message is hard to [get across] virtually. 

If you’re on Zoom and kids are running around in the background, it’s difficult to give that emotional pitch you need in talking about insurance – when you hold the person’s hand and say, “How will you [cope] if something happens?” And then you pause for effect. You can’t do that virtually.