Carriers Expand Distribution and Change Product Mixes to Weather Economic Uncertainty

Annuity companies became accustomed to a prolonged low interest rate environment, which made variable annuities (VAs) more attractive to consumers.

Carriers’ ability to rapidly roll out new products, product changes, and pricing in response to market conditions is vital for growing revenue and market share. Economic uncertainty, compounded by a volatile and turbulent investing environment, is stressing consumers and product manufacturers. 

Insurers are realizing that our consumer-centric society means more emphasis on the importance of customer experience from the perspective of both policyholders and producers. This insight prominently manifests in new business and contract issuance, with continuing straight-through processing (STP) efforts. To increase both speed and service, some annuity manufacturers are exploring use cases leveraging generative AI and large language models.

The Role of Interest Rates 

Annuity companies became accustomed to a prolonged low interest rate environment, which made variable annuities (VAs) more attractive to consumers. Inflation is now a concern, which means the Federal Reserve may continue raising interest rates. Annuity companies must account for interest rates and stock market activity when considering product mix and features. Otherwise, they risk misjudging demand from prospects and reducing their profitability due to spread compression. The economic uncertainty may bode well for annuity sales, especially fixed, but the same forces challenge insurers’ investment portfolios.

Registered index-linked annuities are the only variable annuity category still experiencing growth in sales, due to their offering floors on performance losses.  Fixed annuities account for most individual annuity sales growth. For some companies, the new business volume has been so large that reputational risk has been an issue due to impaired service times.

Distribution Changes

Carriers and vendors are promoting annuity sales through advisors; they are offering financial advisors simplified, low-cost products without commissions through marketing organizations in some cases, which is making annuities more attractive to registered investment advisors (RIAs) than they have been previously.

Carriers have begun to offer annuities online through third-party platforms that show side-by-side comparisons of annuities, marketing support, and product education. The share of business transacted through these platforms is unclear—but Envestnet’s Envestnet Insurance Exchange, for example, already has 13 annuity partners. 

Annuities require more guidance than simpler life insurance products, but there is still room to leverage third-party data and digitize processes to improve efficiency and increase STP.

Fraud and Security

The current economic uncertainty has heightened fraud and security concerns. Carriers are using various options, including staff education, participation in LIMRA FraudShare, and voice printing. In 2023, 54 annuity carriers are participating in LIMRA FraudShare. However, as we go to press, voice printing is becoming a more widely used attack vector due to improved AI capabilities and the ability to impersonate someone else’s voice.

Malicious external entities drive some account takeover (ATO) attacks, but the most difficult cases to prevent might be when the ATO is driven by a relative or close friend. Aite-Novarica Group sees tools such as document-based authentication as the next layer that firms will have to consider unless this trend reverses.


The Department of Labor’s best-interest rule will reemerge, but the timing is uncertain. As of April 2023, 36 states have adopted annuity suitability sales standards based on the National Association of Insurance Commissioners model legislation, which is intended to be compatible with the SEC’s Regulation Best Interest. Best interest is the dominant paradigm at present, but RIAs are emerging as distributors of annuities, and they are required to comply with a fiduciary standard.

Carriers are concerned by Department of Labor plans to narrow the definition of “independent contractor” since investment advisor representatives may shift from being classified as independent contractors to being classified as employees. Other RIAs feel the new definition will help financial professionals who want to remain independent contractors to maintain their status. If you’d like to discuss our key findings in the annuities space, please read our new report Business and Technology Trends, 2023: Annuities or contact John Keddy, Deb Zawisza, or me to continue the conversation.