ING's new strategy: Simplify annuities, gain sales
April 5, 2010 by Karen Mracek
By KAREN MRACEK • kmracek@dmreg.com • April 4, 2010
Simplicity.
That’s not the first word that comes to mind when thinking of annuities, but that’s what ING is focusing its attention on – and designing products around – to get more Americans to save for retirement.
“The thing that has really hurt Americans is that they have been so focused on accumulation, but without any real safety net in the accumulation products they buy,” said Rob Leary, president and CEO of ING Insurance U.S., last week in Des Moines.
Des Moines is home to about 900 ING employees and is now the co-headquarters, along with West Chester, Pa., of ING Financial Solutions.
This unit, created last year, is made up of ING’s annuity and other retirement products, and is focusing on simpler, low-cost options, Leary said.
“We’ve really tried to make products more simple, more effective, lower cost and more transparent,” he said.
That’s not easy. Annuities are among products that consumers least understand and find the most daunting, Leary said.
A life annuity is an insurance product that pays a periodic amount for as long as the person is alive, in exchange for a premium that can be paid at one time or in installments.
But deciding which annuity is the right one is anything but simple. There are many kinds – fixed or variable; length of income stream – lifetime or term; and features, such as death benefits, premium protection. Plus, tax implications.
There’s been a shift to simpler annuities in the past two years, said Sheryl Moore, owner of AnnuitySpec.com in Pleasant Hill.
She said ING already has some of the simplest products on the market. “Some people say that means a lack of choices, but the less choices they have, the simpler the product.”
For the annuity buyers, though, it can mean a larger return and cheaper costs, Leary said.
“The industry had gotten into an arms race, so to speak – everybody was trying to out-feature each other,” he said. “The products themselves were becoming more and more complicated. They were becoming more expensive and somewhat difficult to follow.”
Rebound in sight
ING was the eighth-largest producer of U.S. annuities in 2009, according to LIMRA International, an organization of life insurance and financial services companies. It had $10.1 billion in sales last year, down more than 37 percent from $16.2 billion in 2008.
The industry as a whole dropped 11 percent from $265 billion to $234.9 billion. Some of the pullback was intentional by insurers who were caught paying out guaranteed incomes as their investments dropped.
“When we look at the market over two years, since the market collapsed, that has really put insurers in a precarious position, because annuities are very capital-intensive products,” Moore said.
This means that as insurers sell more annuities, they have to hold more capital to back them, and additional capital was hard to find at the height of the credit crunch.
The drop in sales comes when annuities are getting more positive attention as a result of the economic downturn.
The Obama administration has gotten behind the idea of annuities as viable retirement income providers. A report produced by its Middle Class Task Force, chaired by Vice President Joe Biden, said the administration promotes “the availability of annuities and other forms of guaranteed lifetime income, which transform savings into guaranteed future income, reducing the risks that retirees will outlive their savings.”
Leary agreed. “Sooner or later, Americans are going to wake up to the fact they are living longer and longer, they have obligations, and the stock market and bond market are great, but there has to be some protection.”
Many annuities provide protection against falling equity markets and a guaranteed amount of income even in down times.
But annuities have their share of critics, and some considerable drawbacks, including high expenses and upfront commissions.
But Leary sees growth in annuities business.
“Eventually the government is going to mandate or incentivize employers or Americans to put some money into annuities, because I think the government is worried about lack of guarantee income in retirement,” he said.
That can mean growth for Des Moines.
“We’re in the hiring mode,” said Leary, who said that as ING Financial Solutions grows, its Des Moines work force will grow. It could mean hiring up to 100 people in the next year as the business grows, replaces leaving employees and fills open positions.
“In the longer term, it is going to depend entirely on the economy,” he said. “We, like so many other companies, went through cutbacks across our company.” The U.S. insurance division cut about 13 percent of its work force in the last year.
“We’re eager to hire back people,” Leary said. “We just want to be really careful that the business is there before you bring people back.”
Standing on its own
Des Moines’ ING operations may not be part of the Dutch company for much longer.
ING Group reported last year that it would separate its banking and insurance businesses, in compliance with European Union requirements.
Leary said he’s delighted with the change, and the company is “already working toward becoming a very independent company.”
When the change was announced, the names of several buyers were tossed around, but Leary doesn’t see that happening. “As far as I know, we have no plans to get sold to anyone,” he said.
What’s more likely is that the insurance units will be spun off into a separate company, with an initial public offering of its own.
Chief Executive Jan Hommen backed that idea in a recent conference call.
“In the current situation, we see the public market as the most interesting option,” he said. “But I can’t assure that we will also go for this option.”
The divestiture is expected to occur before the end of 2013.
No matter what happens, Leary is optimistic about the future of ING Financial Solutions and its focus on insurance and retirement products.
“We just have to focus on growing our earnings and focus on managing our business well,” he said.
The insurance divisions of ING together would form the world’s sixth-largest insurer, and third-largest life insurer. “We expect we are going to be part of a very big insurance company which is focused on insurance in its own right,” he said.
Leary also is optimistic about Des Moines’ role in the new company. “From our perspective Des Moines is an important and core part of what we are doing,” he said.
