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How competitive are income annuity providers over time?

Author

Listed:
  • David Blanchett
  • Michael Finke
  • Branislav Nikolic

Abstract

The 2019 SECURE Act provides safe harbor protections to employers who evaluate the costs of providing guaranteed income including gathering information on competing providers. Annuities can be more difficult to evaluate than mutual funds because annuity expenses can be opaque, financial strength matters, and insurer competitiveness can change over time. We find significant variation in the payout rates across providers over time. While the payout rankings of annuity companies (e.g., best to worst) are fairly sticky over the short‐term, over the full period of the analysis the correlation declines effectively to zero (vs. the initial rankings). This suggests individuals or institutions who choose a single annuity provider based on income payout should revisit the decision regularly to ensure the quotes are still competitive. Companies for which immediate annuities are a higher fraction of total sales tend to rank higher and remain so more persistently over time.

Suggested Citation

  • David Blanchett & Michael Finke & Branislav Nikolic, 2021. "How competitive are income annuity providers over time?," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 24(2), pages 207-214, June.
    • Handle: RePEc:bla:rmgtin:v:24:y:2021:i:2:p:207-214
    DOI: 10.1111/rmir.12182
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    References listed on IDEAS

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    1. Narat Charupat & Mark J. Kamstra & Moshe A. Milevsky, 2016. "The Sluggish and Asymmetric Reaction of Life Annuity Prices to Changes in Interest Rates," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(3), pages 519-555, September.
    2. Harrington, Scott E & Danzon, Patricia M, 1994. "Price Cutting in Liability Insurance Markets," The Journal of Business, University of Chicago Press, vol. 67(4), pages 511-538, October.
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    Cited by:

    1. Milevsky, Moshe A. & Salisbury, Thomas S., 2022. "Refundable income annuities: Feasibility of money-back guarantees," Insurance: Mathematics and Economics, Elsevier, vol. 105(C), pages 175-193.
    2. David Blanchett & Branislav Nikolic, 2023. "Historical pricing variability in immediate and deferred income annuities," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 26(2), pages 271-280, July.

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