The Shift to Certainty

The focus for retirement investors has shifted in recent years from the return on principal to a return of principal.

During the economic boom of the early 2000s, investors were all about maximizing returns to build a bigger retirement nest egg. But then the financial crisis hit, depleting the value of many Americans' retirement and savings plans. Now, it's more about protecting what you have.

With market volatility and the global economic uncertainty driven by political dysfunction and the European debt crisis, there's a scarcity of safe places for your clients' money. There just aren't many options today for someone looking for a place to put cash, generate a decent return and sleep well at night, knowing with absolute certainty that money is not at risk due to market forces.

The eurozone used to be a market for safe assets, but no more. Certificates of deposit and Treasuries offer paltry returns because of low interest rates. The equity markets are marked by instability: more than 1 in 3 trading days in 2011 showed returns on the S&P 500 index equal to or greater than plus or minus 1%. Only the 1930s can match that degree of volatility. Some investors simply don't have the stomach for that roller coaster.

It's a perfect environment for indexed annuities, however, which offer a much smoother ride.

Indexed annuities are the right fit for many customers because of the downside protection they offer, along with the opportunity to participate in some indexed returns. If the financial market goes awry, your clients will, in the worst-case scenario, at least get their money back at the end of the surrender charge period. That's a return of principal: the client knows they will get nothing less than a 0% return.

If the major stock index the product is linked to, typically the S&P 500, goes up, the customer shares in some of that upside without having to be concerned about downside risk. In today's investment environment, the cap is currently around 3%, which some would argue isn't great. But what are the alternatives? Government bonds are around 2%, and equities are all over the place. Putting money in an indexed annuity is better than the interest you can generate by putting it in a savings account. You don't have to worry about the potential impact of Europe's sovereign debt crisis as you would with many other investment options. And interest credits are tax-deferred.

Income products attract boomers

Our industry is seeing a growing focus on income products, as retirement strategies have shifted from amassing assets to protecting them. Indexed annuities also offer customers the opportunity to select a guaranteed lifetime income stream for retirement while locking in principal-protected cash accumulation potential. Traditional pension plans are vanishing, so consumers on the cusp of retirement are looking to secure guaranteed income coupled with the chance to participate in the upward movement of a market index.

Today's indexed annuities offer customers the opportunity to generate guaranteed income, via income riders, without having to annuitize their contracts. These income riders typically accumulate within a range of 6% to 8% and provide a future income stream that the customer cannot outlive. A customer who purchases an income rider with an indexed annuity knows with certainty the retirement paycheck that annuity will generate for the rest of his or her life.

As increasing numbers of baby boomers reach retirement age, studies show many are concerned about losing their nest egg and running out of money. Few products provide the certainty indexed annuities do: a stream of income the customer cannot outlive, the ability to share in some of the upside of the market, and protection of principal and all previously credited interest in the event of a downturn.

Even though many indexed annuity cap rates have gone down in recent years, they are reset throughout the life of the contract based on market conditions, and interest credits are tax-deferred. So as the economy recovers and markets normalize, carriers may adjust caps to stay competitive and meet customer expectations in a rising rate environment.

Consumer segments have different needs

A paycheck for life is what the indexed annuity product offers your clients. Carriers are working hard to provide more than products and the financial commitments that come with them. We are seeking new and innovative ways to help producers prospect, market and sell insurance products, and connect with their clients. In today's competitive environment, you need to find ways to stay ahead of the curve to help grow your business.

That's why carriers conduct extensive research to help you better understand consumers. At Aviva, our research has provided insight into the key traits and attitudinal differences of the various consumer segments. The five consumer segments we've identified and the fundamental need of individuals in those segments regarding financial services and products are:

* Stretching providers: "Help me"

* Optimistic up-and-comers: "Teach me"

* Legacy protectors: "Reassure me"

* Confident believers:"Partner with me"

* Independent achievers: "Convince me"

We use the extensive insights our research revealed about the key traits of people in each segment — including their demographics, thoughts about insurance products and retirement, and their goals and motivation — to help us create propositions to meet their needs. We also share the insights and information about the consumer segments with producers.

When agents understand these segments, they have a head start in lead generation, targeted marketing and the sales process. When you meet with a client and can quickly determine which segment he or she is in, you can more effectively match your sales approach and the products you offer to the needs of the individual.

We all want to be known and understood. The consumer segmentation research enables agents to exhibit that they know and understand their clients' perspective and individual needs.

The segmentation data is thoroughly covered in our ongoing InFocus training program. In 2011, we brought more than 2,000 agents into our offices in West Des Moines, Iowa, and Topeka, Kan., for free, intensive two- or three-day training sessions on a full range of products and sales practices.

Agents have understood for generations that this is a relationship-based business, but the carriers have not done as well at building relationships with policyholders. Consumers want to be treated like individuals, with diverse needs and desires, in terms of the products and services they are offered.

In the end, we believe customers today are looking for more than great products, like indexed annuities, and the traditional ways this industry has marketed and sold insurance. They want a compelling proposition, backed by a company that has insight into their needs and cares about people as much as it cares about the bottom line.

Put another way, for investors today, it's not just about a return of principal. It's also about a return to the principles this industry was built upon — demonstrating heartfelt empathy and humanity toward each customer.

Mike Miller is Aviva USA's executive vice president of sales and distribution. He oversees delivery of the company's life insurance and annuity products, working closely with the company's distribution partners and agents. He previously served as Aviva USA's EVP, general counsel and corporate secretary. He can be reached at mike.miller@avivausa.com.