Find a Fat­ter Pay­out

Abaris pulls back the cur­tain on the busi­ness of in­come an­nu­ities.

Forbes - - Investing - By wil­liam Bald­win

You can buy stock with a few mouse clicks and an $8 com­mis­sion. Why not an an­nu­ity? The pos­si­bil­ity of on­line an­nu­ity sales should be in­trigu­ing to any cost-con­scious saver—and ter­ri­fy­ing to any tra­di­tional in­sur­ance seller. The es­tab­lished way for in­sur­ance com­pa­nies to move in­vest­ment prod­ucts is to send agents out for long, thought­ful dis­cus­sions over the kitchen ta­ble. The Web is a threat to that sys­tem.

For now the door to elec­tronic sales of re­tire­ment poli­cies is open just a crack. Abaris, a Philadel­phia busi­ness started in March by two young Whar­ton grad­u­ates and a fel­low Univer­sity of Penn­syl­va­nia alum, wants to open it wider. Through its site you can get quotes from com­pet­ing an­nu­ity ven­dors.

A 60-year-old woman wants to put $100,000 into a longevity an­nu­ity that starts at age 80 and lasts her life­time. This is a way to re­duce the risk that she will out­live her as­sets and could make a lot of sense in­side an IRA (see box, p. 70). Via Abaris, Guardian Life ofers $2,091 a month. Pacifc Life pays $2,102.

Trans­parency is what on­line quot­ing is all about, ex­plains Matt Carey, chief ex­ec­u­tive of Abaris: “You should be able to com­pare ev­ery prod­uct that’s out there in pay­out rates and credit rat­ings.” Carey en­vi­sions a sys­tem in which buy­ing an as­sort­ment of an­nu­ities from difer­ent in­sur­ers would be as easy and as sen­si­ble as buy­ing a port­fo­lio of cor­po­rate bonds in­stead of just one. Life in­sur­ance com­pa­nies do go un­der on oc­ca­sion; Ex­ec­u­tive Life and Mu­tual Beneft Life both failed in 1991.

But the life in­sur­ance in­dus­try is not burst­ing with en­thu­si­asm for ei­ther trans­parency or In­ter­net sell­ing. Two big play­ers in the an­nu­ity mar­ket, North­west­ern Mu­tual and New York Life, aren’t dis­tribut­ing through Abaris. Guardian is play­ing ball but does not have in place the mech­a­nism for the real-time quote feeds that Abaris wants.

As for agents’ com­mis­sions, in­for­ma­tion is hard to come by and com­pe­ti­tion is, at the mo­ment, faint. Carey says that his agency col­lects the usual fee (typ­i­cally be­tween 3% and 5%) and earns it by spend­ing a lot of time with buy­ers, via Skype, phone and e-mail, and even in per­son, be­fore clos­ing a sale.

For now, that is, Abaris does not rep­re­sent the threat to agents that Charles Sch­wab did to stock­bro­kers 40 years ago. Nor is an in­sur­ancecom­mis­sion price war around the cor­ner. In most states, Carey says, an “anti-re­bat­ing” law for­bids agents to dis­count com­mis­sions.

In death-beneft in­sur­ance, to be sure, there is some­thing to be said for pro­tect­ing the in­come

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