Find a Fatter Payout
Abaris pulls back the curtain on the business of income annuities.
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