Today, we live in a world that is very aware of and active in ESG issues, especially concerning capital markets.
2021 broke all records for ESG investing, with an estimated $120 billion poured into sustainable investments. This is more than double the $51 billion invested in 2020. This traction in capital markets is hopeful, but it is unequal.
We see many new ESG movements in the Exchange Traded Fund (ETF) market, and 2021 experienced a record number of ESG-related ETF launches.
The insurance market still lags.
In February 2021, BlackRock, RetireOne, and Midland National collaborated to offer what they say is “the first-ever ESG option in a Fixed Index Annuity (FIA) space.” In April 2021, Investors Heritage Life Insurance Company (“Investors Heritage”) announced the launch of a new fixed index annuity that included an environmental sustainability offering that is benchmarked against the S&P 500 index and structured in collaboration with Société Générale and Entelligent.
The insurance-annuity market needs to catch up with the current ESG movement by increasing such offerings globally.
The insurance sector is in a unique position to accelerate ESG momentum globally. From the demand side, retirement planning is essential for working professionals. This is where annuities play an essential role by helping individuals guard against outliving their assets.
An annuity is an agreement for an entity (generally a life insurance company) to pay another entity a series of payments annually. There are many types of annuities. For example, structures can include tax savings, protection from creditors, investment options, lifetime income, and benefits to heirs.
This is also a significantly large industry. The Life Insurance & Annuities industry in the US is the 2nd ranked Finance and Insurance industry by market size and the 8th largest in the US. In 2022, the industry’s market size, measured by revenue, is $909 billion. On average, it grew by 1.1% per annum between 2017 and 2022. This is the potential yet to be tapped for ESG to scale and grow.
The question, though, is how can this potential be realized? Indeed, sales, marketing, and distribution channels have a significant role to play here. If we need ESG to reach ordinary household investors, it needs to be packaged in the investment packets and distribution channels that are available to these buyers.
According to LIMRA, about 40% of the sales of individual annuities in the United States were facilitated by independent broker-dealers and independent agents (see Sales Of Individual Annuities By Distribution Channels, 2016 And 2020). That knowledge, information, and communication are integral to creating demand.
We need ESG-focused marketing to increase the demand for ESG-linked insurance and annuity products.
This will further empower the capital markets to drive finance and investment into businesses on the road to NetZero, Social Justice, and Equality.
Insurance professionals will need to understand this, and we will need more industry-specific ESG courses to train them.
On the supply side, we need insurance companies to partner with banking, asset managers, and data partners to bring more ESG related annuity products to the market.
Most importantly, we need ESG to scale down so that it appeals to everyday investors and is not reserved as a prized possession of asset managers and high net worth individuals.
Insurance and Annuity markets have the power to make ESG a more democratic instrument of real change. Now that is worth a premium!
Sales Of Individual Annuities By Distribution Channels, 2016 And 2020
Source: U.S. Individual Annuities, 2020 Year in Review, LIMRA, 2021.