Variable annuity net new sales are expected to surge in the coming years after taking a dive in 2012, according to research firm Cerulli Associates.

So far, progress has been marginal, but Cerulli believes things are going to change. In a recent report, the group states that variable net new sales will reach $22 billion by 2018, an increase from 2012 by 57%. The company points to new product development and reinvestment among insurers in other business lines as the main causes of expected growth.

“Net new variable annuity sales plummeted in 2012 to just $14 billion,” says Donnie Ethier, associate director at Cerulli in a press release. “However, as interest rates stabilize, we envision legacy variable annuity providers and new entrants, including nontraditional players, to join the marketplace.”

Annuities tied with Roth IRAs as the least requested financial products by investors of their financial advisor, Cerrulli states. This leads the company to believe that, with 28% of all households reporting to be unaware of annuities, that investors have an impartial opinion of annuities.

Although investors are not familiar with variable annuities, asset managers remain optimistic of insurance opportunities, according to Cerulli. In the research, the company states much of the optimism is likely a result of open dialogue with insures that have launched new products or have simply been overlooked.

“We have confirmed that private money continues to circulate in the annuity industry,” Ethier says. “Consumer demand for guaranteed income is too high for firms to ignore, and many believe they can address the opportunity with greater efficiency.”

Despite the positive expectations, challenges remain. One that was emphasized by Cerulli is the need for new sources of assets, which can be partly achieved by attracting fee-based advisors. According to Cerulli, more than half of advisors, industry-wide, report that their revenues are now generated via fees.

Cerulli also recommends that insurers consider developing or adapting CDAs to “wrap” managed account assets, since I-share variable annuities are falling short.

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