Registered index-linked annuities (RILAs), including those that are built on variable and fixed annuity contracts, reached $39 billion in 2021, representing approximately 17% of total annuity sales, according to Cerulli’s report, U.S. Annuity Markets 2021: Acclimating to Industry Trends and Changing Demand.

With more brand name insurers entering the space, RILAs have gained market attention, setting new records annually. Sales reached $11 billion in 2018 and more than doubled in 2020 to reach $24 billion. Driven by broker/dealer (B/D) and advisor awareness and understanding (85%), large insurers entering the space (80%), and increasing supply (80%), RILA product sales could hit $50 billion by 2026 if recent trends continue.

RILAs provide a menu of index-linked accounts of varying durations, with crediting methods like those seen on indexed annuities. The index buckets are coupled with downside protection options in which the insurer will absorb initial index losses up to a predetermined percentage, with the client dealing with any additional downside, or percentage “floors” where clients take the first losses, and the insurer covering the rest. Consequently, less risk is assumed by the carrier.

Many insurers are seizing the product opportunity, replacing traditional variable annuities (VAs) that offer living benefits with RILAs. Across all annuity types, 85% of insurance executives believe that RILAs will be best poised for growth over the next three years. “Insurers indicate that they are using the RILA to pivot away from risky guaranteed living benefits,” states Donnie Ethier, senior director. “Because the client is willing to assume some investment risk, insurers are able to offer more attractive index caps on RILAs than on fixed-income annuities (FIAs).”

RILA competition is heating up and new versions will be coming to market soon. A total of 15 new RILAS were registered with the SEC in 2021, compared with five in the previous period. “The RILA has inspired a great deal of innovation both within, and outside of, the annuity industry, and we expect more ideas to emerge over the near term,” Ethier comments. Although by nature the product is less risky than a traditional variable annuity, Cerulli cautions insurers against starting another arms race on the RILA front. “Insurers would be wise to avoid overloading their RILAs with features, as they may prove confusing even to seasoned professionals, not to mention their clients. Instead, the industry should—in ways, unite to—improve the education and acceptance of the solutions,” he concludes.