Annuity Contracts Come From Companies in the Business of "Managing Risk"
Although you can purchase an annuity from some bankers, your
policy is underwritten (signed and accepted liability for) by an
insurance company whose job it is to manage risk, not the
bank you may have purchased the annuity at.
You can also sometimes purchase annuities from your stock
broker,(such as a variable annuity), but once again, an
insurance company whose job it is to manage risk also
underwrites (signs and accepted liability for) the funds
in your policy.
This may seem like common sense. Then again, it begs reminding as
there is enough hyperbole in the financial-sphere that fundamentals must
be reminded of.
Annuities are designed, priced, disseminated, marketed and delivered directly from insurance companies that manage risk through insurance agents, financial brokers, banks, credit unions and other financial agencies.
Why are insurance companies largely behind this unique product?
After all, Costco sells gasoline in competition to Shell and Mobile.
The Girl Guides sell cookies in competition to Nabisco's Oreos.
McDonalds even sells fancy coffees in competition to you know who!
Why don't banks, credit unions, mutual funds etc sell annuities on their own and just get rid of the middle man?
Here is the simple answer:
The world is an uncertain place and the future is even more uncertain than it is even today, if that were possible. This creates an opportunity for a business that has the capacity to reduce the risk of unknowns.
The insurance industry is an industry that compiles and analyze statistics pertaining to the risks of the unknown, and then devises premium amounts (payments) that can be charged to other businesses or individuals as a useful service to mitigate those same risks.
These laborious processes are completed by actuaries, hired exclusively by insurance companies. Actuaries
are very sharp people, and they typically get paid a lot.
They also get teased a lot for (not) being the life of the party.
An actuary is someone who expects everyone to be dead on time.
What is the difference between God and an actuary? God doesn't think He's an actuary.
An actuary is someone who wanted to be an accountant, but didn't have the personality for it.
So, first off, if you wanted to design your own annuity, you would have to hire a lot of actuaries to design them properly and that would cost a bundle since they get paid so well.
Secondly, if you were able to do that, then you would have to come up with a lot of bucks to back up the promises that your actuaries are making in the annuity. So you would need a lot of investors to buy a lot of bonds, namely investment grade bonds such as Treasures and high rated corporates. Bonds typically comprise most of the secure portfolios within insurance companies.
Then you would have to register with the state (s) in which you wish to do business and begin the process of putting aside reserves to back up the promises in the contracts you are writing and selling.
Other than the job of marketing the annuity products to consumers, that is pretty much it. But the reality is step one and two are simply too much for most institutions to attempt on their own.
Insurance Companies have a unique position in society as the foundation for all financial planning as they are the entities to whom we have bestowed the "transfer of all risk to".
No one else does this as well as your good ole insurance company.