Three of a Kind
by Carolyn Ellis, Features Editor
As SVP of sales for Allianz Life Insurance Company of North America, Eric Thomes is responsible for managing the relationships with field marketing organizations. We spoke with Thomes about how his company is designing more innovative features for its annuity portfolio, including it newest launch: the Allianz 222 Annuity. As the low interest rate climate hangs over the market, manufacturers are looking deeper into product design to create more meaningful features and options for its clients.
L&HA: What needs is Allianz addressing with new products?
ET: I like to use the acronym HIT, which highlights healthcare, inflation and taxes. We train advisors to ask clients if they think during their retirement years health care costs are going to go up, stay the same, or go down. Most people would say Health care costs have gone up and that will continue. Then there’s Inflation. A lot of people think inflation rates will go up. Then there’s the tough question about taxes.
L&HA: How are consumers responding to these questions?
ET: Well, the question that follows is ‘are your clients going to take a HIT in retirement on one, two or all three of these factors’? The most basic benefit in any annuity contract is that it’s going to generate income for the rest of your life, but that’s only half the battle. Increasing health care costs, inflation, and taxes speak to the need to make sure your income is going to go up because someone turning 65 could spend 25-plus years in retirement.
L&HA: So, how does your Allianz 222 Annuity address these issues?
ET: The name “222” is significant. There are two ways for the client to get a bonus on the contract, two ways for clients to receive an increase on their income payment, and two ways for a beneficiary to get access to the dollars if the client passes away. Everything is built into the contract, with no rider charge or annual fee.
L&HA: What are two ways to get a bonus in the accumulation phase?
ET: First there’s a 15 percent up-front bonus that goes to the Protected Income Value (PIV). This contract has two values: an account value, your surrender or walk-away value, and the income value, if you want to turn it on as income, after ten years. The other way the client gets a bonus is that every year there’s a positive gain in the index value with whatever allocation option they have chosen, they will get a 150 percent credit to their value. There are index caps on these contracts and different crediting methods, but let’s say the S&P 500 is up 5 percent, the client would get a 7 ½ percent credit in that year.
L&HA: What are the two options in the income phase?
ET: I’ll use simple numbers to explain the two ways to receive lifetime withdrawal income. Let’s say the client puts $100,000 into a contract and it’s grown to $150,000, and that generates $1,000 a month in income. Every year there’s a positive gain in their allocation option we give them what we call a pay increase. If the index was up 10 percent, the next year they would have a $1,100 annual income payment and that’s their new floor. Every year there’s a positive gain you’ll never go lower than that.
The second way is a benefit called the income multiplier. It’s an accelerator of your income payments if you are confined to a nursing facility, hospital, or assisted living. If the policyholder is confined to a facility for 90 out of 120 consecutive days, we will double the income payment. In my example instead of getting $1,000 a month they will get $2,000 a month. If their $1,000 grew to $1,100 and they become confined to a facility, the payment would become $2,200. That doubling will continue for as long as they are in a facility or until their account value runs out. Then they go back to $1,000, the insurance benefit, paid to them for the rest of their life.
L&HA: And beneficiaries have two ways to get access to money remaining in the contract?
ET: If the owner doesn’t use all the money in the contract and passes away, the beneficiary can take the account value in a lump sum and walk away. Or the beneficiary can take the Protected Income Value over a five-year payout.
L&HA: How do advisors access the Allianz 222 annuity?
ET: 222 is the third Allianz Preferred product we are distributing through financial professionals who meet certain requirements. They have exclusive access to our Preferred products. We offer them performance-based compensation, enhanced service, collaborative education, and other benefits like marketing and practice management sessions. Our Allianz 360 and 365i Annuities are part of this product group.
L&HA: How does the 222 Annuity complement other Preferred products?
ET: The 222 Annuity is designed for income later, probably for someone in their early to mid-50s that’s got a longer time horizon before they start generating income. It’s not ideal for money you need access to or want to start generating income in 5-6-7 years. The 360 contract is more income now or income sooner. 222 has more benefits; you just have to hold it longer before you access them. What matters most is what the client’s intention is with the dollars.
L&HA: Is Allianz 222 issued to age 100?
ET: You need to turn on income by age 100. You can purchase the 222 contract up to age 80. Overall our average issue age has gone down from the mid-sixties to the low sixties, ages 61-62. The market where we see the most sales is 55-75, with an average case size is $90-100,000.
L&HA: Insurance carriers have to make products work for consumers, agents, and investors. How do you strike the balance?
ET: The consumer/distribution/shareholder triangle you reference is tough to balance in this low interest rate environment, when you are conservatively investing in ten-year Treasuries and they’re at 1.65 percent. We want to provide a fair and reasonable return opportunity for the consumer, but over the past three years benefits on the contract have had to come down as we issue new policies. We’re at the industry average for our compensation on FIAs but compensation has come down. And shareholders have to take less from a profitability standpoint.
L&HA: You began in the field as an independent life insurance agent. How does that experience inform your work today?
ET: I started my career in the field living off commissions. Today my job is working with distribution and new product development. Our financial advisors sit across the kitchen table with consumers talking about their concerns around outliving their money and what impact health care, inflation, and taxes will have on their retirement. Yes, we have to have competitive bonuses and caps and compensation, but the real issue is, are we meeting the needs of consumers reaching retirement?