It is rare to get a second chance after missing an opportunity, but life insurers are getting just that, according to Robert MacDonald, an industry leader who is founder and CEO of LifeUSA and retired chairman and CEO of Allianz Life Ins. Co. of North America, Minneapolis.
Income planning “may be the last chance that the life insurance industry will have to once again become a dominant player in the financial services industry,” MacDonald asserts. That position was lost because the industry forgot to respond to the needs of consumers. And, that need was to meet the economic costs of living as well as of dying, he explains.
But with 60-70 million baby boomers moving toward retirement, there will be a tremendous need for income planning, he emphasizes. “Very few people know how to take an asset and make income out of it,” he notes.
Toward that end, MacDonald says, he will be heading up a new company, Allianz Income Management Services, Inc., a unit of Allianz Group, Munich, focusing solely on income planning.
The company, launched in August 2006, will pattern itself after the business model of LifeUSA. It currently has approximately $100 million in premium from contracts it has issued, he says.
That model includes a shared ownership between the company, its employees and field representatives, MacDonald says. So, he continues, producers would be compensated both with cash commissions and between 15-20% of common stock in the AIMS. “Instead of being peddlers, they also get to be partners,” he adds.
The new company will attempt to be the first in the insurance industry to operate virtually wireless and paperless, according to a company release. Contacts and transactions of policyholders, field representatives and employees will be done electronically via the Web, according to the company.
MacDonald says that there will also be an emphasis on creating new products that truly are income planning products, not accumulation products that are adapted for the purpose of income planning.
By the start of 2007, MacDonald says that there will be new products available for its representatives to sell. The first new income planning product will probably be a fixed product, he adds. After that product is introduced, MacDonald continues, it will be easier to use it as a chassis to develop other products, including variable products.
The reason new products are important, MacDonald stresses, is because current products do not truly focus on managing money, but focus instead on the concept that when a customer is ready to retire, this is the amount that will be available to you.
Just as with products, he adds, there are “very few” producers who truly serve the income planning market at this point. He says that AIMS will look to recruit producers as well as look to financial planners, registered reps and banks to distribute its product.
When asked if insurers can truly be innovative given the current system of reserving and ongoing discussions in the industry regarding a new system of principles-based reserving, MacDonald says that there are 2 considerations. First, as noted, he says that insurers must be truly innovative and must think about providing income in a truly different way than they have previously.
Additionally, he notes, from a regulatory and tax standpoint, changes are needed in order to be truly innovative, he says.
If the industry is really able to change its way of thinking about income planning, then it is best suited of all the financial services sectors to meet that need, he believes.
Life insurers are the only ones that can really assume mortality risk, MacDonald says. Mutual funds cannot do that and the only way that banks can really guarantee income is if the customer is living on interest, he adds. This is not too realistic, MacDonald continues.
When asked whether income planning is more of a marketing term or more of a discipline for creating income for clients, MacDonald says that currently it is both. But, if insurers can provide customers with what they need, then it will be more of a financial planning discipline, he notes. “Here is the industry’s chance. Right now, the insurance industry is the third leg of the financial services’ stool.”