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Allianz Life exec: Index variable annuities address market volatility fears

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Allianz Life Insurance Co. of North America is one of the country’s largest annuity providers.

The company ranked fourth (up from fifth place last year) on LIMRA Secure Retirement Institute’s first-quarter 2016 ranking of annuity providers with $3.3 billion in annuity sales.

The company’s focus on fixed annuities helped propel it into a top-five spot on LIMRA’s ranking. It ranked third overall in the fixed annuity category and first in the fixed indexed category, with $2.8 billion in sales. The company also offers variable annuities and ranked 14th on LIMRA’s Q1 ranking with $499 million in sales. In addition, Allianz Life offers fixed index universal life insurance. The company provided a total of $2.4 billion in benefit payments last year.

One of the company’s leaders in annuities, Eric Thomes began his insurance career as an independent agent. In 1995, he joined LifeUSA Insurance, which is now part of Allianz Life. He has served as a senior marketing and training consultant, vice president of sales in the company’s long-term care division, vice president of sales for the Southeast region and senior vice president of strategic accounts.

Now, as senior vice president of sales, Thomes manages the company’s relationships with field marketing organizations that distribute Allianz Life fixed products, providing ongoing consulting and support for the company’s owned distribution relationships.

Thomes recently provided his thoughts on the challenges facing pre-retirees, myths about the annuities industry and the potential impact of the U.S. Department of Labor’s fiduciary rule:

Retirement challenges

LifeHealthPro: What are the most significant challenges facing consumers today regarding retirement planning?

Thomes: There are a number of challenges consumers have to face as they prepare for retirement, including the effects of volatile markets on retirement portfolios, lower returns on fixed income investments and the complexity of planning for a longer time living in retirement.

One of the most important issues people must address is the rising cost of living in retirement. According to a recent survey we conducted on Americans’ perceptions of the effects of inflation, nearly half of respondents reported being either “very concerned” or “terrified” that the rising cost of living will affect their retirement plans. Additionally, 47 percent of respondents said they are either “very worried” or “panicked” that they won’t be able to afford the lifestyle they want in retirement due to rising costs.

These negative perceptions about inflation affect the way people are planning for their future, including basic needs such as housing, food and medical care. Nearly one-third of Americans worry they won’t be able to pay for the essentials because of the rising cost of living. As consumers move into retirement, they will not only need to consider how to make their income last for 30 years or more, but also how it can cover rising costs driven by inflation.

LifeHealthPro: Why should consumers consider annuity products as part of their retirement income planning?

Thomes: People need guarantees that their money will last as long as they do and annuities are the only products that can provide those guarantees. With uncertainty surrounding the future of Social Security and the fact that most defined benefit plans (pensions) are going away, the responsibility to make sure people have saved enough for retirement now rests mainly with the individual.

This means that, in addition to asset accumulation, consumers also have to plan for how to protect their money and ensure they have the retirement income necessary to live their desired lifestyle in retirement. As 2008 proved, that can be very difficult, as many people lost a significant portion of their retirement savings and were forced to defer their retirement dreams and work longer in order to rebuild what they lost.

Annuities can help provide consumers with peace of mind by allowing them to develop a plan to pay for fixed costs such as their mortgage, gas and groceries. Even better, some annuities can provide the opportunity for income in retirement to increase. This can help retirees manage the effects of inflation, but can also help mitigate the challenges caused by rising taxes and increasing healthcare costs. We know these expenses are likely to go up, not down, so it’s wise to have a plan that can address that reality.

Annuities myths

LifeHealthPro:What are some of the myths and misinformation you see in the marketplace about annuities?

Thomes: There are many misconceptions about annuities — some are outdated ideas and some are just flat out wrong. Today’s annuities have evolved quite a bit from where they were even 5 years ago, so it’s definitely worthwhile for financial professionals to revisit these products and determine how an annuity might be a valuable addition to their client’s portfolio.

One myth we often hear is that annuities are too complex. While the math behind an annuity may seem complicated, the overall concept and value proposition is relatively simple – the consumer gives money to an insurance company and in return the insurer provides a guarantee, such as a guaranteed interest rate, guaranteed income for a specified period of time, or even guaranteed income for life.

Another prominent myth is that annuities have hidden expenses. The truth is any charges, fees or expenses associated with annuities are not hidden. Every annuity comes with documents for review, including the contract and prospectus or statement of understanding that outline any charges, fees or expenses. A good financial professional will explain those charges to clients so they can make an informed decision before purchase.

There is also the misconception that annuities have high fees. Although some fees may seem high when compared to other products, annuities provide a valuable combination of benefits that other products can’t provide, including principal protection from market loss, guaranteed income for life with flexibility, and the opportunity for income increases. The product fees help support these guarantees. It’s also important to know that some annuities have no fees.

Finally, there is still a widespread belief that annuities lock up clients’ money so they can’t access it for years. Though most annuities are designed to be long-term income products, today’s annuities offer various ways for clients to access their money if something should happen. Most annuities give access to at least a portion of the money each year, although a waiting period may be necessary.

LifeHealthPro: What are some of the trends in the annuities marketplace that you are seeing?

Thomes: There are two main trends driving interest and sales in the annuity marketplace — particularly with fixed index annuities. The first is a strong consumer desire to have guarantees and downside protection. People are beginning to understand the factors I’ve already mentioned and want to make sure they are prepared for their financial future.

The other major trend is happening within distribution, as we’ve seen significant sales increases of FIAs from registered reps and broker-dealers. In fact, Allianz Life, for several years, has seen an increasing share of FIA sales move from insurance-only agents toward securities-registered representatives and registered investment advisors (RIAs). These registered rep and RIA sales now count for more than 70 percent of Allianz Life FIA sales. Bottom line, with an increase in the amount of financial professionals offering FIAs as an option to their clients, more consumers now have access to products that can provide important guarantees for retirement income.

DOL fiduciary rule

LifeHealthPro: How is your company addressing the U.S. Department of Labor’s fiduciary rule and what impacts do you expect to come from this rule?

Thomes: Allianz Life continues to evaluate the final rule and its implications for FIAs. We are working closely with our distribution partners — both broker-dealers and insurance only agents — helping them to manage through this change.

LifeHealthPro: How do you think the DOL rule will affect the overall annuities market?

Thomes: It is too early to speculate about potential effects the DOL fiduciary rule will have on the annuity industry. DOL or no DOL, with 10,000 boomers retiring every day, having access to sources of guaranteed lifetime income is a very important need that still needs to be met.

LifeHealthPro: What are some of the other challenges the annuities market faces?

Thomes: The annuity industry is constantly challenged to innovate and offer new solutions to help meet consumer demand. One concern that has gotten more attention recently is market volatility and how people can build assets for retirement while still having a level of protection in their portfolio. Substantial assets are needed to fund retirements that now routinely last 30 years or more, so staying away from the market is simply not an option if clients still need to grow their retirement assets.

The industry has responded with a new product category, the index variable annuity (IVA), which offers a trade-off between potential growth and a level of protection. By accepting a higher level of risk, consumers can benefit from higher upside potential to help them accumulate assets, all while maintaining some protection against market drops. IVA products are a good option for clients who are currently keeping their money in cash or other low-yielding products because they are too worried about market volatility.

We believe IVA products have great potential to help consumers prepare for retirement and encourage financial professionals to learn more about this innovative new category.

See also:

FIAs remained strong in 2015 and will grow in 2016

A conversation with the head of New York Life’s retail annuities business

Jefferson National prez: Expect fee-based variable annuities to surge

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