Why the Indexes Are Multiplying

Jason Wellmann, a top U.S. life distribution expert, was in New York earlier this week to attend LIMRA’s annual conference.

Wellmann — the senior vice president of life insurance sales for Allianz Life, and a sometime ThinkAdvisor Life/Health blogger — is worried about the effects of the shrinking U.S. agent force on U.S. life insurance sales.

He’s interested in seeing how competitors and insurtech startups are finding ways to reach get young consumers’ attention.

And he sat down to answer a reporter’s questions about a life insurance mystery: why so many life insurers are using so many new investment indexes for indexed life and annuity products.

(Related: Look at the Client’s Whole World)

Earlier this month, for example, American Equity Investment Life Insurance Company added an indexed annuity product that features the S&P 500 Dividend Aristocrats Index.

In September, Lincoln Financial group added an indexed annuity that offers the BlackRock iBLD Ascenda Index.

In February, Allianz Life launched indexed universal life (IUL) products with an index menu that includes the Bloomberg US Dynamic Balance Index II, the Allianz True Balance index, and the PIMCO Tactical Balanced Index.

At Allianz Life, less than 10% of IUL policy value goes into investment options linked to the S&P 500 stock index; most of the rest of the policy value goes into proprietary Allianz Life index options.

So, whatever happened to S&P 500 Stock Index World?

AG49

Wellmann said he thinks the burst of investment index creativity is due partly to state insurance regulators’ Actuarial Guideline 49.

The AG49 rules are supposed to standardize IUL product performance illustrations, to help consumers shop for IUL policies on an apples-to-apples basis. Before AG49 came along, “I don’t think the public cared about indexes,” Wellmann said. ”

Index Machinery

To a consumer, the investment index in an IUL policy or annuity may look like the investment objective of a mutual fund.

Wellmann said the machinery inside an IUL or annuity index is much more complicated, however, because a life insurer needs to have a crediting rate mechanism that will hold up for decades.

“It’s not a short-term play,” he said.

Wellmann said using proprietary indexes is a good fit for Allianz, because Allianz has its own trading desk and can handle its own index hedging.

At Allianz Life, a product innovation team starts by looking at what new products or features consumers might want. The product innovation team then talks to the actuaries, to see what’s feasible from an insurance perspective. The product designers then have to work with the trading desk to answer a crucial question: “How do we hedge that?”