Allianz Life CEO Says Distribution System Needs to Be More Responsive

SOURCE: InsuranceNewsNet, Inc.

Gary C. Bhojwani, President & CEO of Allianz Life Insurance Company of North America

In this interview, Bhojwani discusses product trends, distribution issues and life settlement securitization. This is a longer version of the Perspectives appearing in the March edition of InsuranceNewsNet Magazine.

INN:  What are the sales trends for your company?

BHOJWANI:  The annuities are doing very well. We’ve seen an increase both in gross sales and in the amount of the policy size being purchased on our annuities. So we feel pretty good about that, and we think that’s perfectly consistent with what the average American is looking for in terms of safety and guaranteed income for life.

INN:  What kind of increase are you seeing?

BHOJWANI:  We’ve seen the average premium size for both our fixed and variable products increase by approximately 25 percent to an average of $75,000 in ’09.

INN: Is any particular product doing well?

BHOJWANI:  We’re seeing a growing demand on the shorter surrender products on the fixed side. And on our variable side,,we had the No. 2 variable annuity in the country in the first quarter of ’09 before we suspended our sales to rebuild and reprice the product for the new environment. We’ve seen that come back very nicely.

INN:  Do you plan to introduce any other products?

BHOJWANI:  We have a brand-new product called the Pro-V 1. It is a fixed index annuity. It is one of the first, if not the first, fixed index annuity out there with a bond index. It has a five-year surrender and an annual point-to-point spread.

INN:  It is interesting that you are introducing a fixed index annuity with SEC 151A still undecided and the future of the products in limbo.

BHOJWANI:  If you step back and look at Rule 151A holistically, it seeks to do a couple of different things. It seeks to redefine the product from insurance to security. It seeks to address sales practices, and it seeks to implicitly or explicitly address the issue of licensure, what licenses the agents or reps need to hold. As a practical matter, we continue to be opposed to 151A. We think that the fixed index annuities are clearly insurance products, not securities. But all of that said, we think it’s a red herring. There is a growing trend for distributors to get their securities licenses, if for no other reason than the source of funds issues. Whether you want to sell a consumer a fixed index annuity or a variable annuity or what have you, increasingly more and more of those assets are coming from dollars that are already in securities products. In 2009, 60 percent of our fixed index sales were made by folks with a securities license. From a commercial standpoint, not a regulatory standpoint, we are encouraging and assisting our producers to get a securities license and get comfortable on that side of the world.

INN:  And speaking of distribution, you have addressed IMOs recently in public comments. What are your thoughts on those?

BHOJWANI:  First of all, Allianz Life owns nine FMOs or IMOs, and we work with a number of independent, non-owned IMOs. The business model is changing very significantly. The days of buy low and sell high are gone. The consumer is expecting the agent or the rep to be able to present him or her with an overall plan or an overall view that necessitates a greater level of expertise and financial insight. Particularly those agents or reps who are sole practitioners and simply don’t have the wherewithal to keep up with those demands, so they in turn are expecting more from their IMOs. They’re expecting their IMOs to give them everything from technical guidance to resources to help them out with tax or accounting issues. It’s a good opportunity for the future business model. The IMOs that are truly adding value will do incredibly well over the next several years, and those that are simply buying low and selling high are destined to have a problem.

INN:  What do mean by “buy low and sell high”?

BHOJWANI:  Our experience is that with many IMOs, their business model consisted solely of recruiting masses of agents and really not adding a lot of value, basically recruiting the agents and then placing the business with a carrier or various carriers. Today’s consumers, and therefore today’s agents, are expecting more, so the IMOs that step up and have a distinct value proposition have a real competitive edge.

INN:  Do you see growth in your banking channel in the future?

BHOJWANI:  Yes, I see a lot of growth happening there for both the fixed and the variable products. We’ve seen tremendous interest expressed by various banks in our fixed index product, whereas in the past they hadn’t been interested. Of course, banks historically have had a presence in the VA space, and I see that growing.

INN:  I wanted to ask about life settlement securitization because the American Council of Life Insurers just came out with a statement saying that securitizations ought to be banned. What do you think about that?

BHOJWANI:  I sit on the board of the ACLI, and I agree with the position. This might be a simplistic analogy, but it’s an accurate one: I think this is subprime mortgages all over again. Securitization has the potential to create huge problems. Now, I want to be clear that I think we would all agree that there are certain extenuating circumstances under which life settlements themselves can be useful. But those circumstances, when you really dig deep into the facts, are pretty rare, and  allowing or endorsing securitization is just going to create a problem and create a demand that isn’t real. It will exacerbate significantly problems like stranger oriented life insurance (STOLI). 

INN:  What makes you say that now? From what I understand, it’s not necessarily new that you can have a pool of investors that come up with the funding for settlements.

BHOJWANI:  My understanding from my interaction at the ACLI is that we are seeing a growing trend where we’re anticipating that if securitization is somehow endorsed or accepted, we will see much more of it happening. 

INN:  In what direction do you see Allianz Life going in the future?

BHOJWANI:  Your readers can expect to see continued financial strength from Allianz Life such as they’ve seen through this crisis. We’re one of the few carriers that maintained ratings, didn’t take drastic actions and added capital to our balance sheet. I’m not sure how many carriers out there can say those things.

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