Allianz rivals seek a level playing field

May 8, 2006 @ 12:01 am

By Gary S. Mogel

NEW YORK - Brokers and insurers that sell equity index annuities using independent marketing organizations are clamoring for a more equitable and inclusive marketing process.

Allianz Life Insurance Co. of North America, which industry observers referred to as the "800-pound gorilla" of index annuities due to its market dominance, provides incentives for independent marketing organizations to sell the company's proprietary contracts by offering higher overrides and other perks, the observers said. It also has controlling stakes in several of the marketers.

Minneapolis-based Allianz has a one-third market share in equity index annuities, according to Advantage Compendium Ltd. in St. Louis, which tracks annuity sales. No other insurer has more than 10%.

Allianz acquired its market share through hard work and superior treatment of its producers, and needn't offer excuses for being successful, said Patrick Foley, chief marketing officer at Allianz. "We have ownership interests in several field marketing organizations that sell the products of a variety of insurance companies," he said.

Profitable marketers purchased

"A few years ago, Allianz entered into contracts with several IMOs stating that once the IMOs reached a certain volume of business, Allianz would buy them out," said Tobin Johnson, annuity manager for Swenson Anderson Financial Group in Minneapolis, which manages $1 billion.

As a result, Allianz has a controlling ownership stake - often as high as 90% to 100% - in at least eight independent marketers, including American Financial Marketing Inc. in New Hope, Minn., GamePlan Financial Marketing LLC in Woodstock, Ga., and Life Sales in San Diego.

Others soon may be added as Allianz continues to do roadshows targeting independent marketers, said Rod Prahl, who once worked for American Financial but left after Allianz acquired it. He's an owner of a newly formed independent marketer, Renaissance Annuity Group LLC in New Hope, Minn.

In theory, independent marketers are supposed to act as a wholesaler for all insurers they contract with, but in practice they often favor their owner, said Mr. Johnson.

Allianz wants the independent marketers to "lead" with its products, Mr. Prahl said. But he added that the insurer also can make money if the marketers it owns sell the products of its competitors.

In addition to higher overrides, Allianz was the first insurer to offer bonus programs to the marketers and to help them with recruiting, according to Mr. Prahl.

"Our wholly owned FMOs are incentivized the same way as independent FMOs," Mr. Foley said. "The commission, override, product availability and training are the same."

Three other insurers that write equity index annuities - ING North America Insurance Corp. in Atlanta, Old Mutual Financial Network in Baltimore and AmerUs Group Co. in Des Moines - are at the forefront of companies demanding a greater share of the business from independent marketers, the observers said.

An ING spokesman and an Old Mutual spokeswoman declined to comment. A call to AmerUs was not immediately returned.

Mr. Foley was unaware of any insurers that have expressed a desire to pull out of independent marketers owned by Allianz.

But, according to Mr. Johnson, ING wants the independent marketers to do at least $20 million a year in fixed annuity business - including EIAs - with the company in order to continue its relationship with those firms.

"Old Mutual has already pulled out of many of the independent marketers, because the company wasn't one of their core carriers," Mr. Prahl said.

"These IMOs look independent, but they're not," Mr. Johnson said. "They offer products other than Allianz's, but approximately 75% or [more] of the EIAs they sell are Master-Dex and other Allianz products."

The independent marketers sell Allianz products only about one-third of the time, Mr. Foley said. "We don't push products on them."

MasterDex is the industry's top-selling equity index annuity, according to Beacon Research Publications Inc. in Evanston, Ill. But some brokers are hesitant about selling or recommending that product because of its mediocre performance.

Its 4.65% rate of return placed it in the bottom 35%, according to rankings developed by MCP Premium Software in Fullerton, Calif. By comparison, ING's SecureIndex7 returned 7.27%, although it was not a top-selling EIA in Beacon's study.

Those return figures were back-tested and based on flawed economic assumptions, Mr. Foley said.

Allianz's motto has always been "build a bigger army, and you'll win," Mr. Prahl said. So far, that philosophy seems to be working, he added.

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