First Of Two Parts
The current new product development model for most insurance companies is simple. It is optimized to be profitable in an operating environment where ideas and product concepts are freely shared.
For example, Universal Life was a unique, new product concept that ultimately found an exciting and successful application in the high interest rate environment of the early 1980s. Unbundling the inner workings of a life insurance policy was inventivethat is, unique, useful and not all that obvious. Now UL is widely sold.
Even the sales methods or illustration techniques routinely used by agents and brokers today to market insurance products had, in the beginning, a spark of originality. But, in the spirit of sharing, the successes of the trial and error approaches used to make life insurance attractive to the consumer were quickly gobbled up and used by everyone. What company did not have a “vanishing premium” or “premium offset” illustration? How about “split-dollar” in its many variations?
While the business methods used by insurers and incorporated into their products and marketing strategies have been freely exchanged public property in the past, that is beginning to change.
In July 1998, the Federal Circuit Court of Appeals set this in motion in its State Street Bank vs. Signature Financial decision. This ruling, upheld by the U.S. Supreme Court, affirmed that “business methods” were proper subject matter for patents.
Prior to 1998, there were 47 patents issued in the insurance “business method” category. None were issued prior to 1985. In 1998 and the four years following, 128 insurance patents have been issued. And, currently, there are over 200 insurance patent applications pending.
In the overall scheme of things, of course, this is small potatoes. The United States Patent and Trademark Office currently issues over 180,000 patents a year and gets about 350,000 new applications each year. Life insurance patents are part of this increase and everyone trying to make money through the sale of insurance should take notice.
More and more of the insurance industrys most inventive people are deciding to protect their intellectual property, or, in other words, their insurance product inventions with a patent. What a patent allows them to do, specifically, is to exclude others from making, using or selling their invention.
Clearly, in an environment in which people are doing that, the current insurance company new product development model wont work. Your competitor may not allow you to copy their successful new product. To be successful, youll have to find your own new product innovation, different from theirs, or pay them a royalty.
You may think that this is not much of a challenge and you may be right for a while. After all, if you or your company are traditionally focused, the product concepts you need have already been developed and theyre freeparticipating whole life, universal life, variable universal life, equity indexed whole life, annuities of all sorts, structured settlements, life settlements, accelerated death benefits, long term care and the list goes on.
It appears there are more than enough ways to make money the old fashioned way.
But, whatever happened to nonparticipating whole life? Maybe its made a comeback of sorts in the form of long-term secondary guarantees. And, arent indeterminate premium products dead? Remember deposit term?