Is innovation alive or dead in the annuity business? The answer is, “yes–well, sort of,” according to insurance professionals contacted for this story.
The question is pertinent because some industry watchers have been saying that annuity innovation evaporated as of the early 2000s recession and never returned. Yet many carriers routinely tout their latest rollouts as new, first, innovative and groundbreaking. Some rollouts even carry the patented or patent-pending tags.
So, which is it? Alive or dead? Following are some assessments, plus glimpses at how innovation is happening.
“Some annuities are coming out disguised as innovations when they are merely tweaks that only complicate the product,” observes Michael Bartolotta, a brokerage general agent and founder of M3 Financial Inc., Glastonbury, Conn. This explains some of the confusion that exists over whether annuity innovation is or is not on the wing, he says.
Jerry Golden, president of the Income Management Strategies Division at Massachusetts Mutual, Springfield, Mass., puts industrywide annuity innovation at about 4, on a scale of one to 10.
Laurence Greenberg, president and CEO of Jefferson National Life, a Dallas subsidiary of Inviva, New York, puts it at about 5.
A lot of companies are interested in developing hybrid products, such as putting LTC riders on life and annuity policies, says Stephen D. Kendrick, head of insurance business development at North America, for Majesko Mastek, Edison, N.J. But most are slow to do so, he says, explaining that their systems are often the “limiters.” They’ll need to make changes to the systems first, he says.
So it goes.
Golden believes the level of innovation right now varies by product line. For instance, fixed and variable immediate annuities are in the 5-6 range, whereas deferred FAs are at about 2, he says.
What about traditional deferred VAs? “The feature wars continue, but there’s no real innovation.” Golden ranks innovation here at 3.
Bartolotta sees something similar. For instance, in the traditional FA world, there is not a ton of true innovation going on, he says. “Some carriers say they are innovating with single premium immediate annuities, but that’s a rate-driven product (and sale). What’s to innovate when it’s rate-driven?”
With VAs, though, “some” innovation has occurred on the retirement income side, he says, citing introduction of guaranteed income and withdrawal features as examples. Some of this has even carried over to FAs, a few of which now also have guaranteed withdrawal features, he says.
While Bartolotta concedes those can be good things–they’re “something different to talk about” and certain new features do meet emerging needs–he always checks to be sure that what is being promoted innovative is, in fact, innovative. If they’re not–if they’re just a tweak that complicates an existing product, for instance–he doesn’t want to spend a lot of time with them.
That rings bells with Greenberg. There are a lot of “good ideas” for meeting consumer needs circulating in the annuity industry right now, he says. “However, a lot aren’t there yet. Most are just re-hashing existing products and riders, especially in retirement income. The companies may be trying to develop innovative products, but too often this is “inward focused,” he says.
What factors should industry pros consider when innovating or when looking for truly innovative products and companies? Some ideas follow.
Is it complicated? Even when a product is in fact innovative, Bartolotta says, that’s not a guarantee it will sell. “I’ve seen a lot of cool features come out that never catch on.” Often, the problem is the innovation is just too complicated, he says.
Do the new products align the company with new channels and markets? “The challenge is to align annuity products with the needs of the intermediaries and the clients,” says Golden.
The companies shouldn’t just focus on innovating for the same segment of the market that the industry already serves, he continues. “We need to expand to new distributors and markets … and align the products, pricing and features with different channels and market segments.”
This way, the industry won’t just be replacing products in the same channels. It will be growing.
Innovation like this requires a “market back, not product out” mindset, Golden adds. That is, “work backwards, to what the market needs today and will need tomorrow.”
Does the innovation meet needs of people who don’t currently own annuities? To a large extent, annuities are still advisor sold, and a lot of the emphasis continues to be on selling product, says Eric Sondergeld, director of retirement-private, client-channel marketing at BlackRock, Inc., Princeton, N.J.
There has been some innovation in annuities, Sondergeld alleges. This has largely focused on achieving greater simplicity and reducing costs, and both are good ways to help bring the mass market to annuities, he says.
But what needs more work, he says, is “developing products for people who don’t yet own annuities. That means products that address their needs and goals.”
Does the innovation take a customer-centric approach? Developers at Sun Life Financial, Wellesley, Mass., believe it takes a customer-centric approach to be innovative,” says Mary Fay, senior vice president and general manager-annuities.
That is, the company should be studying customer problems and concerns, and then come up with related solutions, she says. That requires doing consumer research and responding to the findings, she indicates.
She described the “innovative challenge” as one of understanding the consumer and then translating this into a solution that represents a competitive advantage. That’s “strategic innovation,” she says.
She cites, as an example, research her company did into baby boomer wants and needs. This revealed that maintaining lifestyle and ability to live life on one’s own terms is very important, Fay says.
“Boomers don’t intend to live on 80% of previous income. Some expect they will have a bump up in spending, for travel and other things, once they retire, followed by a slope down and then another bump up, say to fund health care.” In other words, research shows that boomers want to be able to stop, start and store their retirement funds, she says.
The insurer used those findings in developing its patent-pending Income ON Demand VA option, she says. The option is an “income storage benefit” that allows VA owners to defer part or all of their permitted annual withdrawals and to “store” those withdrawals for future use, she says.
Does the company study–and address–obstacles that consumers encounter? New York Life surveyed consumers to learn what obstacles were in the way of their buying single premium immediate annuities, says Michael Gallo, senior vice president-retirement income for the insurer.
“In thinking about the retirement market, we felt (industry SPIA) sales should have been growing geometrically,” he recalls. But they weren’t, so the company decided to see what was going on. Its research found 3 main obstacles to buying SPIAs: Lack of liquidity, worry about SPIA payouts not keeping up with inflation, and lack of legacy benefits.
The company then designed a new SPIA that has several patent-pending elements that addresses those issues, he says.
The product, LifeStages Lifetime Income Annuity, includes: The ability to accelerate payments for short-term liquidity, a one-time withdrawal feature, an optional auto increase in payout level, a money-back guarantee, and a guaranteed legacy option (pays 25% or 50% of premium as a death benefit, no matter how long payments have been made).
Is it a solution or just a product? True innovation comes from designing solutions, not just products, says Jefferson’s Greenberg. This is a hot button topic with many other executives too. To arrive at solution, it requires use of platform-based models, Greenberg continues, noting this makes it possible for the carrier to offer different solutions for different consumers.
Is the developer selective about what gets innovative treatment? Not every idea merits such treatment, alleges Fay. For instance, she noted that Sun Life Financial sometimes decides to be a fast follower on an annuity trend to stay competitive.
But when trends and data points suggest innovation is a viable option, the company will innovate, she says.
The decision process includes checking industry products to see whether the need is already being met and moving when opportunity is perceived. The planning encompasses not just sales, but also service of the product throughout its lifecycle, she adds. It also entails getting advisor feedback and tweaking the “messaging” so that it can be easily understood.