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Insurance Product Lingo--And What Makes Sense

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We’re still early in 2007 and it’s a good time to revisit the insurance product lingo juggernaut. So that “everyone is on the same page,” as the saying goes.

Of course, getting the insurance sector on the same page about anything at all is no job for mere editors. However, in the spirit of new beginnings, here goes.

Index annuities or equity index annuities? The products started out being referred to as equity index annuities because the first versions of the policies linked their gains to an equity index. But since then, fixed index annuities also link to other types of indexes. And, by the way, they are not securities. As a result, many index pros are now urging the industry to settle on the term “index annuities” as most suitable. For the sake of clarification, simplicity and accuracy, I agree.

LTC or LTCi? Insurance nomenclature has long taken the first letters of coverage names and written the word insurance after it. For example, disability income insurance is DI insurance, not DII or DIi. Likewise, whole life insurance is WL insurance, not WLi. For the sake of consistency, it would be nice to see generic references to the long term care product be LTC, not LTCi. (Those who use LTCi in their business name should continue to do so, of course; business is business. But for industry-level conversations, LTC insurance makes more sense.)

Insurance company or what? Many times, consumers say “insurance company” and/or “home office” when they really mean their own insurance agency or a local or regional branch of an insurer. This is irritating and confusing. It has occurred so often, in fact, that I now routinely ask for clarification before answering questions or providing feedback to statements made about the “insurance company.” Changing the public mind is no easy task, but it might help if the people who work at local and regional insurance offices and agencies make it clear what they are and do.

Customers or investors? If you are talking about securities (including variable insurance products), the buyer is definitely an investor. But if you are talking about fixed interest insurance products, the buyer is probably better referred to as a customer, consumer or saver–terms that are not closely associated with securities.

Link rate or participation rate? In the index annuity world, the rate the insurer uses to calculate credited interest is often called the participation rate. Problem is, in the mutual fund world, the term participation refers to interacting as a direct investor in a mutual fund. But in index annuity transactions, customers are not investors in an index or in markets. How about saying something like link rate, instead? That suggests the rate ties the policy’s interest crediting to gains in the index, and it is not a term from the equities world.

Premiums or purchase payments. When people buy insurance products, they pay a premium. However, in the variable annuity world, many firms say the person is making purchase payments. The purchase payment lingo does underscore that the owner is making a payment on a VA purchase (including investments in the subaccounts), but it is a mouthful. The term “premium” seems better suited, by virtue of historical usage and common understanding. If that doesn’t float your boat, how about just using the term “payment?” As in, “I made a payment on my variable annuity.”

GMIB, GMWB, GMDB, GM… or what? It seems everybody in the industry is complaining about the confusing alphabet soup of guarantees offered by many VAs and now certain fixed annuities. But they’re not doing anything about it, as far as I can see. Why not be a change agent? You can do this by talking about the many benefit guarantees in the products. Then use one word to identify each: Income, Withdrawal, Death, etc. Agreed, the fact that the guarantees are minimum levels is very important, but do you have to put that into the feature name? If a product has 2 or 3 versions of a certain guarantee–say, in the Withdrawal category–why not just number them? That is, say Withdrawal 1, Withdrawal 2, and so on?

Probably, one or more of the preceding suggestions will ruffle some industry feathers. Professionals in any business or occupation do love their lingo. It labels them as insiders. It makes peer communication a bit easier. They don’t want to change.

But the risk is very high that consumers will get confused when the terminology seems esoteric or off the mark. That can create more havoc on the customer service side than anyone wants.


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