When guaranteed minimum death benefits first debuted on variable annuities a decade ago, critics said they wouldn’t fly. The stock market was in overdrive, so what was the point, said these oh-so-wise souls.
Then came the market swoon in the recession of the early 2000s. Suddenly, those guarantees were looking pretty good to those who had them (and worrisome to those who were underwriting them).
Where were the “you don’t need this” pundits then? Probably, they were in hiding, peeling egg off their faces.
So it goes with new insurance products. Their value and market positions often don’t get any respect–until after they’re tested in the wild and woolly marketplace.
Think back to the dawn of equity index annuities, also in the 1990s. Most insurance mainliners didn’t pay them any heed. “Those things are too complex,” they said. “Few will want them.”
Ah, but once the early EIA buyers saw account growth by the late 1990s and continued interest crediting during the early 2000s, that talk vanished–and index annuity sales spiked. Where did all the “too complex” people go then? Maybe some went to the National Association of Securities Dealers. Others probably started developing index annuities of their own.
So far, this story makes new product critics sound like jerks.
They are not jerks.
Sure, some are probably worrywarts, reacting to new product concepts with more fear than reason. Others may be competitors who criticize virtually any product that their own firms do not manufacture or sell.
But a good many others are serious critics who seem to have noble impulses. They may be experienced executives or analysts who, if they spot gaping holes in a new product design, voice concern on behalf of both consumers and the industry. They want to sound the alarm before the product causes irreparable damage.
Serious critics can do more good than harm. Think back to those who chipped away at the early GMDBs. They pointed out that not all such features are alike–and that helped spur advisors and clients to learn how to evaluate the features before deciding which, if any, to pick.
Similarly, serious critics of the early index annuities helped ensure that the products got a thorough regulatory going-over. They were also a major impetus for manufacturers putting some elbow grease into educating advisors on how, when and where to present EIAs.
Even critics of mature product lines can be forces for good. Think of all those industry folk who pushed hard for more sound pricing of long term care insurance and more sound underwriting in disability income insurance. Improvements in both areas definitely have come to pass.
Or think of all the continual pressure from certain industry consultants for more complete and accurate disclosure in product and sales literature. Today’s materials are far more complete than five years ago, and while some now suffer from over-disclosure, at least “it” is there somewhere.
Serious product critics are by no means gods. They are not great seers. They are not power brokers. History shows that, if a new product concept has marketplace potential, it will not crash and burn just because respected experts took a few jabs at it.
But history also shows that the product will have a lot better chance of making it if the manufacturers and marketers take fair-minded criticism into account.
Right now, the guaranteed minimum withdrawal benefit–a fairly new option in VAs–seems to be a hot seller. Diversified Services Group Inc., Wayne, Pa., reports that 63% of the VA companies it surveyed in 2005 currently offer guaranteed living benefit riders, with the GMWB apparently the most popular one. Some 19.4% of the companies said they already offer the GMWB.
That being the case, the GMWB probably will be the next VA feature to get a going-over. It’s hot, and where there’s heat, there’s usually critical scrutiny.
So, the next step is what to do about it. Previous new product experience points to an answer: If the objections seem unfounded, unsupported or competitively motivated, stay the product course. Market-worthy innovations do not crumble under such pressure. They endure, and they often go mainstream.
But if the protests are based in fact, sound reasoning and authoritative analysis, give them their due. Those jabs just might spur not only product correction but also strategic redirection or enhancement. It has happened before–and it will again.
Worrywarts don’t rule, nor does mean-spirited competition. What does rule is performance. That is, product winners are innovations that meet and exceed defined consumer needs, developed by experts who stay open to improvement.