It’s true – many do not immediately think of the insurance industry when they think about product innovation. But, among other things, we’re trying to change that stigma. From a breast cancer tumor calculator to health care ministries to annuity mobile apps, the insurance industry, whether deservedly recognized or not, is an innovation juggernaut. And we are here to bring you these top innovation in our inaugural insurance industry innovations spotlight.
The May issue of National Underwriter Life & Health will mark the innaugural “Insurance industry product innovation” feature. Within it, we profiled three innovations in the life, health and annuity industry. Below are the annuity industry innovations we selected.
Contingent deferred annuities
Though not considered a new innovation, Contingent deferred annuities (CDA) have experienced a recent spike in interest, both from consumers and agents. Investors flock to CDAs because it’s designed to offer protections similar to those provided by a guaranteed lifetime withdrawal benefit (GLWB), but does not require the purchase of an underlying variable annuity. Basically, investors get a product that provides an annuity-type guarantee without having to buy an annuity.
Designed to offer longevity risk protection, the CDA also offers investors protection from the ordinary income tax that they would normally pay after withdrawals from traditional annuities. It is linked to the performance of an investment account that is not a life insurance company separate account. To some investors, it’s a win-win.
These are “the Silicon Valley of the annuity world,” said Stan Haithcock, also known in the financial world as Stan the Annuity Man. “Most people hate the sound of the word ‘annuity,’ but they like guarantees.” What makes the CDA innovative is that it allows investment in a real portfolio with an attached income guarantee that can be cancelled at any time.
According to a study by Milliman, Inc., the inclusion of a CDA in the investor’s portfolio improves the desired retirement income stream by: guaranteeing the funding of essential living expenses for life, reducing the probability of a shortfall in desired income, delivering a higher investment portfolio IRR, increasing overall cash flow and increasing legacy benefits.
But like most investments, there are weaknesses. “The only downside, in my opinion, are the current limitations of the portfolio holdings you can have with an attached CDA strategy,” said Haithcock. And while progress has been made on both the tax and regulatory front with regards to CDAs, the product is still striving for market acceptance. Even so, the CDA is an annuity unlike any other, and consumers have – albeit slowly — started to take notice.
Annuity mobile apps
According to Pew Research Center, 58 percent of American adults have a smartphone and 42 percent own a tablet computer. Additionally, 43 percent of cell phone users have used their smartphone to download a mobile app, an amount that doubled from 2009 to 2012. For many insurance and financial services companies, innovation translates to digital products or services.