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Annexus to Offer Social Security Uncertainty Protection

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What You Need to Know

  • American Life received regulator approval in April 2020 for a free contract value enhancement rider.
  • An annuity holder who has the rider is supposed to get a bonus if Social Security benefits fall sharply.
  • A patent application lists David Duley and Timothy Hill as the inventors and a Duley company as the patent application filer.

Annexus — a large annuity distributor — plans to offer consumers a new tool they can use to protect themselves against Social Security retirement income disruption.

The Scottsdale, Arizona-based company has agreed to work with PlanGap to add a Social Security income disruption rider to non-variable annuities. The rider can pay an annuity holder a bonus if Social Security program changes slash benefits.

The Annexus Effort

Annexus hopes to line up the relationships with the insurer and investment bankers it needs to implement the new Social Security disruption rider program by the end of the year.

Don Dady, the co-founder of Annexus, said in a comment about the new PlanGap relationship that Social Security benefits are many Americans’ most valuable retirement asset.

“Clients insure their home, cars and other valuables in their life,” Dady said. “We believe they will also want to protect their retirement from a reduction in Social Security benefits.”

The Secure Companies Patent Application

PlanGap is a Milton, Georgia-based affiliate of The Secure Companies Inc. of Atlanta.

David Duley, the CEO of The Secure Companies and the founder and CEO of PlanGap, is licensed as a life insurance agent in Georgia. The Georgia agent information database shows he he is appointed with Great American Life Insurance Company and American Heritage Life Insurance Company.

Duley and Timothy Hill, a Milliman actuary, applied in 2019 for a patent for a “system and method for issuing and trading catastrophe bonds.”

Duley and Hill told the U.S. Patent and Trademarks Office that insurers often use catastrophe bonds to protect insureds against risks resulting from natural disasters.

“The catastrophe bond concept has never been applied to the non-diversifiable risk associated with political events that can have deleterious effects on investments or benefits,” Duley and Hill say in their patent application. “Accordingly, there is a need in the industry to develop systems and methods to issue such bonds.”

The applicants suggest a list of triggering events could include a reduction in expected program benefits or a reduction in benefits.

The American Life Annuity Rider Filing

The Interstate Insurance Compact — a body that reviews insurance and annuity filings for participating states — approved a “contract value enhancement rider” based on the PlanGap strategy in April 2020.

American Life & Security Corp., a Nebraska-based insurer that’s part of Midwest Holding, asked to add the annuity to an ordinary single-premium multi-year guaranteed annuity.

More on this topic

Hill served as the actuary certifying the annuity filing.

Stacy Koron, a Milliman compliance consultant, noted in a cover letter for the annuity filing that the Social Security benefits reduction rider is somewhat innovative.

Milliman discussed the rider with a compact official first, and it was agreed that the rider was subject to the compact’s annuity bonus standards, Koron wrote.

Hill said in the actuarial certification of reserves that American Life will support the Social Security benefits reduction bonus by establishing reserves based on what the Social Security trustees say each year about what will happen to the main Social Security trust fund.

In 2019, for example, the trustees said they expected the trust fund to run dry in 2034, and for the death of the trust fund to lead to a 23% reduction in benefits, Hill wrote.

“The year of depletion and the amount of reduction used in the [reserve] calculation will be revised each year as new reports are released,” Hill said.

American Life’s version of the PlanGap rider comes with the underlying annuity for no additional charge and can pay a bonus of up to 6%.

PlanGap and American Life began selling the American Life rider in August 2020.

The Future

If officials approve the Secure Companies patent application, the patent could lead to efforts to create other types of insurance and annuity products with political disruption-based triggers.

Veterans, farmers and health insurers are some of the many parties that depend on income streams that are subject to disruption due to political decisions.

One obstacle may be the difficulty of insuring large portions of large streams of income against disruption. Issuers may need to have arrangements they can use to cap the amount of risk insured.

Another obstacle could be concerns about “moral hazard,” or the effects of large, successful disruption insurance efforts on public policy. In some cases, awareness of the existence of large, successful insurance programs could lead officials to be more open to causing disruption than they would be if insurance programs did not exist.

(Image: Adobe Stock)