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Eric Henderson (Photo: Nationwide)

Life Health > Annuities > Variable Annuities

Nationwide Upgrades an Annuity With Strong Floors: Strategy Driver Review

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What You Need to Know

  • The Nationwide-Annexus index-linked contract death benefit features can protect spouses or other co-annuitants against the risk of death.
  • Issuers of five-year multi-year guaranteed annuity contracts are pushing crediting rates higher.
  • An insurer with a life-LTCI hybrid is reducing premiums.

Rising interest rates are putting U.S. life insurers in a strong financial position — but clients are looking at news about inflation, U.S. politics and war in Europe and shivering.

The collision of insurer strength with client fear is shaping some of the ideas behind recent life, health and annuity issuer strategy announcements.

Here’s a look at six top new strategy drivers.

1. Move toward offering registered index-linked annuities, or RILAs, with more protection against account value loss — and death.

Nationwide, an insurer, is updating the Nationwide Defined Protection Annuity contract, a product it developed with Annexus, an annuity designer.

The contract was the first registered index-linked annuity contract, or RILA, that Nationwide has offered, and now it offers new death benefit features.

A RILA is an annuity with a crediting rate tied to the performance of one or more ETFs or investment indexes.

Because a RILA is registered with the Securities and Exchange Commission as a variable annuity, the issuing insurer can expose the annuity buyer to the risk of loss of some or all principal. Some life insurers see using a RILA to adjust just how much investment risk they assume as a way to manage their own level of investment risk while, in many cases, offering the annuity buyers a chance to earn higher crediting rates in typical or good market conditions.

But Eric Henderson, president of Nationwide Annuity, part of Nationwide’s Financial unit, said in a comment about the product that the effects of stock market volatility show that retirement savers need strong “floors,” or limits on how far the value of their retirement investments can drop.

“We were very intentional in our decision to enter this category with an innovative solution that can help conservative to moderate investors balance the right level of protection they need with the greater growth potential they want,” Henderson said.

The client pays for the contract with one big premium payment and can choose to protect 90%, 95% or 100% of that payment amount.

Now, Nationwide has further enhanced the level of protection the contract provides, by adding two new death benefit features, at no additional cost.

One is a return-of-premium death benefit feature. It guarantees that beneficiaries will receive at least the original premium invested in the annuity. Nationwide adds that feature automatically if the annuitant and the spouse, or other co-annuitant, are both 75 or younger when the application is signed.

The other new death benefit is a spousal protection feature, which protect both spouses and provides a death benefit on both of their lives.

2. Increase crediting rates.

Most U.S. life insurers are getting better returns on their own investments, and many are responding by increasing the rates they pay annuity holders.

One example is Oxford Life Insurance Co,, an issuer with an A- rating from AM Best.

Two years ago, it was paying just 2.35% on a five-year multi-year guaranteed annuity contract.

Now, it’s paying a rate of 3.7%, according to annuity rate data services.

3. Cut some prices.

OneAmerica is adopting this strategy.

The insurer offers the Care Solutions life insurance policies, which combine rich long-term care benefits features with life insurance policies or annuity contracts.

The company announced that it’s reducing the base premiums for the life insurance policies included in the life-LTC combination packages.

The prices of coverage purchased using five-year or 10-year payment period options remain unchanged, but the prices for younger consumers who are buying coverage with one-time payments or recurring premium payments have fallen by up to 15%, the company says.

OneAmerica says it cut prices partly because of rising interest rates and partly because of customers’ focus on savings.

“We’re excited to offer cost savings to our customers at a time when everyone could use a little financial relief,” Jeff Levin, vice president of distribution for the Care Solutions products, said in a comment about the premium cuts.

4. Combine two important, related types of coverage.

Many consumers who turn 65 need insurance that will cover the cost of funerals and other end-of-life expenses as well as health insurance.

They may buy Medicare supplement insurance from an agent, then give up on trying to buy final expense coverage, because buying a life insurance policy designed to pay end-of-life expenses is often more difficult and more time-consuming.

AmeriLife Group, a distributor, has tried to solve that problem by working with an insurer, American Home Life Insurance Co., to develop a Patriot Series program that can provide Medicare supplement insurance and final expense coverage at the time.

An agent who offers the program can sell a client a Medicare supplement policy, then use an electronic application system to enter the client’s answers to life insurance underwriting questions.

American Home can then issue the client final expense coverage at a discount of up to 20% off the usual premium, AmeriLife says.

5. Just make the sales process work better.

WrightLife Insurance Group is working with Afficiency, an insurtech company, and The Savings Bank Mutual Life Insurance Co, of Massachusetts to set up a website, GetMeCoveredNow.com, that will sell term life coverage through a quick, fully digital underwriting process.

6. Catch crooks.

Despite the new emphasis on fast, simple underwriting, life insurers still want to detect liars.

One risk life insurers face is applicants with hidden “jumbo” coverage.

U.S. life insurers typically limit the amount of automatic reinsurance available per person. Limits may range from $35 million to $65 million.

Some applicants try to get around jumbo policy limit constraints by applying for coverage from several insurers and hiding how much coverage they actually have.

MIB — a nonprofit group that helps life insurers share fraud-fighting data — and TAI, a Canadian firm, have joined to tackle the problem by creating the MIB Jumbo Service.

The service uses a TAI database that holds information on about 74% of in-force U.S. life policies and a MIB database that holds information on most U.S. life insurance applications to detect jumbo treaty breach risk.

The first jumbo risk search detected about 300 people who each had in-force coverage and pending coverage with total death benefit levels of $50 million or more.

Correction: The Nationwide product announcement was described incorrectly in an earlier version of this article. The  company added death benefit features to an existing contract.

Pictured: Eric Henderson (Photo: Nationwide)