National Underwriter Life & Health made a list of the top insurance innovations this year for their May issue. In Life Health Pro’s article, “3 annuity industry innovations you should know about,” Emily Holbrook lists the top three innovations related to annuity products. The annuity industry is constantly innovating to stay relevant and popular with the public. As interest rates, financial markets, and government regulations change; so too do annuity products. Some changes are for the benefit of the consumer while others are simply to protect insurance companies from losing money on their products. It’s important to stay on top of the newest annuity innovations, especially because you or your clients could benefit from some of the changes.
Contingent deferred annuities themselves are not new, but recent changes have drastically increased the interest in these annuity products. These CDAs offer similar protection to the guaranteed lifetime withdrawal benefits of variable annuities, but you don’t actually purchase a variable annuity. They protect against longevity risk, but you do not have to pay ordinary income tax like you do with traditional annuities. Contingent deferred annuities are innovative because your money is in a real investment portfolio that has an income guarantee attached to it. This can be cancelled at will. CDAs offer you the peace of mind that you will be able to pay your living expenses for the rest of your life and lower the chances that you will run out of income. They also offer a greater investment portfolio IRR, help to increase your cash flow and your legacy benefits. This newer annuity is different from all other annuities, so it still isn’t widely accepted in the markets. Also, there are some investment limitations related to the portfolio holdings.
One of the biggest annuity industry innovations is the increased use of annuity mobile apps. Well over half of Americans have smartphones and the number of them downloading mobile apps doubled from 2009 to 2012. CUNA Mutual Group’s ZONE annuity app assists consumers and advisors with the company’s MEMBERS Zone indexed annuity product. The app offers simplified terms as well as visual representations to help make the annuity product easier to understand. 2013 sales of the MEMBERS Zone annuity were 300% higher than expected. Lincoln Financial’s “Lincoln Annuity Visualizer app offers retirement scenarios to help consumers and advisors better understand the options available to them. While these annuity apps are great progress, the life insurance industry as a whole is playing catch-up when it comes to mobile app innovation.
Deferred income annuities are an industry innovation that has taken flight recently. In exchange for a lump sum payment, you will receive guaranteed income payments that last as long as you live. These products help consumers create their own pension. Payments are typically deferred somewhere between 13 months and 40 years. While economists have believed in DIAs for years, they have recently become popular with consumers because of some new innovations. Northwestern Mutual’s Portfolio Deferred Income Annuity is targeted towards a younger market. Growth is rapid and will continue on that track for many reasons. Big name insurance companies are offering deferred income annuities because they are easier to understand. Their transparency and efficiency will be the reasons that DIAs take some of market share away from income riders. Flexibility has been the greatest innovation with DIA products. New York Life’s Guaranteed Future Income Annuity allows consumers to change their income start date, choose from a variety of funding methods, offers inflation protection, a money back guarantee rider, and the opportunity to get more payments in an emergency. Another important innovation for DIAs was to stop calling them “longevity insurance” because the public just didn’t take to that term.
Three of the biggest recent innovations in the annuity industry were with contingent deferred annuities, annuity mobile apps, and deferred income annuities. Innovations in the annuity industry will continue this year.
Written by Rachel Summit