Some insurers are bucking the trend by going riderless
Riders are often the fast fix for an insurance policy in need of a tweak. But they increasingly are becoming the hub for product innovation.
This innovation can be substantial. It may involve product patenting, for instance. A recent example of that is the decision of American Express Financial Group, Minneapolis, to file for a patent on a new variable annuity rider. There is a feature in the rider that is unique, the company explains.
Other rider innovations seek to hike up competitiveness and/or customization capabilities of existing products. That is widely seen as saving the time, money and effort of crafting all-new designs while still moving deeper into the insurance design frontier. The modern version of this is to broaden or enrich what the base contract does or offers, as will be seen below.
The above is not to say that riders are the only place for insurance innovation today. Some insurers still innovate from the ground up.
For instance, Jefferson National Life Insurance Company, a Dallas subsidiary of Inviva, New York, recently unveiled Monument Advisor, a from-scratch VA for fee-based advisors that, not coincidentally, has no riders at all. In a sense, the innovation was simplicity, so the product also has no mortality and expense charges, no surrender charges, and no front loads. (Instead, it charges a flat insurance fee of $20 per month, no matter how much a client invests, says Patrick D. Ferrer, national sales director.) The product is backed by an all-electronic platform for issue, maintenance and administration, says a spokesperson.
Also, the Phoenix Companies, Hartford, Conn., has debuted a ground-up variable universal life policy, Phoenix Express VUL, which innovates around simplicity, too. This contract offers face amounts of up to $1 million without medical exam and is structured to facilitate underwriting decisions in a few hours. To accomplish this, the company uses a short application, and permits underwriting without medical exam, depending on the medical answers on the app.
Once again, there are no riders involved in this build. That, too, is not coincidental. It's part of the simplification process, a Phoenix spokesperson explains.
Still, riders do dominate today's insurance development limelight.
American Express Financial says it filed for a patent on the Accumulation Protector Benefit rider, mentioned earlier, because the rider's "80% step-up feature" is unique to accumulation benefits. Specifically, the rider guarantees that, after 10 years of investment, the policy owner will receive the greater of: the original contract investment (adjusted for withdrawals), the contract anniversary value, or 80% of the highest maximum anniversary value (adjusted for withdrawals).
This is for clients who want to protect their original investment while being able to participate in market growth, says Lynn Abbott, vice president-national sales and strategic alliances, in a published statement. It enables the company to position the VA (with the rider) as an alternative to fixed annuities or indexed annuities, adds the company.
Other insurers use riders to keep fresh ideas fresh–or fresher–and to achieve market differentiation along the way.
