For years, annuity products have been crafted following the classic give-and-take between an insurer's product experts and its internal and external sales and marketing leaders.
Customer focus groups sometimes are convened to gain the perspective of real buyers. In other instances, marketing and sales leaders provide the customer's perspective during new product creation.
But as annuity products become more complicated with more moving parts, policyholder options and available features, the need is soaring for all parties to understand the priorities and needs of the others.
That requires deeper and more meaningful upfront dialogue about what a new annuity is trying to accomplish.
By understanding and focusing on the primary needs of the other parties, insurers have a greater likelihood of selling profitable, de-risked products, and producers have a greater likelihood of addressing the major client concerns and being paid adequately for it.
As variable annuity insurers attempt to create products with better risk profiles, this issue is moving front and center. For example, is the guaranteed withdrawal benefit sold as a) an income management tool for the client, or b) more as a performance safety net?
For some companies, the answer is: b, more as a performance safety net. If confirmed through research and discussion, this changes dramatically the way an insurer may view treatment of policyholder options. It may mean the guaranteed lifetime income can only be activated on policy anniversaries, or at other defined window periods, for instance. Or, it may suggest a longer waiting period before guaranteed income can be engaged.
In either event, other design elements, pricing, or sales compensation can be sweetened by virtue of the more limited client options, but this is "optionality" that clients in this example won't miss.
The need for a deeper understanding of trade-offs works both ways. For example, sales leaders and reps who appreciate the substantial impact of policy persistency on annuity pricing can better help fashion creative and profitable designs.
As annuities are combined with other coverages (e.g., long term care) with complementary lapse economics, the ability to "hedge" persistency risk allows for exciting new benefits at reasonable costs. These could be death, disability or hospitalization coverages that have pricing advantages when coupled with annuities.
