How a Top Principal Executive Sees Insurtech: Idea File

Principal Financial Group Inc. is the kind of technology prospect that could make an insurtech startup founder's heart sing. It's big, it has operations all over the world, and it's based in Des Moines, Iowa. It's one of the companies that supports Des Moines' Global Insurance Accelerator program. Sri Reddy, a senior vice president at Principal's retirement and income solutions unit, is in charge of the unit's annuity and pension risk transfer businesses. The company recently developed a new sales support system for term life insurance. (Related: Tech Bits: PartnerRe, Principal) Reddy himself helps Principal evaluate insurtech purchases. How life insurance company executives see technology ideas may be getting more attention now than it was a few years ago, because life insurers have moved beyond the stage of wanting to try some insurtech, to wanting to find some insurtech that will actually pay for itself. Reddy talked about his technology purchasing philosophy Tuesday, in an interview at ThinkAdvisor's offices in New York. "Not every idea is a good idea," Reddy said. Even if an idea is a good idea, he said, that doesn't mean it's necessarily an investable idea for Principal. Here are five of the ideas Reddy keeps in mind when deciding whether a startup's idea is investable, drawn from the interview.

1. Goals

"Is there a real problem they're trying to solve?" Reddy asked.

2. Importance

Reddy said he wants to know whether solving the problem the startup has identified will produce much value for someone.

3. Suitability for a big company

Principal needs systems that can scale up enough to fit a big corporate enterprise, Reddy said.

4. Future protection

A good idea for Principal needs to be mature enough or advanced enough that a better alternative won't come along a few months after the startup's version comes out, Reddy said.

5. Principal appeal

If an idea involves a service Principal could offer to other companies, or to other companies' employees, Reddy wants to know that the service is something that Principal really uses, or that Principal's employees really use. "We're a big believer in eating our cooking," Reddy said. One of his own ideas is some kind of service that would help consumers who know that loved ones have died, and who know that the loved ones had life insurance, but who don't know which company, or companies issued the coverage. The system could store death certificate information and similar types of information one time, to reduce or eliminate the need for the bereaved individual to provide the same information over and over again, Reddy said. Another of his ideas is to go one step beyond replacing paper signatures with digital signatures, and to eliminate the need for signatures. He said he wonders what kind of protection requiring signatures really provides. Reddy also talked about a wide range of other topics: Longevity risk: Regulators are having many conversations about longevity risk at the National Association of Insurance Regulators. One practical, easy-to-understand consequence is that regulators could end up adding a risk-based capital charge for longevity risk to products like deferred income annuities, single-premium immediate annuities and pension risk transfers, Reddy said. The charge could affect those products' prices, he said. Pension risk transfers: These are arrangements employers use to pass responsibility for pensions to insurers, through the purchase of group annuity contracts. The deal pipeline for 2020 looks good, Reddy said. Federal retirement legislation: He said that both Democrats and Republicans still support the idea of passing a bill, but that the mechanics of actually getting a bill through Congress by the end of the year look difficult. "I'm hopeful but not optimistic," he said. Student loans: He'd love to see the federal government create any kind of tax break for employer student loan repayment assistance. Health savings accounts: He'd like to see agents put more energy to promoting them. Appreciated assets and charitable contributions: Reddy said some people are discovering that, due to the changes in the tax laws, refinancing a home will be a lot worse deal than they expect. One possible way to make up for that is for a taxpayer to donate stocks or assets that have appreciated in value to a donor-advised fund, get a tax deduction based on the appreciated value of the assets, then have the fund make contributions to charities over time. That strategy can be especially helpful for reducing the taxes of people who have appreciated assets and already make significant contributions to charity, Reddy said. The advisor experience: Reddy said insurers could help make any new suitability, best interest or other standards a lot easy for financial professionals to handle by improving the systems financial professionals use to document what they're doing for clients. Many financial professionals are already doing most of what the sales standards proposals would require, but most are not that great at documenting what they're doing, partly because the documentation systems are not as good as they could be, Reddy said. — Read Guardian Life and Swiss Re Go Shopping (for the Future), on ThinkAdvisor. — Connect with ThinkAdvisor Life/Health on Facebook, LinkedIn and Twitter.