If You Can’t Break the Rules, Bend Them: The Modernized Annuity Product

If You Can’t Break the Rules, Bend Them: The Modernized Annuity Product

The conversation surrounding innovation and digital transformation within the insurance industry is changing, becoming increasingly nuanced and deliberate as the insurtech market matures. Today’s insurers are becoming more strategic as they work out which insurtech technologies and partnerships will help them address their particular pain point, whether that’s claims, distribution, underwriting, or pricing. However, there is one segment of the industry that’s rarely a part of this conversation: the annuity market.

The inherent differences between annuities and other insurance products, even outside of the life insurance sector, means that the way annuities is modernizing looks quite different than the rest of the industry. However, that doesn’t mean that it isn’t happening. 

The changes affecting the broader insurance industry are also impacting the annuities market, especially when it comes to serving the modern consumer. The expectation that modern insurance products be available online for browsing, purchasing, and adjusting presents a unique challenge with annuities, considering the strict regulations concerning how they’re bought and sold. 

With consumers expecting, even demanding, a direct-to-consumer approach to financial products, in what ways is the annuity industry modernizing to meet this need?

The New Annuity Product

Traditional annuities must be sold through an agent, which has always been the case. But what if the annuity product presents itself in a different way? Some approaches have been around for sometime, but are now becoming more popular, like fee-based annuities. Some turn the traditional annuity product on its head while still serving the ultimate goal of providing an individual with a consistent stream of income throughout the remainder of his/her life. 

One approach is a subscription-based model that requires a fixed deposit and offers the customer the option to increase their retirement income stream through low monthly payments, creating a ‘personal pension.’ The insurtech offering this annuity product, Blueprint Income, offers this subscription-based DIA product online in a way that’s easy to access and understand, eliminating the need for an agent. 

Startup Relay is thinking even further outside of the box with regards to how to accomplish the goal of an annuity. Their innovative product ties an immediate annuity to a Relay Visa Prepaid Card, which offers aggressive (3 to 13 percent) cash back rewards whenever they use their card. Customers can build custom plans that fit their unique needs and spending habits online and, after the plan is funded, get monthly payouts pre-loaded on their prepaid Relay Card. “We find it to be an innovative way to bring together concepts people use every day,” said Andres Barragan, chief experience officer at Group 1001, Relay’s parent company.

Partnerships in the Annuity Space

Another way the annuities market is modernizing is mirrored across the broader insurance industry: partnerships. New collaborative products, initiatives, and approaches to traditional methods are helping the market play catch in a significant way.

Partnerships between annuity providers and insurtechs operating within the annuity space afford the industry a way to innovate on a significant scale. It also gives the insurtechs the ability to acclimate to a heavily regulated industry with the expertise of an incumbent. Blueprint, for example, boasts partnerships with Guardian Life Insurance Co., New York Life Insurance Co., and a just announced third partnership with Pacific Life through the Next Deferred Income Annuity.

While the annuities industry might be modernizing at a slower, more subtle rate than other areas of the insurance industry, there’s no doubt that it is definitely under way. New, innovative products, as well as modern approaches to traditional offerings, are only the beginning. Given the size of the market, and the potential profits involved, the modernization of annuity space is all but guaranteed. Products like Relay’s prepaid card and partnerships like Pacific Life’s prove that there’s significant interest in seeing change and innovation within the annuities space.

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