May 28, 2009 (5:53 PM) by G. Michael Maddock
What if I told you that insurance is an industry full of innovation? What if I told you that the insurance industry was just about ready to take a leadership position in new products, services and business models? You’d probably think I was trying to sell you a whole life policy. Not so.
The rollercoaster ride that most investors have been on for the past year has validated what many agents have done a really bad job of telling us for decades: Insurance should be part of your investment strategy. Consider some of the more obvious benefits available through one type of insurance — life insurance:
- Quick liquidity while other assets are in probate
- Liquidity quickly and quietly (none of your creditors need to know)
- Creditor protection — assets from life insurance while you’re alive are creditor protected
- A simple way to provide continuing income for your family members
- Pay off debts you leave behind
- Pay final expenses and taxes
- Provide an estate for your loved ones
- Leave money to charity
So what does this have to do with innovation? Well, Maddock Douglas defines innovation as the synchronized intersection of a need or insight, a product, service or business model that meets the need, and the communication that connects the two. The following is a list of ways to use insurance products. With the definition of innovation in mind, check to see if some of these applications link a need with an idea:
In personal situations, insurance is often used to:
- Equalize or un-equalize an estate or inheritance
- Use the living benefits if terminally ill to travel with your family
- Use the living benefits if terminally ill to pay off your mortgage, write a check to a college
- Use the living benefits if terminally ill to take your final month with your family
- Use a “newer” LTC rider to help cover long-term care costs
Now let’s look at business applications for life insurance. Remember, we’re looking for a need linked with an idea:
- Make sure your spouse is not partners with your partners
- Ensure an orderly transition of your business should you leave it
- Turn an illiquid asset into a liquid asset just when it is needed
- Help younger partner/shareholder fund a buyout older partner
- Fund an ESOP
- Fund a pension
These creative uses of insurance beg a couple of questions. First, did you know about all of these strategies? Probably not. The insurance industry often has two of the three key ingredients for successful innovation: the need and the idea. What is missing is the ability to communicate these ideas in a way that is relevant to increasingly busy people. Too often, insurers focus on an event that may be years away when, to be actionable, ideas must be relevant to me today. Much of this can be linked to an agent-driven business model and a perspective rooted in history rather than current reality. The good news is that it is incredibly easy to fix — we’ve done it — particularly when you have a suite of products that are quite flexible and a CEO who believes change is necessary. For this reason, we believe the whole industry is at a dramatic tipping point. Expect to see much more relevant and creative products soon.
Which leads to our second question: Are big insurers capable of creating revolutionary innovation or just evolutionary innovation? We’re optimistic. Based on what we’ve seen lately it appears that the large insurers and financial institutions have an appetite for change. The economy has certainly given them a much-needed nudge.
If you work in the industry, here’s a test to see if you have what it takes to innovate in Insuranceland: We believe that the general public will be able to buy all types of insurance at a local Walmart soon. If you work at a financial services company and this idea sounds preposterous to you, you are being outplayed by a competitor even as we speak. If it sounds reasonable, you passed the test and are prepared to drive revolutionary change.
Warren Buffett said: “Life is like a snowball, the trick is to find a really big hill and lots of wet snow.” For insurance products, there is wet snow everywhere. Now, who’s ready to go find a really big hill?
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Randy Christian 
