Insurance Patents Invite Disruption
By Linda Koco
Some innovations can so disturb existing systems that vested interests will
go to the mat to try to stop them. We see this a lot in technology, but it’s
happening in insurance, too.
For instance, right now, there is much interest in how new telecommunications
technologies, such as VoIP (Voice over Internet
Protocol), are disturbing the established land line phone systems. In the
19th century, railroads and telegraphs were disruptive, bypassing horse and
wagons with their speed and efficiency.
Insurance also has had its share of disruptions. Think back to the debut of
universal life insurance in the 1970s. Separating out the interest-building
and cost-of-insurance components was a huge departure from traditional whole
life. It met with enormous opposition from entrenched interests but wound up
a top seller during much of the 1980s.
In the 2000s, UL once again became the product du
jour, thanks to its use of yet another disruption—the secondary
guarantees that keep the UL death benefit in force
despite policy performance. Another disrupter, equity index annuities, born
in the mid-1990s to the tune of various interest-crediting
"methodologies," have been racking up
sales gains quarter after quarter in the past several years.
Without quantum advances in computing power and programming, none of the
disruptions mentioned here would have been possible. Tech is, was and
probably always will be the driver.
Today, some insurance developers worry that not much innovation—or
disruption—is going on. Most work entails the combining, embellishing and
refreshing of past innovations, not new, they say.
While that seems to be the case, one trend does seem to qualify for the
"D" word. That is the patenting of insurance product processes (or
business methods, in the parlance of the U.S. Patent Office). NU has
covered the trend, so you can research it easily in our online archives
A recent search of existing patents and patent applications at the U.S.
Patent Office Web site (at www.uspto.gov/patft/index.html) showed 225 patents
issued in "Class 705, subclass 4"—for insurance (1790 to present).
This class includes patents for financial accounting, calculating earned
income, interest, insurance premium, taxes and risk analysis. Another search,
using "insurance" as the search term, brought much bigger
numbers—8,267 patents issued (since 1976) and 7,295 patent applications. A
search on "life and health and insurance" returned 760 patents
(since 1976) and 1,128 applications.
Many of those filings are somehow related to insurance but not insurance
contracts themselves. Still, some do involve contracts, and most experts
agree insurance patents are on the rise. In fact, calls about insurance
patents to NU’s new products desk have
increased during the past 18 months. This is what spurred me to start
thinking about the potential disruptive impact patents might have at
companies and agencies.
Developers claim that insurers having patents in their products will
"own" the affected part of the business. During the 20-year patent
period, the firm can go after infringers, securing a sizeable licensing fee
or, failing that, taking infringement matters to court. Meantime, the company
can milk the differentiation that comes with having a unique product and/or
collect fees from selling usage rights. (The calls I’ve been receiving
indicate that a lot of consulting firms are seeking to do the latter.)
Naturally, this entails risk—for instance, that the patent will be infringed
or challenged, or that it won’t hold up in other countries.
Still, most advocates believe the enhanced intellectual property protection
will juice the industry’s innovation gears, due to less fear of having ideas
stolen with impunity. The more innovation, the greater the chance that a
really big innovation will come along that truly revolutionizes the product
landscape. Whole product lines could rise and fall as a result—a disruptive
end of status quo.
As for the impact on the field, this subject is rarely discussed. That is
unfortunate, since advisors will be directly affected.
For example, if advisors have a patented policy in their toolbox, achieving
differentiation in the local market should be greatly enhanced.
And, if a high-powered marketing, advertising and agent-education campaign
accompanies rollout of a patented product that is truly "better, faster
and cheaper" (as are most disruptive technologies), then sales will
If some advisors don’t have that product, their fortunes could suffer—unless
and until they prevail upon their companies to "get a license, so we can
sell it, too."
Some realignment of contractual relationships with carriers may result. It’s
disruptive good for the haves, and disruptive bad
for the have-nots.
It’s too soon to say where on the disruption scale the patenting-and-insurance
trend will end up. But industry professionals already are taking sides.
Opponents argue that it forces re-learning products and skills, re-selling of
old accounts, and continual tweaking and adjusting—all with uncertain
outcome. Proponents embrace it like a long-awaited savior, claiming it will
open up new opportunities and make things "better for all."
Sounds like the earmarks of disruption to me.