NEW YORK - Insurers increasingly are seeking patent protection for their new variable annuity, life insurance, long-term-care and other products to protect innovative features that competitors have been copying, say industry observers.
The patents allow an insurer to be the exclusive marketer for a product for 20 years. But the patents might also force advisers to use that insurer - or its licensee - if the advisers want the product for their clients.
"Patenting products could change the insurance industry from a follow-the-leader market to one of individual company innovation," said Steven Henry, co-chairman of the intellectual property transaction group at the Boston law firm Wolf, Greenfield & Sacks PC. But the patents might also cause some companies and their sales forces to be "shut out" of certain markets, he added.
Companies that have obtained patents or have patent applications pending include Fort Wayne, Ind.-based Lincoln National Life Insurance Co., which is part of Lincoln National Corp. in Philadelphia; American Express Financial Advisors Inc. in Minneapolis; Nationwide Financial Services Inc. in Columbus, Ohio; and Protective Life Insurance Co. in Birmingham, Ala.
Many insurer executives, while ready to take advantage of their status as an exclusive source for their patented products, said that they would consider licenses to permit other companies to sell those products. However, that hasn't happened to a significant extent.
The next big thing
Advisers indicated that most of the patented and patent-pending products they have encountered so far have not been major innovations.
"Some of the patents are for relatively minor tweaks, and there are materially similar features available from other companies," said Anthony Domino, president of both the Society of Financial Service Professionals in Newtown Square, Pa., and Associated Benefit Consultants Inc. in White Plains, N.Y.
"I think the insurers are using patents to create a feeling of product selectivity and not to restrict access to products," added Mr. Domino, whose organization represents insurance industry financial advisers.
"It's true that in the insurance industry right now there are a lot of small steps being patented because big steps don't happen all that often," responded Mr. Henry. "But there may be patent applications out there that are the next generation's variable annuity or universal life policy," he said.
"For any new or novel product, it has become standard practice at our company to talk to our patent counsel to see if a patent application should be filed," said Dan Herr, assistant vice president and income annuity product manager for Lincoln National in Hartford, Conn.
Patents solve the problem of competitors' reverse-engineering products and entering markets as "fast followers," he added. "By obtaining a patent, we can maintain our first-mover advantage."
"The decision to pursue a patent is a business unit decision, and the process is facilitated by the company's office of general counsel," said Jennifer Monnin, a Nationwide spokeswoman. "Nationwide is the owner of a number of filed and issued patents."
Lincoln recently was granted a patent on its i4LIFE Advantage, a variable annuity feature that combines a host of guarantees, coupled with increased access to and control over invested funds.
"Our goal is not to limit adviser choices or clear the market for ourselves," said Mr. Herr. He added that Lincoln would consider licensing its patents to other insurers - or seek licenses from other insurers that have patented their own products - to help its adviser network.
Nationwide has a patent pending on its Step-up Guarantee feature, a new variable annuity rider. "This guarantee ensures that variable income payments will be equal to at least 75% of the initial variable payment amount as calculated on the contract issue date," noted Keith Millner, senior vice president for the in-retirement business market.
American Express has a patent pending on the Accumulation Protector Benefit for its variable annuity line. The rider is "unique," said Lynn Abbott, vice president of national sales and strategic alliances, because it gives clients the ability to access the investment in any way they want to at the end of a designated waiting period.
Protective Life's patent protects a system rather than a product. "We have a patent pending on an online quote- and order-entering system for stockbrokers submitting life insurance applications," said Eric Miller, vice president and national marketing director.
Patents have been sought for systems that underwrite joint life insurance and long-term-care products, recover loan repayments in the event of disability and calculate life insurance premiums based on health insurance data, Mr. Henry said.