Intellectual Property rights will give innovative individuals and insurers competitive advantages they’ve never had before. Insurers with patent protected technologies will grow faster than their competitors. Patents will enable more innovative as well as longer lived products. In the field of retirement income, patents provide a unique opportunity for insurers to compete with their traditional investment product rivals. Seventy percent of current patents and patent applications are filed by individual inventors. These patents represent a readily available resource for insurers to license and build into exclusive new products.

Recent conversations we have had with insurance industry executives highlighted a consensus that the industry has low annual growth rates. The average growth rate expectation is about 3%. In order for an insurer to grow faster than this low rate, it would need to take market-share away from its competitors.

While some rating agency analysts may disagree, insurance industry executives believe that insurers shun price cuts in favor of both product innovation and distribution differentiation to compete for market share. This approach is taken in an industry that historically has not had a culture that valued proprietary or intellectual property rights. New ideas and product concepts are documented in public filings and can be easily copied by competitors when introduced into the market. And, interestingly, insurers who quickly copy product innovations can expect to do as well or better than the product innovators.

In the field of retirement income, many of the insurance industry’s innovations have historically focused on annuity product variants sold as investment accumulation vehicles and priced with the expectation of a short sales-cycle before they become widely copied. In a market in which new ideas have not been protected, the quick copying of successful new product introductions is not unusual. Distribution channels have become the insurance industry’s de-facto customers and they have demanded clones of successful products from their carriers. The reason the market has focused on investment as opposed to income products is that Baby-Boomers were in their prime saving and accumulation phase.

Current innovative efforts in annuity accumulation markets are focusing on what is not evident. And, what is not evident is the fact that these markets are moving from an investment accumulation focus to a retirement income focus. Because of this, the distribution channels are not fully satisfied with the traditional flow and types of products coming from the industry. Distribution channels want products that can be simply-sold and that directly address individual investors’ retirement income needs.

But something else is also happening. Respected insurance industry leaders have made the call for both the importance and the urgency of the protective role of patents in product innovation. This will likely impact the competitive environment. We agree. We further believe that retirement income product concepts with protected Intellectual Property (IP) will give innovative individuals and insurers competitive advantages that they have never had before.

Specifically, we expect that insurers with patent protected innovations that successfully address the new market needs will grow faster than competitors who rely on traditional product technologies. The competitors won’t be able to freely copy patent protected innovations without licenses from the patent owners. Innovative insurers who meet the needs of their distribution channel customers with patent protected new product innovations have a better chance of controlling their growth and adding assets and profits to their bottom line.

In addition we feel that IP protected innovation in the retirement income market can go "outside-the-box" with a better chance of success. Such products will offer visible, potentially break-through differentiation at the individual investor level. Some of those innovations may not have to be called annuities. Insurers with such innovations will generate more consumer level interest for their distribution channels customers.

Current inventive efforts in the retirement income market recognize that, after more than 20 years of products that rely on a hopeful asset accumulation, the market’s pendulum is swinging back in favor of guaranteed retirement income. The availability of IP protection for new retirement income products represents a unique opportunity for insurers in their historical competition against investment products. Annuities have survived the investment accumulation era, and now IP protection offers innovative insurers an opportunity to claim as their own new retirement income products.

Finally, protecting innovation with patents enables longer product lives within the innovating company. Innovators with longer-lived products will be able to take greater market-share than previously experienced. Therefore, patent protected innovation will combine greater volume with the higher margins required to amortize the research and development costs associated with innovation

We see a significant insurance industry change coming. Insurers who now quickly copy successful new product introductions will be forced to build and manage their own patent protected IP portfolios to compete with other insurance company innovators who are already protecting their IP with patents. Indiscriminant copying of new product ideas will have new risks as well as new costs associated with patent infringement lawsuits. Being first to market will favor the innovating insurers and distributors who patent their innovations or acquire the patented innovations of others.