Let’s call it a hybrid!
Product innovations in insurance include a category called hybrids. That term is nice and short but it also can be confusing.
Agents, advisors, distributors and marketers tend to use the word hybrid to refer to policies that combine features of one type of product class, such as universal life, with another, such as long-term-care coverage, or with an innovation that previously did not exist.
The problem is, just saying “it’s a hybrid” doesn’t tell what the product is and does. Most of us want to put innovations into familiar pockets. “So, what did you say this is? Is it life insurance or is it long-term-care insurance?”
The confusion compounds if product-developers create their own names for an innovative design they’ve created that blends features of different classes. Filing rules at the various state insurance departments may cause a few bumps, too. For instance, if a state does not have a classification into which a new hybrid fits, this can force changes in the words used to identify the policy or a refinement in features to make it fit. Different words in different states can lead to different interpretations.
Still, referencing hybrid terminology can be a good door-opener to discussion with clients about innovative products of this type. Hybrid technology in the automotive world has helped make hybrid a fairly well understood term, so the advisor can ease into the conversation by mentioning that, “This is a type of hybrid that …”
It’s like a placeholder, a term to be used until the market, the regulators, and the sellers coalesce around a suitable identifier.
At one time, variable annuities were called hybrids, since they are a blend of a traditional annuity and mutual funds (subaccounts). So were fixed indexed annuities, since they are a blend of traditional annuities with index-linking strategies.
Combination products — annuities with long term care features, and life insurance with long term care features — are still called hybrids (though some shops now call them combo annuities or combo life policies).
Over a decade ago, Unum (then UnumProvident) sold a disability policy that allowed policyholders to convert the contract to long-term-care insurance between ages 60 and 70. Some people called those products hybrids, too, although the term “transformational policy” took over rapidly.
Today, there is another hybrid in the land. That is the hybrid annuity. This combines elements of fixed indexed annuities and variable annuities. Only a few exist right now, and the designs do vary. So guess what? These products have been identified variously, as: registered index annuity, registered annuity, indexed variable annuity, structured variable annuity, structured product, or structured annuity (but not structured settlement annuity, which is periodic payment annuity used in settling court-ordered claims, etc.).
Clearly, the industry nomenclature for this newest hybrid is not settled. That should come in time. For now, any time the H-word gets floated for this or any other product, it’s probably to everyone’s benefit to nail down, as closely as possible, what type of hybrid the product is.