Income Annuity Forecast: Bright
When the election results became known on the afternoon of Nov. 3, 2004, the long-lasting cloud of uncertainty lifted.
For the life insurance industry that meant business now could go forward and get out of that “do-nothing mode.” The values issue had prevailed, and values are what the industry is all about.
So, lets look at the current state of the industry, in light of this. The Insurance Weather Forecast shown here sums it up. It looks at “Products” and “Running the Business.” The industry now can move forward in a lot of these areas.
Since this is National Underwriters annual “cutting edge products” spotlight issue, well focus attention here on that “bright forecast” product, income annuities. But please note that the outlook is pretty good for some other products, too, such as long term care insurance, preferred term life insurance and equity index annuities. Universal life and fixed annuities seem to be seeing better weather, as well. (This chart is based on my assessments of industry trends and contacts with industry leaders.)
The income annuity product is all about the receipt of regular income, so the name is appropriate. (Incidentally, the old-fashioned immediate annuity product is a subgroup.)
Here are some of the current buzz phrases that have been circling around lately about the income annuity and marketing of same:
–Shifts from accumulation to distribution.
–Layers purchases of future income streams.
–Has myriad of retirement income options.
–Offers partial or full annuitization as early as 30 days after issue.
–Includes unique benefits of annuitization not yet fully realized.
–Provides greater flexibility (payment amounts, liquidity).
–Is a hurricane about to hit.
–Addresses black box uncertainty about mortality.
That black mortality box reference is worth comment. You could say the mortality box is now available in a new, transparent, Plexiglas model.
This is because the true nature of annuitant mortality has been coming to light in the past year. New research has been coming out concerning older age mortality that dispels much of the uncertainty about mortality. This, in turn, means that insurers increasingly can issue income annuities safely. That is, they can have much greater confidence about the mortality assumptions they use in pricing the products. Therefore, more companies will likely offer income annuity products going forward.
There are amazing things about mortality in this so-called Plexiglas box. The tremendous variation in annuitant mortality (by market, socio-economic class) is not really a surprise. The leveling of mortality at age 95 (and its becoming the same for both sexes) is not really unexpected, either. But another shift is quite surprising; this is that, at many ages over 72, in the upper-class preferred market, mortality has turned out to be better for males than for females.
Apparently, all the attention that has been paid to health care and healthy livingespecially the quitting of smokingis paying off. So are the vast medical improvements that have emerged in the last two decades (e.g., angioplasty, bypass surgery, stents, etc.).
True facts always overcome presumed dangers. Now, the true facts about mortality are known. They are not mysteries anymore, so they are no longer presumed dangerous. That means companies and reinsurers safely can (and profitably) underwrite the rapidly emerging income annuity marketand agents and brokers will have more options for serving the public in developing income annuity plans.
John M. Bragg, FSA, ACAS, MAAA, is actuarial consultant at Bragg Associates, Atlanta; past president of Society of Actuaries; and past CEO of Life Insurance Company of Georgia. You can e-mail him at firstname.lastname@example.org.
Reproduced from National Underwriter Edition, December 3, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.