When I headed product development for a major insurer 21 years ago, I proposed that we explore the feasibility of developing a single premium immediate annuity whose payout would increase were the annuitant to enter a nursing home and expect to stay there for a lengthy period.
Such an offering would meet an emerging need and also serve to distinguish the insurer’s portfolio, I reasoned.
No feasibility was ever undertaken, so the product is still on the drawing board. (Actually, it’s not–a company that no longer exists can’t have a drawing board.)
Perhaps the idea was before its time, perhaps not. But one useful outcome from looking back is to use the past experience to help avoid certain pitfalls or repeat certain faux pas in the future. That’s the focus here.
Why is this particular tidbit worth discussing? Primarily to highlight the point that opportunity continues to exist for insurers to address the long term care needs of senior citizens, a huge and growing block of Americans. (Common projections are that Americans 65+ will grow by 80% to 55 million in 2020 and to 71 million by 2030.)
The industry’s goal, related to this huge pool of seniors, should be to maximize service to, and gain maximum revenue from, those who are in this distribution phase of life.
Discussions with insurance company executives about annuity/LTC combinations have confirmed there is a definite interest in the market opportunity. But, companies also have some anxiety about it. Impressions gleaned from many such discussions suggest that companies are far more comfortable adding a new product, or adding a new distributor, or buying a new planning system, than starting a new business segment.
Adding a new product, while not always viewed as an “I can do that” venture, is not viewed as risky if some other companies have already developed their own. Furthermore, the need to keep up with “ABC Life” and other competitors outweighs concerns about potential risks.
(Sometimes, though, that willingness to enter already-charted waters is not such a smart idea, as adding a new product can be daunting, even if others have done it first.)
The point is, despite seeing the new opportunity, companies often want to continue business as usual.
Yet, whether it’s for annuity-LTC markets or other potential ventures, companies really should act, and they ultimately do.
That said, there is a right way to act. That is to use a feasibility study.
Consider, for the annuity-LTC segment, some of the typical concerns the companies have:
1. Management would not want us to enter the LTC business (i.e., health care risks are anathema to many companies not writing standalone LTC.)
2. We don’t know anything about the LTC business.
3. We don’t want to set up a costly claims operation.
4. How do we position these offerings to the customer?
5. Do we need separate wholesalers?
6. Underwriting in an annuity?”Faw-ged-abou-dit.”
7. Seriously, how can we make LTC work within our ticket writer annuity culture?
8. We don’t know anything about LTC underwriting.
9. What are ways to minimize invasive underwriting, yet get solid and useful information about the applicant’s health, including information about cognitive impairment issues?
10. The tax issues are complex.
11. We’ll need different designs for our variable annuities, fixed annuities, indexed annuities, and, of course, for our immediate annuity and longevity insurance offerings.
12. We need a business plan to define what we want to do.
These issues all cry out for a well-designed feasibility study. For new ventures, such studies provide the necessary amount of information to enable senior management to make a well-founded and judicious decision about whether to enter a new venture or not. Properly designed feasibility studies will also address the resources, money, people and technology needed to execute a business plan, and how to do it right the first time.
Finally, a well designed (bigger) study will involve those key insurer “centers” that would be involved in the actual operating business. Such involvement makes for a more well thought-out and likely-to-succeed transition to a development and implementation project and finally to business execution.
Cary Lakenbach, FSA, MAAA, CLU, is president of Actuarial Strategies, Inc., Bloomfield, Conn. His e-mail address is [email protected]