Session 39 PD, The Retirement Dilemma: Buying Longevity Products or
Covering Your Health Care Costs—Analysis from a Sales and Marketing
Viewpoint
Moderator:
Carl A. Friedrich, FSA, MAAA
Presenters:
Life Annuities 101
Benny Goodman
PD 39
Life Expectancy
•
78? 85? 87?
•
Probability – 50% versus 75%
The Twin Sister Challenge - V1
Guarantee Periods
•
Single Life Annuity
$6,964
•
With 10 year guarantee
$6,789
•
With 20 year guarantee
$6,237
•
A 20 year guarantee ensures (and insures)
The Twin Sister Challenge - V2
Framing
•
Investment versus Consumption
• RoR versus spending
•
Downside versus Upside
• Where is the real risk?
•
Showing income on quarterly statements
The Income Floor
•
Everyone has one
•
Social Security is not enough
•
Lifetime Annuity
•
Floor varies by income level
Things to think about
•
Health
•
Who needs your money?
•
Cognitive ability
Long Term Care
Lane B. Kent, LTCP
The Long Term Care side of the Retirement dilemma
Three big questions and then some
discussion
• Why do we care?
Why we care; The Chronic Care Risk
• The risk is real*
• 69% of those aged 65+ will require functional assistance before they die • One-in-six will have costs of $100,000 or more
• One-in-twenty five will spend $250,000 or more
• The cost of care outweigh most families’ ability to self-insure the risk
• A private room cost an average of $248 daily, or more than $90,500 annually, according to a
2012 survey by MetLife.
• Home care costs anywhere from $18-$30 per hour depending upon location and provider
experience/certification
• US Federal Government has acknowledged the problem, but has failed to provide a solution
• CLASS Act 2010 – public insurance for disabled and aged, killed by legislative act in 2013
• PPA 2007 – clarified tax treatment of 1035 exchanges to certain policies with LTC benefit
• BBA 2003 – expanded state/private Partnership plans
• HIPAA 1996 – created “Tax Qualified” LTC insurance
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Total spend on LTSS is $363 billion* estimated to be ~$1 Trillion by 2050**
Why we care; US LTSS Landscape
~7 Million covered with Private LTC insurance (of 309 Million = 2%) US Unfunded liabilities ~$127 Trillion Usdebtclock.org
Private LTCi, (not)Trending
• Total claim payments of $3 billion in 2012, up 18% from 2011, but just 1% of the total costs. Reporting insurers have paid over $20 billion in claims through 2012.
• More Company exits in 2012; only 18 insurers reported new sales in 2013 and the
top five writers account for over 75% of new premium.
• Product trends Gender-based pricing, removal of Life Time benefit period, just a few policies feature Cash benefit.
• Shift toward scheduled additional coverage purchases GPO/FPO (up from 13% to 20%), but compound inflation still being purchased despite the cost (56%), with 3% being bought now more than 5%.
• Average issue age has dropped to 56. Ages 45 to 59 account for just over 50% of
all policies sold. Only 16% are over age 65 (this segment once accounted for over 70% of new sales)
• Average daily benefit amount is $160/day.
• Roughly 40% of couples bought shared care. The most popular duration for shared care is 4 years (1/3 of all shared care sales). Reflecting discontinuation of Lifetime benefits
• 2013 sales of ~175,000 new policies down 26% from 2012, pre 2003 levels
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The problem; Private LTCi is in decline
• Challenging Regulatory framework (NAIC model, HIPAA)
• Benefit triggers for low level of dependence
• Mandate to offer inflation protection not reflective of economic realities
• Rate stability threshold is high
• Premium adjustment has political undercurrent
• Poor legacy product experience
• Missed lapse assumptions
• Underwriting too loose, then too stringent
• Bad actors exited business then engaged in extensive rerating
• Supply issues
• Little capacity (insurers and reinsurers)
• Low interest rate environment
• Rerating challenges
• Scarce domain knowledge (actuarial, underwriting, claims management, medical direction)
What can be done; The discussion
•
Leading Age and LTC commission, 7 Pathways
• Status Quo – do nothing different
• Personal Responsibility – reduce scope of government,
everyone is on their own, figure it out…
• Private Market – take steps to strengthen private market (new
tax incentives, mandate coverage, loosen regulation, etc.)
• Private Catastrophic – redefine product as “total loss of
dependency”, take steps to encourage purchase through private
insurers
• Public Catastrophic – same as Private Catastrophic with
government as the insurer
• Common Good – Government coverage for entire risk, funded
through broad taxation
• Comprehensive – elements of the above in some combination
What can be done
Bias – 20+ years in private industry, but material involvement in public policy efforts last 10 years
Cheaper and better product, deeper penetration
Societal and
Individual
• Mandate coverage for working adults • Supplement to Medicare for retirees • Buy through workplace and exchanges • Pretax, partial employee funded • Progressive benefit triggers • Cash model, emphasis on home based care, family supportShould I buy LTC Insurance?
Combination Plans
•
Several forms of coverage that package life or annuities with LTC
•
First layer of coverage usually from acceleration of base plan assets
As such, essentially represents a form of self-insurance•
Example 1: Deferred annuity coupled with LTC
With no LTC event, policyholder can annuitize values for lifetime income With an LTC event, annuity values are drawn down, after which point
independent monthly LTC benefits continue; the longevity concern is secondary in this scenario
•
Example 2: Annuity doubler
Payout annuity in place to provide lifetime income
With an LTC event, payouts are doubled to address at least a portion of the cost of LTC
