SOA 2013 LTC Combo Product Update

8/12/2019 SOA 2013 LTC Combo Product Update

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SOA 2013 Life & Annuity Symposium

May 6-7, 2013

Session 77 PD, LTC Combo Product Update

Moderator:

Carl A. Friedrich, FSA, MAAA

Presenters:

Carl A. Friedrich, FSA, MAAA

Dean Andrew Kerr, FSA, ACIA

Primary Competency

Results-Oriented Solutions


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077 PD - LTC Combo Product

Update

Moderator:Presenters: Carl FriedrichDean Kerr

Time: May 7, 2013 12:45PM

Agenda Intro

LTC Combo overview

Sales infoNumbers, trends and who is selling

Polling

Product updates and trendsChronic Illness

Annuit

Life

Pricing in a low interest rate environment

Final polling

Q&A

2


3/17


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Annuity Combo Overview

Product design

, ,

Product marketing

Consumer typically already interested in an annuity

product

Level of efficiency driven by benefit design/structure

Regulation and tax considerations

PPA (2006) amended section 7702B

Exclusions

5

Sales Trends

Source:

LIMRA 2010

over

2009 2011

over

20 10 2 01 2

over

2011

Linked benefitplansby

count

60% 66% (1)%

Acceleration onlyriders

bycount

76% 29% 27%

Allcombosby

premium

62% 56% 10%

Allcombosbycount 69% 38% 19%

Allcombos,

single

premiumbycount62% 56% 3%

All,recurringpremium

bycount

81% 38% 29%

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Sales Trends

Source:

LIMRA 2010 2011 2012

o a rs yearprem um . on . on . on

Totalpoliciessold 26,000 72,000 86,000

Source:

Milliman 2011 9

months

2012

PercentoftotalUL

businessincludingLTC

riders

N/A 15% 16%

PercentoftotalUL

businessincluding

chronic illnessriders

N/A 11% 14%

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Sales

Three carriers have launched or announced new

life/annuity business)

Major writers continue to grow

Many companies offering ABR riders

Only six to eight annuity combos being marketed

currentl but several are in the roduct i eline

8

Many of the sales successes are emerging in banks

and wirehouses, vs. traditional life distribution

systems


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Audience Polling

Chronic Illness Riders

If not, do you plan to add these in the next two years?

Reasons for offering Chronic lllness vs. LTC?

a) No need to present inflation protection ornonforfeiture option

b) No need for LTC agent licensing

c Cost of chronic illness vs. LTC ABR

d) Stigma associated with LTC with board, ratingagencies, etc.

e) Ability to offer coverage without additional premiumor charges upfront

f) Other

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Audience Polling

ChronicIllnessRiders

62%

38%

1. Yes

2. No

101 2


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Audience Polling


72%

,

1. Yes

2. No

111 2

28%

Audience Polling


25%

30%30%

.

1. No need to present inflation

protection or nonforfeiture

option

2. No need for LTC agent licensing

3. Cost of chronic illness vs. LTC

ABR

121 2 3 4 5 6

0%

10%

5%

4. Stigma associated with LTCwith board, rating agencies, etc.

5. Ability to offer coverage without

additional premium or charges

upfront

6. Other


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Audience Polling

LTC riders

If not, do you intend to offer in the next two years?

Are you selling only ABR, or also EBR?

If you offer ABR only, why are you not offering EBR?

a) Risk of EBR

b) Cost of EBR

c) Required inflation option offering

d) Complexity of producte) Other

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Audience Polling

LTCriders

55%

45%

1. Yes

2. No

141 2


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Audience Polling

LTCriders

63%

37%

,

1. Yes

2. No

151 2

Audience Polling

LTCriders

84%

,

1. Just ABR

2. ABR and EBR

161 2

16%


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Audience Polling

LTCriders

45%

36%

1. Risk of EBR

2. Cost of EBR

3. Required inflation option

offering

,

171 2 3 4 5

9% 9%

0%

4. Complexity of product

5. Other

Audience Polling

Do you believe combo products will one day outsell

ra ona pro uc s

a) Yes, in the next decade

b) Yes, longer term

c) Never

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Audience Polling

Doyoubelievecomboproductswillonedayoutsell

68%

ra ona pro uc s

1. Yes, in the next

decade

2. Yes, longer term

3. Never

191 2 3

4%

28%

Product Updates & Trends

Chronic Illness riders

,

be marketed as LTCI

The new riders on the market are gravitating toward

definitions which reflect ADL triggers or cognitive

impairment as defined in 7702B, although many include an

expectation of permanence requirement

,making it 60% to 80% more costly than a TQ LTCIaccelerated benefit rider structured under an expensereimbursement design

Offset to some degree by the expectation of permanence

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Annuity combos

beginning 1/1/2010

New sales beginning to build, but modest to date

Typical Design, SPDA with LTC

Most common structures are tail design and

coinsurance

n a on op on roun s ou e coverage an a resses

the comprehensive LTC need

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Life combos

premium, with all-in-one linked benefit products

growing in popularity

Focus on guaranteed benefits / pool

Inflation protection

UL combo products dominate but have seen positive

growth in WL and VLA major carrier has filed a new IUL product with LTC

rider (ABR)

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ABR / EBR

priced independently and can be attached to a variety

of products in an insurers life portfolio

As for stand-alone LTC, some carriers are and

others can be expected to be shortening EBR

options (e.g. no lifetime)

n genera , a younger uyer or com o pro uc s an

traditional LTC market makes it important to properly

price EBR at the younger ages

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Pricing in a Low Interest Rate

Environment

Many annuity combos feature rich riders where

,

leading to invasion of principal

Some companies have reduced comp in order to

avoid depletion of AV

If interest rates stay low, may need to move to longer

ABR periods with reduced monthly benefits, and

ower cos sAlternatively, shorter EBR periods can reduce cost

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Pricing in a Low Interest Rate

Environment Life combos

Replacement threat if interest rates spike within first 5or 6 years

Shorter EBR periods can reduce risk and costsassociated with prolonged low interest rates

At least one carrier has filed multiple versions of a ULcombo roduct, with the difference bein theguaranteed crediting rate

Indexed products provide potential crediting uplift,reducing the cost of benefits

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Audience Polling What are your biggest concerns about offering

combination products?

a) Regulatory requirements

b) Agent training/licensing

c) Training needed to underwrite, manage claims, and price

d) Replacement threat on inforce business

e) LTC risk

g) Low interest rates, impairing product performance

h) Higher future interest rates, and replacement threat on

combos sold today

i) Other

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Audience Polling

Whatareyourbiggestconcernsaboutoffering

combinationproducts?

17%

32%1. Regulatory requirements

2. Agent training/licensing

3. Training needed to underwrite,

manage claims, and price

4. Replacement threat on inforce

business

5. LTC risk

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1 2 3 4 5 6 7 8 9

12%

10%

2% 2%2%

7%

6. LTC stigma

7. Low interest rates, impairing

product performance

8. Higher future interest rates, and

replacement threat on combos

sold today

9. Other

Audience Polling

What are your most significant reasons to offer

a) Provide producers a product to address the LTC

insurance risk

b) Lower cost solution for consumer than stand-alone

LTC

c) Less risk than stand-alone LTC

d) Means to enhance life or annuity productse) More sales

f) More profits

g) Other

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Audience Polling

Whatareyourmostsignificantreasonstooffer

comboproducts?

23%

13%

25%

28%1. Provide producers a product

to address the LTC insurance

risk

2. Lower cost solution for

consumer than stand-alone

LTC

-

29

1 2 3 4 5 6 7

3%

5%5%

.

LTC

4. Means to enhance life orannuity products

5. More sales

6. More profits

7. Other

Audience Polling

How long do you believe the current low interest rate

env ronmen w con nue

a)


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Audience Polling

Howlongdoyoubelievethecurrentlowinterest

rateenvironmentwillcontinue?

66%1.

SOA 2013 LTC Combo Product Update

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