SOA 2013 LTC Combo Product Update
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Transcript of 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
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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
ChronicIllnessRiders
72%
,
1. Yes
2. No
111 2
28%
Audience Polling
ChronicIllnessRiders
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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Product Updates & Trends
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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Product Updates & Trends
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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Product Updates & Trends
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
23
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
25
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
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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.