The report notes that this untapped annuity product could generate one to two billion dollars in annuity sales for the insurance industry by 2009, if the product achieves its potential. This could equate to a tripling of the current market, but the report notes the need for more industry consideration and consumer awareness.
Substandard annuities offer larger payouts for impaired risk individuals with shorter-than-average life expectancies than standard immediate annuities. Medical underwriting, age-ratings, and impaired risk are the three dimensions for addressing individuals for a substandard annuity.
The Substandard Annuities report identified three primary factors that are driving the need for products that offer a guaranteed lifetime income: the decreased number of defined benefit pension plans available; the increased prevalence of defined contribution retirement plans, and finally, fears of potential cuts in Social Security benefits. With these current needs in mind and recognizing a population with health-impaired risk, the report states that annuity providers may examine entering the substandard annuities market or keep apprised of the immediate annuities market to account for changing market practices.
"Actuaries are involved in developing solutions for longevity risk, which is guaranteeing financial security for retirees who live to a higher age," said Noel Abkemeier, chair of SOA's oversight committee for the project. "By developing and offering substandard annuities, insurance companies can broaden the product to cover a larger portion of retirees seeking a lifetime cash flow. However, before entering this market, insurance providers must evaluate the financial impact to profits and premium revenue of launching a substandard annuity product." Current substandard annuities comprised only 4 percent of the total immediate annuity contracts in 2004.
Howard S. Drescher, (860) 285-7875, email@example.com
Catherine Theroux, (860) 285-7787, firstname.lastname@example.org
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