The fast growth of the elderly population and its well-being present one of the most critical challenges to society. Individuals hope for a healthy and prosperous aging process to enjoy life autonomously until death. While that is the optimal situation, it won’t be the reality for everyone. How may individuals prepare for aging and increase their independent living years while covering themselves for dependency needs?
In the US, healthcare coverage throughout an adult life follows standard practice. While there are exceptions, an employer generally provides coverage until retirement and Medicare until death. Adults can expect decent hospital and medical services coverage. However, public or private health insurance does not cover dependency needs related to aging, mainly cognitive and physical impairment not tied to any particular disease. This leaves a vast, uncovered gap for the nearly 70% of 65-year-old people who will need long-term care services or support, with yearly costs surpassing $50k per year on average.
US insurance companies released the first Long Term Care Insurance products in the 60s. The products were highly successful given the lack of coverage options for aging needs until then.
However, insurance companies did a terrible job anticipating the risks associated with the LTC underwritten policies. Missing the increases in lifespan and expected claim rates led to extremely unprofitable portfolios, making many LTC insurance companies nearly fall into default. Therefore, the number of LTC insurers went from >100 to 12, premiums significantly increased, and the number of standalone LTC products sold annually dipped (from 700,000 in 2000 to just under 49,000 in 20201). Most carriers see LTC as a complex product with too much associated risk.
As a partial solution, hybrid products with an LTC component were created in the early 2000s; LTC hybrids are Annuities & Life retirement products with a rider that allows the policyholder to extend and anticipate policy proceeds for LTC-related costs. The products enable the policyholder to have some optionality while preserving some of the Annuity/Life proceeds if the LTC rider is not used. On the insurer side, they allow carriers to offer LTC insurance with the Life/Annuity policyholder’s expected payout as “collateral.” These products are commercialized mostly by LTC carriers and agents.
While the risk is lower than with standalone LTC products, the underwriting process of the products is outdated, requiring human intervention and generally days/weeks to assess the policyholder risk profile.
The inefficient and long underwriting process detracts Life & Annuities insurance agents from selling hybrid insurance products, as they are used to selling traditional retirement products on the spot.
The retirement products market is a highly fragmented & commoditized $400B/year market. We believe Insurtech companies like Assured Allies, tackling the industry’s outdated products & distribution models have a great opportunity to disrupt the space.