A New Need for Life Insurance in the Senior Market:Income Protection

Walter H. Zultowski, Ph.D. WZ Research + Consulting, LLC

SOA Life and Annuity Symposium May 22, 2012

The Life Insurance Purchasing Lifecycle

2

Soc

io-E

cono

mic

Sta

tus

20 60 80 10040

Higher

Lower

Age

Income ProtectionIncome Protection

Estate

Plannin

g

Final Expense

Current Environment: Academic Coverage

“…working longer is the key to a secure retirement for the vast majority of older Americans…”

What is the Average Retirement Age? Center for Retirement Research at Boston College

“…for many Americans, the foundation of their retirement strategy is simply to not retire or to work considerably longer than the traditional retirement age of 65.”

The New Retirement: Working12th Annual Transamerica Retirement Survey

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Current Environment: General Media Coverage

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“Many older people are finding themselves in a position they never expected to be in at retirement age: still working or in need of a job.”

For Many Seniors, There May Be No Retirement The Wall Street Journal

“Many older workers are responding to the economic downturn by postponing retirement, but even so it will be a struggle to make up for market losses in their retirement plans.”

‘Scary’ Economy Delays RetirementsThe Hartford Courant

A Perfect Storm of Demographic and Economic Events…

• Delayed household formation• Divorce and household reformation at later ages• Increased longevity• Increasing likelihood of health care needs• Longer number of years supporting adult children• Increasing need to support “old – old” parents

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Demographic

A Perfect Storm of Demographic and Economic Events… (cont’d)

• Increasing costs of health care and long-term care• Disappearance of defined benefit pension plans• Fragility of existing public and private pensions• Decimation of retirement “nest eggs” during the

“Great Recession”• Housing no longer a “Bond Fund”• Fear of a “Double-dip Recession” and/or stagnant

economic growth• Widespread job layoffs affecting people in their 50’s

and 60’s7

Economic

Exacerbated by…

• 20- or 30-year term life insurance expiring before the need for coverage has expired

• Disappearing employer-sponsored group term life insurance, resulting from job change or layoffs

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Case Study

How one company is acting

to penetrate the senior market for life insurance

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Amica Life

• Lincoln, Rhode Island• Wholly-owned subsidiary of Amica Mutual• Legendary for customer service and satisfaction• Primarily provides term life insurance• Marketed through direct response/call center• Primary market is the Amica Mutual P&C policyowner

base

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Potential Within the Amica Mutual Market

<25 25-34 35-44 45-54 55-64 65+

# of Auto Customers # of Life Policies Issued

Age Ranges

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A Two-Pronged Strategy for the Senior Market

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Soc

io-E

cono

mic

Sta

tus

50 60 70 80

Higher

Lower

Age

Income Protection

(20-year level term)<->(10-year level term)

Final Expense

(Simplified issue whole life)

Step 1: Market Research

“I don’t think I’ll be as comfortable [in retirement] as I’d hoped. It will be later than I thought, and won’t be as luxurious. The stock market just whomped me. It’s not what I envisioned it would be.”

“I retired two years ago. We built a home, and have about 50% equity in the house. So if something were to happen to me, my wife would have to sell the house. She would have to downsize. I think I’d like to protect against that.”

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Validating the Need

“I’m concerned. I’m planning on retiring in about 12 years. I was planning on doing so sooner, but with costs, the economy, and health care [it’s not going to happen]. I had to make a job change a while ago, so I’m not making what I used to make. So it’s one layer after another layer after another layer; it makes me cautious.”

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Validating the Need (cont’d)

“It’s term life that my husband and I have. We worry because it’s going to expire.”

“A good question is [what happens] when our term insurance expires; will we need life insurance beyond this point?”

“It’s the term dilemma. It’s hard to have that policy end, and then have nothing.”

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The Role of Expiring Term Coverage

“I could probably get life insurance today, but it would probably cost and arm and a leg because of my age.”

“I should have bought a longer term. It’s coming to an end now, and to buy what I have now would be very expensive.”

“I have a 20-year term; I wish I’d gotten a 30- or 40-year term. Now trying to get another term policy, but it’s not affordable.”

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The Cost of Coverage When You’re Older

“I’m turning 70 next month. Today I just took delivery of a brand new term life policy -- a 15-year policy. I was able to get a premium non-smoker rate. Otherwise, I could never afford something like that. I have life insurance that is expiring this August, and that was the trigger for this.”

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The Cost of Coverage When You’re Older (cont’d)

“The concerns are different. When you’re younger, it’s all about your family. As you get older it switches to you -- your health, ability to pay bills, etc. Once you’re older, the concerns just change.”

“[Regarding the role of life insurance over time] the burden shifts from others to us. When you have a young family, it’s all about the children. When they’re on their own, it’s all about us.”

“[Buying life insurance] it’s the last thing you have to do to complete your retirement plan.”

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Some Summary Comments

Step 2: Developing Marketing Programs

• Direct Mail– Use of targeted “advertorials”– Training of the call center staff

• Future Marketing Activities– On-line marketing– Senior market microsite

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Challenges to This Strategy

• The economy strengthens, retirement portfolios rebound significantly, and the need to continue working into one’s retirement years disappears in the marketplace

(Would anyone bet on this scenario?)

• Due to health reasons and/or the economy, seniors are unable to continue working, or are unable to find work even on a part-time basis

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Challenges to This Strategy (cont’d)

• Regardless of their personal health, many consumers believe that life insurance is either unavailable or unaffordable at older ages

(THEY BELIEVED US!)

• Many agents, while recognizing this trend in the marketplace, have failed to translate it into a need for income protection life insurance

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Other Considerations

Product• Keep it simple

Messaging• Don’t make it sound like they failed to plan

Selling• Educate the sales force regarding this need in the

marketplace

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