Genworth Financial, the largest provider of traditional long-term-care insurance in the U.S., on Monday debuted an annuity product that marks a new way the firm can deliver LTC coverage to consumers.
The launch follows Genworth's announcement a few weeks ago regarding its plans to focus on its long-term-care business and suspend sales in some other insurance business lines.
The product, underwritten by Genworth Life Insurance Co., is a single premium immediate annuity, or SPIA, for investors over the age of 70 that provides a guaranteed income stream over the buyer's lifetime.
Unlike with traditional long-term-care insurance — typically bought decades out from a potential insurance need — the Genworth SPIA is meant for Americans with adverse health conditions but no existing LTC coverage.
The product, called the IncomeAssurance Immediate Need Annuity, is medically underwritten, meaning Genworth evaluates the unique health conditions of annuitants, through a nurse examination and a look at medical records.
The SPIA, in most circumstances, could provide a monthly payout higher than that of a typical, non-medically underwritten SPIA, experts say. The latter factors in age and gender, not health status, when determining payouts. That formula lumps healthy and unhealthy people into the same investor pool, thereby giving a sick individual with a shorter life span a similar payout to a healthy individual who may live many years longer.
“Anyone who's worried about not living to their life expectancy is kind of discouraged from using [non-medically underwritten] annuities, but this would allow them to get a better quote based on their actual life expectancy,” according to Wade Pfau, professor of retirement income at The American College.
Debapriya Mitra, senior vice president of business strategy in Genworth's U.S. life insurance division, said he expects the SPIA to provide payouts 20% to 50% more generous than standard annuity tables.
“This opens up a great option for clients who aren't eligible for long-term care insurance because of a diagnosis,” Michael Finke, professor of personal financial planning at Texas Tech University, said in an e-mailed statement.
Genworth announced in its fourth-quarter earnings that it would suspend sales in traditional life insurance and fixed annuity products in the first quarter of this year, and double down on its LTC business. The product launch is part of that strategy, according to Kristi McGivern, the director of product marketing in Genworth's U.S. life insurance division.
Genworth holds approximately 18% of the LTC insurance market — the largest share — when measured by covered lives, or the number of insured, according to the American Association for Long-Term Care Insurance (AALTCI).
Rather than cannibalize its current LTC business, Genworth execs feel the product opens up a new LTC market for the firm because it serves a different demographic — older Americans who don't have an LTC insurance policy and are ineligible to purchase one.
The pool of insurers offering medically underwritten SPIAs is fairly small at the moment, industry experts say. Mutual of Omaha is an example of one insurer with medically underwritten SPIAs, through its Ultra Income and Income Access products.
Medically underwritten SPIAs "are not something very widespread, and this would be a major company moving in that direction,” Mr. Pfau said. “Even if it's not truly the first one, in practical terms it might present something new.”
PROS AND CONS
Aside from a likely higher payout from typical SPIAs, one benefit to using a product such as Genworth's is policy premiums can't go up unexpectedly, according to Jesse Slome, AALTCI's executive director.
Some insurers have had to raise rates on in-force policies, as they've contended with low interest rates and longer life expectancy. At the same time, other alternatives for LTC coverage such as hybrid LTC-life insurance policies, have grown much more popular.
Also, unlike with traditional LTC insurance, the Genworth SPIA doesn't require ongoing health evaluations or claims to file, according to Mr. Mitra. Payouts begin immediately, like with any SPIA, and aren't triggered by a need for assistance with activities of daily living.
There are a few potential downsides, though, of which advisers should be aware. Like with any SPIA, investors are locking away a large sum of money with insurers, which could be a risk if the investor's situation or the investment environment changes, Mr. Slome said.
Further, given low interest rates, annuities don't have the payouts they'd have in a higher-rate environment. Seeing as the Federal Reserve could raise rates a few times this year, investors could lock in a low payout at current rates, Mr. Slome said. To counter that, though, advisers could potentially layer SPIA purchases, he added.
Genworth's B rating among major credit-rating agencies may also concern advisers, Mr. Slome added. Standard & Poor's Ratings Services, Moody's Investors Service Inc. and A.M. Best Co. Inc. recently downgraded Genworth Life Insurance Co.'s rating.
Some firms require advisers to sell insurance policies from A-rated insurers, and advisers might not be covered under their errors and omissions insurance coverage — liability insurance for insurance professionals — for firms with less than an A rating, Mr. Slome explained.
Since the product is meant for older Americans, cognitive impairment could come into play. Genworth executives acknowledged this as a risk for would-be investors, but say they're counteracting this risk through safeguards such as requiring salespeople to engage family members or a power of attorney at any sign of impairment during the underwriting process. Agents and producers selling the product also must undergo senior suitability training.