Open-access content
Monday 30th November 2015
—
updated 5.50pm, Wednesday 29th April 2020
Freedom and choice
I was disappointed by the article Freedom and choice for annuity holders (The Actuary, November 2015, bit.ly/1QSYj2g). It seems clear to me that dishonest sellers are a critical flaw in the notion of allowing annuities to be sold.
The author attempts to dismiss this problem by noting that some insurers are successfully selling annuities on a medically underwritten basis. However, he fails to realise that, for those products, the policyholders' interests are best served by presenting as much authenticated evidence on their medical condition as they can - it's unlikely that a simple lie will suffice to get them a better deal. In the case of selling an annuity, however, the seller might simply attempt to sell it before they notify their doctor of any symptoms. The buyer seems to be left with only two options: to exhaustively underwrite each case (proving that the seller doesn't have heart disease, or cancer, or any other condition) - or to apply a significant penalty to all sales. In either case, the costs will have to be passed to the seller - and this is likely to put most healthy sellers off, exacerbating the problem.
I can see a small market appearing for those wealthy enough that the underwriting cost is proportionally trivial (or can be covered by existing high-end medical cover). But that's all.
The author attempts to dismiss this problem by noting that some insurers are successfully selling annuities on a medically underwritten basis. However, he fails to realise that, for those products, the policyholders' interests are best served by presenting as much authenticated evidence on their medical condition as they can - it's unlikely that a simple lie will suffice to get them a better deal. In the case of selling an annuity, however, the seller might simply attempt to sell it before they notify their doctor of any symptoms. The buyer seems to be left with only two options: to exhaustively underwrite each case (proving that the seller doesn't have heart disease, or cancer, or any other condition) - or to apply a significant penalty to all sales. In either case, the costs will have to be passed to the seller - and this is likely to put most healthy sellers off, exacerbating the problem.
I can see a small market appearing for those wealthy enough that the underwriting cost is proportionally trivial (or can be covered by existing high-end medical cover). But that's all.
