Niche markets: Proving solutions to the older market

At retirement, the need for financial advice does not fall away, but instead becomes more crucial than ever. FAnews spoke to the industry experts about whether the older generation constitutes a market niche for brokers, and how the opportunities can be addressed.

Advances in healthcare and the increase in longevity are among the factors that make it somewhat difficult to exactly define the market constituted by the older generation.

Dorian Lack, Head of Risk Group Advisory Services at Liberty, notes that there are no hard and fast rules. “These days, from a longevity point of view, we often hear that the 50s are the new 40s, and the 60s the new 50s. From a financial point of view, and as far as an advisor is concerned, the ‘elderly’ may be classed as those that have retired and to whom health and the affordability of healthcare is becoming a greater concern. In terms of a market, planning for this stage in life is crucial.”

Craig Harding, Managing Director of Altrisk agrees. “People today live longer and many enjoy excellent health well beyond their sixties. Many may work beyond traditional retirement age. For this reason, Altrisk increased the entry age on certain benefits. For example the maximum entry age for life cover is 70 and, under exceptional circumstances, we have issued cover to a client aged 82!”

Ronald N King Director: Financial Planning at PSG notes that the main distinction today is not based on age, but rather on a change from accumulating resources to living off those resources.

“Pensioner policies are generally issued to persons who are 60 years old and who are no longer gainfully employed; or those who have retired and are not gainfully employed. The spouse must also not be gainfully employed either,” says Edward Paul, general manager for Product, Actuarial and Reinsurance at Mutual & Federal. “However, the trend in the market is that persons between 50 and 55 years of age who are not gainfully employed are eligible for pensioner benefits with some of the insurers in the market.”

“The ‘Baby Boomers’ are now reaching retirement around the world,” says David Hickey, Senior Manager of Product Development at Sanlam Personal Finance. “This is a very important market for brokers. Guarantees and security are very important to the elderly. Popular products are those which are relatively easy to understand.”

Risk profile

Clint Harker, Head of Pinion Insurance Group Brokers, an Aon Company, notes that the market often provides pensioners discounts, as they are perceived a better insurance risk. “This is based on the fact that pensioners are often home-based which decreases the theft risk and seldom on the road. They do not drive at excessive speeds and often drive lower-risk vehicles. However the motor rating is loaded once insured are over 70 years old, based on industry stats that show reaction times do deteriorate.”

However, Arnold van der Linde of the IntegriSure Group notes that older people often pay for the sins of the youth, particularly when they are placed in the same risk pool. “Many insurers believe that an older person presents a higher risk. For us at Integrisure, the dividing line is a responsible lifestyle. We realised years ago that the older the client, the bigger the possibility that the client will follow a responsible lifestyle.”

Addressing the needs

Raimund Snyders, Executive General Manager for Personal Financial Advice at Old Mutual, says that the elderly or post-retirement market segment requires support from financial advisors. “Many people are living deep into their 80s nowadays and someone who retires at, say 65, could still have an investment timeline of 20 to 25 years. Once you have helped a client retire comfortably, the onus and opportunity is that you remain their financial coach and partner for the rest of their lives. Although most of the planning and investing would have been done pre and at retirement, changes to the financial plan would need to be done by their financial advisor throughout retirement. Advice remains critical to ensure they are able to maintain their standard of living and enjoy the benefits of the plans that they had put in place.

Francois Tranter, Head of Risk Technical Marketing at Momentum Myriad explains that, generally, the need for life cover and occupational disability cover reduces as one approaches retirement because the client needs to replace income for fewer years and generally have no or little debt. “In contrast, the need for critical illness and impairment cover increases. Older people are more likely to suffer a heart attack or stroke or get cancer or Alzheimer’s disease, for example. The additional expenses, such as frail care expenses, can have a devastating impact on retirement capital.”

Liberty provides a useful overview of some of the risks this niche market faces, particularly those who retire with significant assets.

• Longevity risk: living longer than expected and running out of income.
• Investment risk: markets not performing as expected and retirement portfolios losing their value - a particular problem in the first few years of retirement.
• Inflation risk: retirement income not keeping pace with expenses, particularly medical expenses.
• Consumption risk: drawing too much out of a retirement portfolio.
• Health / frailness risk: exposure to long-term, high medical cost consumption.
• Regulation and industry risks: exposure of a retirement portfolio to tax changes, financial institution failures, etc.

Lack says that this list reveals ample opportunity for advisors to assist retirees to protect retirement assets. “Annuitisation and a systematic withdrawal strategy are imperative to manage the many risks retirees face, which are difficult to self finance. Longevity risk, for example, is particularly difficult to finance. The only way to manage this risk is to annuitise a portion of the retirement nest egg. Then, revising a retiree’s withdrawal plan on a regular basis is important.”

Targeting this niche

One company that has recognised the opportunities in this market niche is 50 Plus Administrators, which specialises in administering policies for over-50’s. One of their well-known brokers is IntegriSure, with thousands of clients in this age group across the country.

“We protect our clients by grouping together those with more responsible lifestyles. Our approach has been perfected over the last 12 years and our product is specifically designed for themarket, taking the lifestyle of over-50’s into account in the underwriting and every policy condition. However, this market demands a specific and specialised service model, and to deliver this, you need niche focus and volumes.”

Auto & General also firmly believes that pensioners are a very valuable market for brokers. “This sector is not as comfortable with online transactions as the younger market and prefers the personal interaction and expert advice that only an insurance broker can give.” For brokers who are looking to get into this market, Auto & General suggests targeting retirement villages and/or estates since personal service and advice are key issues for this market.

Old Mutual suggests the following areas of focus:
• Continued retirement provision to supplement existing provision and take advantage of the tax benefits, to counter the eroding impact of inflation and to protect against the impact of volatile investment markets.
• Post retirement medical provision for those clients that will no longer have a medical aid once they retire, and to fund the increasing costs of medical aid funding and shortfalls in medical aid provision.
• Estate Planning to ensure estates are optimally structured given estate, donations and capital gains taxes.

Francois Tranter, Head of Risk Technical Marketing at Momentum Myriad suggests that brokers ask a client the following questions:
• What would the impact be on your retirement savings if you were to become permanently impaired and need ongoing frail care?
• How long could you potentially live with an impairment, considering the advances in medical treatment?
• How long would your existing provision last?

Around 60% of PSG’s investment book consists of funds owned by people who have already retired and an even larger percentage of their wills belong to retirees. “In this market there are ample opportunities for brokers to assist with estate and will planning, health and short term insurance, and even life cover to cover, for example, young dependants or high estate costs,” says King. “But brokers should bear in mind that in this market trust is extremely important. Innovation weighs less than security. Well-known brand names of the brokerage and the product supplier carries more weight. As always, make sure you understand the needs of your client and develop your solution around those needs.”

Specific solutions

Many product providers have created specific solutions for clients of pensionable age and those who have already retired. Please visit our website at www.fanews.co.za for this full article, which details some of these innovative and specialised solutions.