Healthy people receiving lower rates
Increased sales of enhanced annuities has resulted in healthy individuals losing out, according to a poll of providers and industry experts.
Research by Xafinity Paymaster, part of the Equiniti Group, shows that 60% of annuity providers and experts believe that growth in enhanced annuities has resulted in healthy people receiving poorer annuity rates.
An enhanced annuity pays a higher income to those with lifestyle factors likely to impair their health, such as regular smokers and those who are overweight.
One respondent commented that as underwriting of annuities becomes the norm, the European gender directive will only add to this movement and negate the principles of share risk in insurance products.
When asked whether rising sales of enhanced annuities is leading to a real possibility of false or non-disclosure at the time of annuity purchase, 31% said they agreed while 40% said they disagreed.
One individual said that enhanced annuity providers are actually more exposed to the risk of over-disclosure than under-disclosure, where customers deliberately have to exaggerate or lie about a condition to obtain a higher income.
The survey also found that over half of respondents believe the slow growth in sales of non-conventional annuities – apart from enhanced annuities – is down to a lack of consumer awareness.
Brian Please, business development manager for insurance at Xafinity Paymaster, said while enhanced annuities have played a key role in encouraging people to use their ‘open market option’, this is also adversely impacting on the rates that healthy people receive.
He added: “The research also highlighted fraud as a cause for concern with the potential for false or non-disclosure with enhanced annuities. Our advice would be that providers must ensure they have adequate checks and procedures in place to spot any false claims.”