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New York Life And Immediate Annuities

Solution Id Length Case Author Case Publisher
2125 1936 Words (7 Pages) Julio J. Rotemberg, John T. Gourville Harvard Business School : 510040
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New York Life is the third-largest organization in the insurance industry of the United States, and it was founded in 1845 as a mutual insurance company. It spans a commendable network of company subsidiaries and agents and was ranked as 76th in the Fortune’s ranking of leading US firms in 2009. Its market offerings constitute life insurance, investment annuities, immediate annuities, long-term care insurance, mutual funds, retirement planning and other asset-management services. 

Following questions are answered in this case study solution:

  1. Company Profile 

  2. PESTEL Analysis 

  3. SWOT Analysis 

  4. Market Offering of Immediate Annuities 

  5. Market Analysis 

  6. Segmentation of Target Market 

  7. Target Market 

  8. Evaluation of Marketing Channels 

  9. Marketing Mix Elements 

  10. Performance Overview and Recommendations 

Case Study Questions Answers

2. PESTEL Analysis 

  • Political – The government is excessively burdened with a vast array of predicaments, especially the current strain imposed due to the Coronavirus pandemic. It is very likely that the strain on public budgets and resources will lead the US government to cut back on retirement benefits through lighter social security payments. 

  • Economic – Organization’s have increasingly tried to free themselves from retirement funding by tilting in favor of defined contribution plans as opposed to defined benefit plans. 

  • Social – Changing population demographics allow us to infer that the 78 million baby boomers in America will increase the percentage of retired individuals in comparison to the working employees. Individuals are now also exhibiting higher life expectancies than they were before. 

  • Technological – Individuals are increasingly incorporating technology within their daily lives through its integration in education, business, health and the public sector. Middle aged males and females are also increasingly acquainted with technological devices and rely on digital landscapes and social media for their daily tasks. 

  • Environmental – Leading and renowned global companies are often engaged in environmentally focused Corporate Social Responsibility activities as a means of giving back to the environment and improving brand image before shareholders and clients. 

  • Legal – The legal landscape of Social Security payments from the government has altered significantly as the US authorities are levying an increasing tax percentage on employees, while also increasing the minimum age of retirement. 

3. SWOT Analysis 

Strengths
  • New York Life is the third-largest insurance company in America and is widely recognized by Fortune and leading rating agencies for its remarkable organizational capabilities. 

  • It has a positive track record in immediate annuities as they augmented its market from a meagre $120 million business to a commendable $1.4 billion business, from 2002 to 2008. 

  • It has a substantially skilled and experienced network of agents that end up having individual clientele bases of 500 to 700 clients each, within the span of 10 years. 

Weaknesses
  • The market for immediate annuities is still relatively small and is characterized with a lot of neglect and ignorance on part of the actual consumers and advisors. 

  • Many senior executives within the firm are concerned about the hefty investments required to target retirees for the immediate annuities market. 

  • It is on third position in the insurance industry and it has two major competitors; MetLife and Prudential Financial. 

Opportunities
  • The dynamic and changing landscape of social security payments and company-based retirement funds suggests that retirement earnings are bound to mitigate over the future. This suggests a viable opening for retirement funds to be invested in immediate annuities. 

Threats 
  • Most financial advisors remain uninformed about immediate annuities and are less than eager to learn about them, let alone sell them. 

  • A major obstacle exists in the form of financial advisors or agents refusing to sell their customers immediate annuities as it translates to the absence of a continuous fee for their services and only a one-time commission being paid to agents for the sale. 

  • Individuals buying the policy are concerned that they will lose access to their funds and that the investment might be a waste as they might not live that long. 

4. Market Offering of Immediate Annuities 

Immediate Annuity is a financial instrument type that was first introduced to financial markets in the late 1800s. It calls for the purchaser of the annuity to pay a lump sum amount upon their retirement and the insurance company then provides the annuity holder with regular, fixed monthly payments for the rest of their lives. 

Some major benefits of immediate annuities are that it is a more reliable emergent retirement funding approach, considering the uncertainties and cutbacks surrounding social security payments and organizational retirement plans being focused on contribution plans as opposed to benefit plans. Longer life expectancies within the population also infers a greater requirement for additional funding that may go above and beyond organizational and governmental provisions. 

Some major disadvantages of immediate annuities are that customers are largely unaware about them which piques their concerns regarding its usefulness or reliability. Consumers are concerned about the fact that their retirement funds cannot be accessed by them upon the purchase of this instrument. The instrument is also a waste to the consumers if they do not live long enough to have their monthly payments exceed their initial purchase price. Advisors and agents are also largely unaware of this type of annuity and those who are aware of it refuse to sell them since it translates to lower regular fees being paid to them, since a single commission is normally paid upon the sale of an immediate annuity. 

5. Market Analysis 

Retired individuals often refrain from seeking out professional advice or funds management which is why they are largely unaware of the option of immediate annuities. They often tie up their funds in stocks, bonds, saving accounts or certificates of deposit until they require it. Other retirees occupy a more investment-focused approach where they are uncertain about paying fees to an advisor and concerned about access to their funds and the rate of return, they will receive. Insurance agents and financial advisors are also mostly uninformed about immediate annuities and advise investing in mutual funds, stocks bonds or real estate over investing in immediate annuities. Their perceptions about immediate annuities are tainted due to concerns about lower liquidity, inflationary hazards, lower commissions and complexity in terms of understanding and explaining them to clients. 

6. Segmentation of Target Market 

  • Demographic – Males and females, over 60 years of age, who are already retired or are close to retiring from professional, white-collar jobs in organizations. 

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