Not so long ago, we published an explainer video to help us raise development capital. The sources, volume & enthusiastic nature of responses over social media were initially confusing until we realised viewers were actually trying to buy the financial product described in the video over social media!
This was spectacularly significant for a number of reasons. Pension industry research shows that 84% of retirees want a financial product that protects them from outliving their savings.
Bank research further confirms that consumers top concerns are i) lifetime income streams, ii) that can maintain their lifestyles and iii) which cover health care costs. Yet, only** 14% of retirees** actually buy the insurance industry product targeted at addressing these top concerns.
There is a major factor at play why only 1 in 6 prospective buyers buy what incumbents are offering, this is because the existing solution is universally regarded as:
“the most hated financial product in the world”
Even so, total sales of this hated product total about $350 billion per year!
A century ago, there was a simple and wildly popular product that outsold the hated product by a ratio of 5 to 1. However, in 1906 regulators rightly introduced new rules making it illegal to charge high fees and harsh penalties on this simple product. As a result, the insurance companies stopped selling the product because they could no longer turn a profit.
In a comprehensive 2017 report on the Asian retirement market, the actuarial consultancy Milliman described to the insurance industry what customers are really looking for:
“In an ideal world, the ‘perfect’ retirement product is likely to have the following (top) features: Longevity protection (payment until end of life) Increasing income, at least keeping up with inflation Capital protection, ensuring that they won’t lose their fund”
So what consumers want sounds an awful lot like what the popular old product offered. The Milliman report goes on to conclude:
“It is, of course, impossible to reconcile all of these objectives, especially at a low cost.”
Academics agree, it would be impossible — at the very least, extremely difficult — for insurance companies to offer such a product.
Enter the Fintechs
I was introduced to Bitcoin in 2011 (thank you, Jon Matonis). However, at the time, it was too early to find a blockbuster use case for the technology that I could build a business around.
But in 2017, I came to realise the importance of, and the significant need for, low cost lifetime income solutions.
In previous lives, I sold financial products & owned an investment bank in Germany that advised insurance companies. This experience helped me to understand that blockchain was the key to securely re-issuing the popular product at very low cost and on a global scale, thereby enabling the platform to be profitable along the way.
The explainer video was intended to test the concept and — to the surprise of some people in the industry — accidentally confirmed what we suspected and what BofA hinted at & Milliman validated: Consumers want to buy a simple, low cost product that delivers lifetime income.
Sizing the Opportunity
If you have not figured it out already, the hated product is called an “annuity” the annual sales of which are $350 billion per annum.
However the above cited industry figures indicate that annuities only address 1 out of 6 potential consumers needs. On this basis, the unmet demand is worth a potential $2 trillion dollars per year, a figure validated in this Forbes article submitted by the Pensions Research Council.
And this is the market that we will start serving in 2020 with our low fee platform model, i.e., like an insurance version of Revolut payments or Transferwise etc.
But what to name it?
The _popular product _is notoriously fascinating to the media and financial world because the way they describe it almost inevitably involves money and death.
The subject of multiple historical books and movies, the world is fascinated by what is known as a tontine (pronounced ton-teen), or more precisely, a tontine trust. (Not to be confused with a chit fund)
After the new rules were passed in 1906 making it illegal to overcharge tontine buyers, the insurance industry were happy to let consumers think that the tontines themselves had been made illegal. But as Professors Ransom and Sutch write in their 1987 paper:
Considered as a financial innovation, [the tontine] was very successful. Considered as insurance, it was actuarially sound. Considered as a gamble, it was a fair bet in as much as there was no percentage for the house beyond a charge to cover administrative costs. Considered as a life-cycle asset, it proved to be an excellent investment, earning a rate of return substantially in excess of that generally available on other assets.
So we came to the conclusion that if we were re-inventing the cola industry, in an ideal world we would want to be the Coca Cola of that industry. For this reason, we now own both tontine.com & tontinetrust.com and hold a registered trademark over the name in connection with its use for pension products.
As far as we are concerned, anyone who talks about tontines is now officially advertising our brand. Anyone else that launches a competing product is going to have to settle for being Pepsi.
And to encourage new entrants to work with us on a single, large, low-cost global platform we intend to build an ecosystem which can benefit from the patent we have filed which, if granted, could cover 152 countries.
If the insurance industry numbers are correct, today there are about 700 million over-60s out there worrying unnecessarily about running out of money in retirement. By 2050, there will be an additional 700m of these consumers including me and many of you.
The technology is available to do this. Let’s get to work building something we will all need sooner or later.