And the question is: What is it going to take to finally make LTC insurance a permanent fixture in American financial planning, and what will products need to look like in order to get that done?
Peering off into the distance and attempting to quantify future product manifestations requires some background information. Now more than ever a careful examination of where we are and where we might be headed is critical. The conversation must begin with what I think are the big three unanswered questions:
1) How much is enough?
2) How will our efforts best dovetail with state or federal provided care?
3) How will future sales be best accomplished and by whom?
Let’s begin with an inventory of current conditions and market accomplishments.
• Individual sales are again in excess of $500 million. Asset based combo sales are growing exponentially.
• Living benefits, or chronic illness accelerated death benefit riders, are now a common feature of almost every life portfolio
• Beginning in 2009 the majority of LTC insurance premiums were sold with an affinity discount (association, group and multi-life).
• More than 9 million Americans own a LTC insurance policy and, when measured by those with money and an education, we have double-digit market penetration.
• We are currently collecting more than $10 billion in premium and paying $6.6 billion in claims per year.
•Perhaps the most important number is that out of the millions of small employers only 11,000 offer or provide LTC insurance.
You do not need to be clairvoyant to recognize these signs for marketing success nor the staggering opportunity for sales growth.
The 20-year Study of Buyers and Non-Buyers prepared for AHIP by LifePlans, Inc., continues to illuminate the obvious. Buyers are better educated and have more assets, are “planners” by nature, and understand that the government will not pay. Non-buyers are less likely to understand the real cost. The number one reason for buying remains to protect assets, followed closely by the ability to afford care. Medical inflation is clearly recognized as inherently evil. The strongest influence in the buying equation remains the agent’s recommendation, and the majority of non-buyers remain potential prospects for the future.
Understanding the math is vital. The current approximate annual cost of a nursing home is $80,000; home health care, $30,000; and assisted living, $40,000. More than 70 percent of all LTC claims would have been covered by $100,000 in today’s dollars. There is a 67 percent chance of having a problem, and 20 percent of those problems will last two years or more.
The take-away must be obvious to even the most obtuse nonbeliever. The risk is real.
While a great majority of claims are fairly small and of a limited duration, there is also serious potential for catastrophic financial loss. I have come to believe that our assumptions about the nature of the risk and the application of insurance may have been flawed.
The philosophy of the sale has been built around our historical notion of risk abatement: Identify the financial problem and replace it with insurance dollars. The questions of how much insurance is needed and why were framed as an absolute. Unfortunately, there is nothing absolute about LTC insurance claims—they are both relative and subjective by nature. We have been selling as a process of elimination: Someone must pay: you, the government or insurance.
I no longer believe the questions we framed as an absolute were correct and, therefore, they provide an incorrect response. LTC insurance is not to replace dollars but, rather, to transform circumstances.
The correct question should be: How many extra dollars do I need in order to maintain the authority to improve the quality of my own care? The ability to defy dependency on family and, God forbid, the government social services and to have freedom of choice and dignity is what matters.
Now with a more accurate perception of “why,” building product to real need is much easier. Yet product development will never succeed until the dimension of the real risk is accepted and everyone correctly understands the real purpose.
We must also understand that government options are more than a necessary evil. Future product alternatives must be built to complement and protect the primary purpose—that every American must be allowed to end his journey with dignity and respect. The Partnership Plans are gaining sales momentum. We must continue to promote and encourage a firewall to Medicaid cost and dependency. Once the risk and true purpose of LTC insurance is understood, there will be a transformation in how the product is sold, where and by whom.
There have always been two markets: (1) middle affluent and (2) middle mass. New and successful product applications must be better targeted and executed in both markets. Future product development considerations should begin with an evaluation of what may be wrong with today’s product options. Most of what we sell remains too expensive and is bought and sold on an optional basis.
Consumers and agents continue to believe they can ignore the problem and the solution. Previously inadequate lapse assumptions, a vanishing interest environment, intransigent regulators and oversold non-insurance benefits have created constant pricing turmoil. “Stability” has never been a word used to describe LTC insurance.
We continue to struggle with burdensome 50-page applications, outdated technology and a woeful lack of sufficient product and sales training.
What is required for future products to be successful? Stable pricing would certainly be a start. With the help of rate stabilization, a better understanding of claims, a reality with virtually no lapses, and acceptance of the continuing prospect of anemic interest returns—believe it or not, some confidence will return.
There must be a more accurate appraisal of the risk in order to reduce the cost. Plus greater benefit flexibility. Regulators must stand down on outdated ideas of consumer protection and help facilitate needed rate increases. We must set free the availability and use of qualified dollars to solve the LTC insurance risk conundrum. Strategies that expand underwriting concessions must be created in order to give many more Americans the privilege of leveraging even a known risk. And, as I’ve said many times before, both mandatory agent training and expanded technology to streamline the application process are a necessity.
The industry is moving forward with ideas and product options that address all of the above. The great Karnak will reveal all next month.
Other than that I have no opinion on the subject!
Ronald R. Hagelman Jr., CLTC, CSA, LTCP
CLTC, CSA, LTCP, has been a teacher, cattle rancher, agent, brokerage general agent, corporate consultant and home office executive. As a consultant he has created numerous individual and group insurance products. A nationally recognized motivational speaker, Hagelman has served on the LIMRA, Society of Actuaries, and ILTCI committees. He is past president of the American Association for Long Term Care Insurance and continues to work with LTCI company advisory boards. He remains a contributing "friend" of the SOA LTCI Section Council and the SOA Future of LTCI committee. Hagelman is president of Broadtower Insurance Solutions, a national IMO helping BGAs enhance LTCI production. Hagelman can be reached at Broadtower Insurance Solutions, Inc., 156 N. Solms Rd., New Braunfels, TX 78132. Telephone: 830-620-4066. Email: firstname.lastname@example.org. Website: www.BroadtowerInsurance.com.