The chat about long-term care insurance that many advisors have with their clients—and that many more avoid—has been growing more difficult as low interest rates and other market pressures take their toll on available coverage.
John Ryan of Ryan Insurance Strategy Consultants said advisors generally fall into two camps when it comes to LTCI. The first are “financial advisors who don’t believe in LTCI, and will do everything they can to reposition assets.” The second group uses LTCI “as a risk management tool.” Either way, said Ryan, “the eligibility window is shrinking quite a bit.”
In his latest market update, industry expert Claude Thau, director of insurance strategy and tactics for LTC insurance at Target Insurance Services, outlined some trends that could make advisors want to rethink those client chats, particularly with women and indecisive clients.
One major change that’s already occurred is gender-distinct pricing. According to Thau, at least four major carriers will charge women more than men for LTC coverage. Genworth already began the change in April in 31 jurisdictions. Others intending to put gender pricing into effect in 2013 are Transamerica, John Hancock and Mutual of Omaha.
Advisors aware of clients with a family history of serious health problems should urge them to reconsider delaying purchase. Companies are becoming less willing to insure people with health issues, said Thau, and as they step back from covering various conditions, other companies do the same.
He explained: “When one carrier refuses to accept a particular type of risk, others start to follow. They may adopt the same restriction because of their own experience or they may do so simply based on the belief that the other carrier must have had a good reason to take such a stand.”
He used Genworth’s decision to stop underwriting insulin-dependent diabetics as an example: “Other companies started seeing a significant increase in the number of applications from insulin-dependent diabetics. Even if those other insurers felt they could insure 30% of the insulin-dependent diabetics, the decline rate on such cases drives expenses up.”
Thau added, “They also might be concerned that their risky approach to insulin-dependent diabetics was OK when such people were a very small percentage of their business, but if the percentage triples because other companies have stopped writing such cases, they may feel obliged to bow out of that market.”
Some of the most popular policy features, such as lifetime benefit periods and limited pay, are going the way of the dodo as low investment returns pressure companies into dropping potentially expensive offerings. Some companies face downgrades for offering LTCI; the inherent risks in LTCI are even causing the companies that offer it to promote it less, since a broader client base can lead to broader exposure.
However, amid the gloom there are rays of light. Ryan said that although premiums are now high, they could prove to be more stable than in the past, with rate increases slowing.
Ryan suggested finding ways for people to self-insure as much as possible. A client may not want to use his home equity to self-insure for LTC, but “if insurance isn’t available, certain risks have to be borne by the client and that might be one of them: having to draw down assets that they’re trying to preserve.”
For clients who can’t make a decision, it’s less threatening, Thau said, to ask them to envision the two oldest members of their family needing LTC and the steps they’d take to secure it. It’s easier to visualize the need happening to someone else, but it’s also more involving for the client to envision it happening to someone in her own family.
For clients who dither over the cost of buying now versus later, Thau said, it’s most effective to show not how much they’ll save in premiums by buying early at lower rates, but how much they’ll have available for care through compounding. “We emphasize that if you buy now instead of 10 years from now, you’ll have 63% more money available, assuming compounding, when you go on to claim,” he said.