Group Long Term Care Blocks Have Lots Of Boomers
What age demographic characterizes newly insureds under group long term care insurance plans?
According to the Society of Actuaries LTC Experience Study, the average issue age for group LTC insurance is 49. While that is an average, not a mean, the number still suggests that baby boomersborn between 1946 and 1964are a big part of the group LTC insurance segment evaluated in the study.
By comparison, the average issue age for individual LTC insurance is 68, said Roger J. Gagne during a panel discussion here.
The general director-actuarial services in LTC at John Hancock Life Insurance Company, Boston, Mass., Gagne is a member of SOAs LTC experience committee. He was speaking at a panel on group LTC pricing during SOAs 4th annual Intercompany Long Term Care Insurance Conference.
The experience study is not a compilation of boomer-only statistics, nor are its results geared for boomer specialists. Rather, it covers a variety of age bands and numerous LTC experience issues, including selection, claims, mortality, lapse rates and more, and it contains data of use in pricing.
However, boomer observers may find items in the data that can be of value in assessing LTC as it pertains to boomers, who in 2004 will be ages 40 to 58. This is because boomers comprise a significant demographic in the group LTC figures.
In the study, only 27% of the exposure was from the employer group market, Gagne pointed out. In the group exposure, 63% of the business was written guaranteed issue, he added.
Among caveats to keep in mind is that nearly 60% of the group insurance exposure is less than 3 years old, said Gagne. Also, 73% of the exposure is individual or association group business, not employer group. In addition, he said, the data is “raw, not smoothed,” and, because the data has been changing over time, it does not show averages.
In identifying incidence rates, the data is not split between individual and group, he pointed out. But the results show a “clear effect of selection at older issue ages.”
By contrast, below age 50, there is no clear selection pattern (by benefit amount or benefit period), he said. This may be impacted by the fact that group LTC experience is included in the data and that most group exposure is written guaranteed issue, he allowed.
He said the findings suggest that pricing should reflect the mix of group business by underwriting type. That is, “more guaranteed issue at lower issue ages, and less or no guaranteed issue at higher ages.”
The mortality findings show that mortality rates were lower for guaranteed issue contracts than for those written with simplified underwriting. (Note: This finding turned up not only in the age 50-59 age band but also in the 60-69, 70-79 and 80-89 age bands.)
That seems counterintuitive, Gagne said, and it was “surprising” to the committee.
Meanwhile, full underwriting showed improved mortality, he said.
Some of the mortality rates in the study are understated, due to unreported deaths, he allowed, and there was significant mortality improvement over the exposure period. Still, the findings suggest “pricing must reflect anticipated mortality rates,” he indicated.
The voluntary lapse rates seem to be correlated with underwriting, too. According to Gagne, the lapse rates were lower for fully underwritten cases than for guaranteed issue or simplified issue cases.
But group LTC lapse rates do decrease by duration to a “low ultimate rate,” he said, while individual LTC showed lapse rates that are “generally higher.” (This lapse pattern is not across the board, however. One surveyed company reported that its group lapse rates were higher than individual lapse rates, Gagne pointed out.)
The data shows some deaths are being recorded as lapses, Gagne observed. Therefore, he recommended caution if using the data in helping set pricing assumptions.
The experience study spans 1984 through 1999 and represents LTC experience dataindividual and group–from 18 organizations (21 insurers). It reflects analysis of almost 2.7 million exposure records, representing 7.5 million exposure years.
The amount of group experience is “significant,” Gagne noted. But there is significant variation between companies, time periods, plan design and underwriting methods.
To view the entire study, go to the SOA Web site at http://www.soa.org/sections/intercompany_study.html. An update, containing data through 2001, is being put together now, said Gagne.
Reproduced from National Underwriter Life & Health/Financial Services Edition, February 20, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.