Insurers Hopeful LTC Slump Will Be Short-Lived
A trend to higher premiums for new long term care insurance policies and continuing departures of insurers from the market were prime factors leading to a decline in sales for LTC products in 2004, say industry observers.
LTC insurers decided to raise prices on new policies after taking a long-term look at profitability, executives for leading carriers say.
The price increases were made easier by the fact that major carriers like Transamerica, TIAA-CREF, CNA and Aegon recently either left the LTC market or announced plans to do so.
“The shakeout explains the lull in sales, and we now are tailing off from that,” says Brian Vestergaard, director of LTC products and marketing, Aetna Inc., Hartford. “It was caused by poor pricing and mismanagement. Most of the top carriers either left the market or cut back on sales.”
“We think this is a really good business to be in,” says Kenneth Grubb, senior vice president of New York Life Insurance Companys long term care operations. “There are companies that have been in the business for a long time but that made mistakes and developed a large in-force block that didnt play out because they made the wrong assumptions. They had to raise rates or exit. That opens up opportunities for other carriers who understand the business better.”
Buck Stinson, president of the LTC business of Genworth Financial Inc., Richmond, Va., formerly GE Financial, thinks many agents and brokers have been spooked by the turmoil and price increases in the industry. Their shaken confidence has contributed to the problem, he believes.
“A lot of agents are saying, I dont know who to sell to now,” Stinson says.
Michele Van Leer, executive vice president of long term care for John Hancock Life Insurance Company, Boston, expects to see more carriers exiting the business.
LTC insurance, she observes, is “a product line where a company has to have ample capital and specific expertise across every dimension, whether it be pricing, claims management, distribution, marketing and servicing. I dont think everyone [now in the market] has the volume where they will be able to stay in.”
Van Leer acknowledges that Hancocks sales of individual LTC policies fell this year even more than the industry as a wholewhich was down 28% as of the 3rd quarter, according to LIMRA.
(Group LTC sales were down 23% in the period, excluding federal employees, LIMRA says.)
“Its not a surprise its been a down year,” Van Leer says.
Part of it is due to the price increases. The departure of some carriers played some role in that because it took some of the supply out of the market, she points out.
Another factor in the higher prices also was caused by a positive development, Van Leer believes: an unexpectedly high persistency of the product. In other words, consumers have not been allowing their LTC policies to lapse as often as Hancock and others in the industry had projected originally.
(Lower than expected lapse rates means underwriters had to revise downward their estimates of the profitability of the product.)
Another issue Van Leer points to in the sales slump: do-not-call legislation, which has disrupted producers ability to prospect through cold calling.
“Our producers are finding the number of calls they have to make has gone up significantly to get the same amount of appointments from a given list and geographical radius,” Van Leer says.
Industry executives seem confident the sales slump will be short-lived, for a variety of reasons.
One is that the group market is going to be increasingly receptive to offering LTC insurance as part of its benefits package.
“Total group sales for long term care are somewhere between 5% and 10% of our companys total group sales and should pick up a few percentage point over the next few years,” says Michael Q. Simonds, vice president of product and market development, UnumProvident Corp., Chattanooga, Tenn. “Its been growing 15% to 20% faster than our other group lines.”
Employees are going to respond well to their employers LTC offerings, he predicts, and they are increasingly aware of the need for LTC.
“Worksite sales did not shrink,” he says. “We feel very good about that portfolio of products.”
Genworths Stinson sees much more relative stability in the market for the next 2 to 3 years, which will help the industry recover.
“Most carriers who were going to get out have exited,” he says. “And the demographic trends are pushing more people into the age range where they are thinking about long term care planning.
Carriers also are bringing out new products that they believe respond to market needs.
For example, Aetna recently announced it is offering customers more flexible options, such as shared care benefits, which allows a policy to transfer remaining coverage to a surviving spouse if the insured dies.
UnumProvident recently announced a new group LTC product that gives employers greater leeway in designing the product for the needs of their employees.
Hancock is offering a number of benefits it hopes will appeal to younger consumers. Among them: a double-indemnity benefit if a person needs care as a result of an accident and coverage that provides benefits for shorter periods, in order to make the premium more affordable.
A number of carriers also have added home care provisions, either as new policies or as riders, to give users the increasingly popular option of receiving needed care at home rather than in a nursing home.
Carriers also are beginning to target small businesses, recognizing that the large group market may be close to saturated.
“The Fortune 500 market is pretty much tapped out,” observes Aetnas Vestergaard. “In excess of 40% have group LTC, so now we have moved down into the mid-market.”
One surprising development, he says: Many smaller employers are interested in contributing to voluntary LTC benefits, particularly those for highly paid executives or other select groups. Some are making small contributions for a very basic policy and allowing their employees to buy up to a richer package of benefits, he says.
Another dynamic that may also ultimately spur LTC sales is proposed legislation that would provide an above-the-line tax deduction for LTC insurance premiums.
Elaine Dent, vice president of retirement security, federal affairs, for the American Council of Life Insurers, says her group is “very positive” about such a deduction being passed with next years Congress.
Some industry executives believe the federal governments education campaign on behalf of long term care may be even more of a spur to sales than any tax breaks that might be passed.
The U.S. Department of Health and Human Services has put together a brochure in partnership with several states targeted at older citizens, asking them to think about the need to provide for LTC in their senior years.
“Consumers will listen to that and ask questions of financial planners and agents,” Stinson predicts.
“Theres a changing political climate that puts a lot more emphasis on personal responsibility for nearly all aspects of retirement,” observes Aetnas Vestergaard.
It will be up to producers to help educate consumers to the fact that they, not the government or their employers, must provide for their own LTC needs. That fact has begun to sink in with an aging population, industry executives say. Now its up to producers to bring the message to younger workers.
“Individual-policy carriers are trying to come down in the average age of buyers they are targeting,” says Vestergaard. “We are seeing them in the employer market, where individual long term care products are being marketed as voluntary benefits,” says Vestergaard.
Also making an impact will be the growth of sales through alternative channels. Already, benefits brokers have taken over the lead in the marketplace from long term care specialists, according to a study by Eastbridge Associates. Further distribution changes also will help open up the market, observers predict.
“This industry has been built on the backs of long term care specialists,” says Van Leer. “Whats going to grow over the next 10 years are people who are not specialistsfinancial planners, life insurance producers, broker-dealers and banks.”
Reproduced from National Underwriter Edition, December 16, 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.