Reinsurers can help reposition long term care insurance
Long term care insurers have a challenging yet potentially rewarding task ahead of them: improving public perception of long term care insurance while at the same time growing the business to its potential.
Reinsurers can help LTC carriers meet that challenge with new ideas based on solid data they have collected. In order to shape the long term care market going forward, it is necessary to understand the development of LTCI over the last decade.
While LTCI is relatively new in the insurance product life cycle, it is also a product facing a broad array of challenges in its relative youth:
==Actuarial pricing assumptions (e.g., lapse rates and claims estimates) that were incorrect and caused several carriers to increase premium rates significantly;
==Some questionable sales and marketing tactics in the past; and,
==Scores of insurers exiting the primary marketplace.
This confluence of events also unfortunately has resulted in negative publicity for LTCI. It’s hard to forget the memorable quote of Benjamin Lipson, an independent insurance broker and LTCI author, regarding the sales and marketing tactics of long term care insurers: “You’d get better odds at a gambling casino than with LTC insurance companies,” he writes in “Choosing The Right Long-Term Care Insurance.” LTC insurers would take issue with this view, but it still underscores the maxim that perception is reality.
While the perception may be undeserved, it is evident that the mentioned challenges are real.
So, how can a product routinely portrayed negatively in the media, in part because of its own sins, create for itself a positive perception, and grow?
There are some very positive trends to suggest that LTC insurers already are taking steps to turn that perception around.
In an effort to shore up actuarial assumptions on new business, LTC insurers have addressed lapse rates and claims estimates, tightened underwriting standards and increased pricing significantly. Carriers with in-force blocks of LTCI business are recognizing past pricing problems and are working diligently to rehabilitate those blocks.
The recent investment income environment also has resulted in responsible pricing, a welcome reprieve from the pricing patterns, which many in the LTC industry viewed as irrational. And as stability returns to the LTCI market, so, too, do new players.
Here are a few thoughts to advance this turnaround.
One approach is to replace lost market share with product innovations–or even expanding product ideas that exist but have not yet reached their full growth potential.
A good example of the latter is LTC insurance sold as a life rider. Many LTC agents started as life agents and began selling LTCI on the side. These agents have extensive expertise in life insurance–a well-respected product with a clear, easy-to-understand value proposition.
Associating LTCI in rider form with life insurance brings to LTCI the credibility of an established product. While this product has been around for quite some time, LTC insurers need to work to simplify this product dramatically in order for consumers to realize its value.
And, they also need to be part of another positive developing trend: the movement toward group LTCI.
The lowering of risk-based capital requirements will open the market to additional players, as one of the barriers to entry will be reduced significantly. With the exit of many carriers in recent years, this should provide a positive change and some fresh perspectives. Experience shows nothing moves a market in the right direction quite like competition.
Reinsurers can drive more innovative underwriting both at their level and at the consumer/primary/direct level through improved data collection and analysis. A reinsurer has the capability to analyze data from multiple primary carriers and turn that data into information on co-morbidities, pricing discrepancies, potential benefits of cognitive screenings on two of the most costly claims (Alzheimer’s and dementia), and a host of additional areas.
And, both reinsurers and insurers can strengthen the market by realizing that one of the most effective ways to grow LTCI is to improve industry public relations efforts. LTCI meets a fundamental societal need, yet last fall two-thirds of respondents failed MetLife’s LTC IQ Test, which reveals that a majority of Americans lack a basic understanding of long term care insurance.
As an industry, we need to improve our messaging to our customers, prospects and the media. Our focus should not be on communicating negative messages like the prevalence of illness in older age brackets.
Rather, reinsurers and insurers need to be part of proactive, positive messaging on positive developments like increasing life expectancies and medical advancements and how LTCI will help ensure that customers receive quality care in their latter years. Agents are on the front line of this challenge, and the good ones excel at open, honest and clear communications on the benefits of LTCI.
We must be passionate and believe in the fundamental purpose of LTCI: granting older adults dignity, respect and care during their final years. This is a critical time for the LTCI industry. This is the time for all of us to lead by example.
Joseph J. Kelly is the marketing leader for the Accident & Health division of GE Insurance Solutions. He is based in Avon, Conn., and can be reached at [email protected].
Reinsurers can help LTC carriers with new ideas based on solid data they have collected