After a big drop in sales in 2004, the year 2005 shaped up to be a transitional one in long term care insurance (LTCI) with more visibility, greater interest in the product and more stability in the market. Because of this, the big question today is what does the future hold for 2006 when it comes to LTCI? Is it feast or famine? If we take out our crystal ball–and look at past performance–we believe there will be a positive focus on the bottom line for all parties involved with LTCI products. And it will happen simply by going back to the basics of good business.
A Focus on the ROI of Good Relations
In the year ahead, carriers are sure to focus on profitability by becoming leaner and more efficient–spotlighting basic sales support as opposed to new product bells and whistles. This will spur a tighter integration between Brokerage General Agencies (BGAs) and carriers of LTCI products. Smart carriers already are aligning themselves more closely to their biggest distributors and offering BGAs stronger partnership commitments. Some of the partnering services we’ve seen include:
–Dedicated internal and external customer service and sales support;
–Strategic consulting services to improve both business processing and marketing functions;
–Access to advanced sales training resources, such as talented trainers; and referrals from institutional customers so carriers can outsource costs.
On the corporate side, LTCI will continue to expand for several reasons:
1) Carriers have made new programs available to the small and mid-size employer marketplace. These plans were created by taking “big employer” benefits crafted for Fortune 500 companies and re-packaging them for smaller businesses. They comprise the best big company advantages, including electronic enrollment and helpful communication material, while incorporating high/low commission schedules and broker-of-record protection.
2) Health Savings Accounts (HSAs) are becoming more prevalent. As HSA values build, recipients will realize they can pay LTC premiums out of their HSAs. HSA plan growth will be substantial in 2006 as people attempt to control their health care costs. Not only can money in HSAs be used for LTCI premiums, but it also can be used to supplement LTC out-of-pocket costs when care is needed.
In regards to other tax incentives for LTCI, don’t look for major above-the-line deductions. However, like the ability to pay for LTCI from HSA accounts, incremental reforms will help, such as expanding the partnership programs beyond the current four states, allowing penalty-free withdraws from qualified plans and other modest incentives.
3) Employees prefer to buy benefits through the employer. As companies recognize this and strive for ways to keep their employees satisfied, they will continue to give the LTCI benefit their seal of approval. This buy-in from employers will be the key factor to success with corporate LTCI. Combine employer support for LTCI with professional advice from an advisor and corporate LTCI sales are sure to rise.
Same Products, Better Packaging Can Be Expected
The carriers are very happy with the current generation of products, which were designed in a very low-interest-rate environment. With rates creeping up, there is no desire to change the make-up of typical LTC products because they are priced to be profitable. All the necessary product features are in place. What will change, however, is how the product is packaged and explained. As an example, one carrier has introduced a set of pre-packaged plans using the current products. Carrier proposal software is allowing easier ways of putting together quotes quickly, such as cost of care look-ups.
In addition, savvy LTC advisors are turning the conversation in a newer, more positive direction. With care settings, for example, advisors primarily emphasize the fact that LTCI will cover the option to either stay at home or in a quality assisted living facility–then they will discuss the nursing home alternative if skilled care may be needed at some point for clients. The cost of care is being discussed as an annual dollar amount so that the comparison to the annual premium is more rational. Companies are improving their marketing of the care planning and claims process because that’s what people are buying. People don’t just want insurance, they want access to a plan of care and providers. Once prospective buyers realize that the claims department is their advocate, not their enemy, closing a sale is much easier.
What Will Gain Center Stage
Many carriers realize they need to do a much better job of empowering advisors to be more effective field underwriters. Why the urgency? Because as more applications become electronic and credit cards are accepted, it will be a lot easier for someone to apply to two, three or even four carriers at the same time and wait to see who comes back with the best offer. Carrier companies and BGAs will be motivated to improve field underwriting through intelligent screening questionnaires and gathering of medical record data.
Another significant issue to consider is what’s ahead for compensation. It will be ever more important to customize distributor compensation based on the type of distributor. LTCI specialists who want to build an effective renewal stream will still want the traditional option, but other distributors, such as banks, may be interested in up-front heaping arrangements. Also, corporate programs may differ from the traditional level commission structure to a high/low schedule that reflects the up-front cost of installing a worksite LTC program.
Promoting a Successful 2006
During much of 2004–and early 2005–articles on LTCI focused on “gotcha” problems such as rate increases and carriers dropping out of the business. Lately, however, there have been many positive articles recommending the purchase of LTCI, explaining the demographic realities of an aging population, and offering support to agents and financial advisors adding it to their mix of products.
Additionally, LTCI does not lack a supply of passionate and talented LTCI advocates and educators. There are several courses available online, in classroom settings and as self-study courses in conjunction with other designations that are there to help those involved with the product succeed. All of this results in information that educates the buyers and the sellers of LTCI, creating a better understanding of the process and the benefits of such an important product for the future.
Overall, our crystal ball says 2006 will be an active year, providing moderately positive bottom-line results for both LTCI carriers and BGAs. Information will be more available to support the growth of LTCI products, and relationships between carriers and BGAs will strengthen. And most important, relationships between advisors and clients will strengthen as agents become more secure in the process of helping their clients become informed consumers. Everyone will benefit from minor industry restructuring and increased interest among both individuals and companies.