In an often candid panel discussion during the ILTCI conference here, top executives of 5 major LTC carriers sounded off on an a wide range of issues facing their industry.
Building consumer awareness and demand for LTC insurance were prime concerns, the executives agreed.
More Americans than ever are aware of the cost of long term care, said Buck Stinson, president of the long term care insurance division of Genworth Financial Inc. But more needed to be done, he added.
Laura Moore, senior vice president of John Hancock Financial Services Inc., said the industry’s mission is to show it has the financial commitment to support LTC coverage so that policyholders can be sure they’ll be protected if the time comes.
All the executives had a strong reaction to a recent New York Times article claiming, among other things, that thousands of LTC claims had been denied by carriers.
Among other terms, they called the article “irresponsible,” “disappointing” and “unfortunate.”
David Acselrod, vice president of MetLife Inc.’s long term care and critical illness products, called the article “incredibly one-sided,” while Andrew Mako, senior vice president, Prudential Financial Inc., said it made it obvious “we all have to do additional work” to convince consumers of the worth of LTC insurance.
Moore called the article an affront to the “absolute pride I take in the industry” and the responsible way it meets its responsibility.
“We claw and scratch to make progress and make people understand the need, and if one irresponsible article comes out, our progress seems so fragile,” she lamented.
Stinson said he was “disappointed” because the industry has worked hard to build consumer confidence and awareness.
Bagshaw said the article’s assertion that 25% of claims in California were denied was “so wrong, we have to believe it’s purposeful.”
Among other topics the executives discussed:
Cash-payout products. Moore anticipated Hancock would introduce a cash component as an option to existing products, but others on the panel were more cautious.
“We’d have to pay for it somehow,” observed Stinson. “We’re more focused on affordability and less on simplicity.”
“They’re expensive,” agreed Mako. “We’ve been focused more on home care.”
Bagshaw was vehemently opposed to cash products. “Cash at 100% level is wrong and stupid,” he protested. Such policies would foster bogus claims, ultimately producing “a pretty big sucking sound” as they soaked up industry cash, he predicted. “When someone figures out he could get income for life, he’ll see it as the world’s best pension plan,” he said. “All he has to do is pretend he can’t bathe himself.”
Acselrod disagreed. “There’s a segment where a cash product is a perfect fit and needs to be in the agent’s quiver,” he said.
Market stability. The fact there are much fewer LTC carriers today than 10 years ago has made the market more stable, observed Moore. “Actually, I wish there were more carriers entering the market,” she said. “They would need scale and the wherewithal to survive, but it would be nice if we saw more balance in the industry.”
Stinson, too, believed the industry is much steadier than 5 or 6 years ago. “I used to wonder when the next big company would be exiting the business,” he observed. “Now the headline is, ‘What’s the next big product?’”
Mako believed the industry has learned much. “We are better priced and understand our assumptions better. We still may see some fallout at the lower end, but larger companies are much more stable,” he said.
Compensation. Prudential is looking at improving incentives to lure more producers to sell the product, Mako said.
MetLife is also pondering possible adjustments to its compensation formula Acselrod said. Low lapse rates for LTC insurance mean a long renewal stream of income, he observed. “Perhaps we need to look at moving some of that compensation into the first year,” he said.
He cautioned, however, “there’s a limit as to how much you can push into the first year, without causing inappropriate behavior” [in sales tactics].
Moore, too, said Hancock is thinking of ways to get more incentives to producers so that they think of LTC insurance “as a great way to make a living.”
Legislation. The executives examined 2 pieces of legislation of great interest to the industry: one that would allow individuals to pay for LTC insurance from their 401(k) retirement plan assets, without penalty; and the other a proposal to eliminate the Section 125 exclusion of LTC insurance from above-the-line tax deductions for employee benefits.
Making 401(k) funds available to pay for LTC insurance received an unenthusiastic reception from most on the panel.
“The line of individuals who want to crack open 401(k)s goes from here to Abilene,” said Stinson.
“I’d have a lot of concern about that money coming out of 401(k)s,” Mako said.
Moore said 401(k)s were intended to provide an income basis for retirement. “I like the idea of keeping it separate from protection,” she said.
Bagshaw, however, was “willing to gamble at little more.” He said it would be “good for people, good for America” if 401(k) withdrawals were allowed for LTC. “I want a crack at that big bank,” he said.
On the Section 125 proposal, Moore was confident. “This will be the year long term care will be included” [in section 125], she declared. If so, it would give a boost to worksite sales of the product, she said.
Stinson wasn’t so sure. “I’d love to have an above-the line tax deduction, but it will be a tough battle,” he said. Acselrod said he also thought the proposal “is not likely to happen.”
Worries. Acselrod said his big concern was persistency. As long as his company had “the right business on the books,” however, the risk appears acceptable, he said.
Bagshaw’s response: “Don’t worry about lapse rates. They can’t go down any further.” More worrisome to Bagshaw was whether interest rates on invested assets could go lower, possibly affecting premium rates.
Stinson saw consumer apathy continuing as the biggest issue facing LTC. “I see big progress if we can get around that,” he said.
Alzheimer’s disease is another concern for Stinson. “Half of our claims are for Alzheimer’s,” he said. One cause for hope: top medical researchers recently claimed they’ve moved forward in treating the disease. “It’s exciting,” he said.
Hybrid products. Stinson predicted LTC insurance increasingly would be placed inside other products.
Moore said Hancock has looked at tying LTC to annuities because of new tax advantages under the PPA, but added, “We have concerns about adding complexities to an already complicated product,” she said.
Mako, too, was hesitant. “We have enough challenges getting customers to understand long term care,” he said.
Acselrod said there were opportunities for other products with imbedded LTC provisions, “but we’re not moving in that direction very quickly.”
Bagshaw, however, predicted such products would grow. “Due to the PPA, we will need to sell [annuities with LTC provisions] as a secure income stream that’s protected,” he said. “There’s going to be a need to hook up income for life with other financial products. The risks of retirement are scary. There has to be movement in that direction.”