The LTC insurance business is certainly much different than it was even 10 years ago. As with the financial services industry in general, change is constant, sometimes even drastic, yet also welcome. It is surprising and at times even shocking, however, to see the inability of some to adapt to change.
Seventeen years ago, when I got into this business, LTC insurance brokerage was viewed as an extension of Medicare supplement insurance. Many hard-hitting, even dishonest producers were trying to convince the reluctant customer that they must purchase LTC insurance. The customer was typically an older, somewhat unhealthy, lower-income person. Many times, producers used marginal carriers, and customers were often sold more premium than was prudent.
Today, things are certainly different. The typical customer is healthy, wealthy and wise and has an average age of 59, which is certainly younger than the average LTC insurance client years ago. Larger companies have entered the LTC insurance industry, and the smaller ones have exited. Most importantly, the producers are now financial planning professionals and highly trained specialists. So today, the industry is built around the sound concept of shifting the LTC cost risk from the individual to the insurance company. It’s sound, legitimate and well needed. Additionally, the buyers who are in their 50s and early 60s have substantial assets and high earnings.
Our industry has done a fine job with people who have the resources and health to purchase LTC insurance. I would argue we have already covered 20% of the target market–those ages 50-70, with annual family incomes of $80,000+ and $100,000+ in liquid assets. In fact, we are at the tipping point, where most people meeting such criteria will purchase LTC insurance, if their health allows–and if they clearly understand the financial, emotional and physical burdens their families may endure if they do not buy this coverage.
Increasing market penetration
We have also learned the current LTC insurance concept is difficult for those who earn less than $80,000 or who are older than 70.
So how do you expand the target market? Two solutions make the most sense:
1. Employer-based purchases (most clients buy at relatively younger ages, when the product is cheaper).
2. Government tax action.
Political campaigns this year could result in a rearrangement of our health insurance model, allowing LTC insurance to be addressed with tax subsidies to buyers who pay part of the cost. This will be a boon for those who are prepared to help consumers make the proper choices.
Companies pay claims
There is every reason to be pleased by the care and compassion exercised by LTC carriers in delivering on their promises. This is why we are in this business, and claim problems are a non-event in our company’s experience. This good news is supported by a study released by the U.S. Department of Health and Human Services, which found that almost 97% of LTC insurance policyholders were satisfied with the way their claims were processed. The study also found that a little over 3% of claims are denied on average nationwide, typically because the policyholder hadn’t met the policy deductible or sought services that were not covered by their policy. These figures help dispel the notion that insurers in this field are simply denying claims for unjustified reasons, as some have claimed.
Although more needs to be done to raise awareness of LTC issues in general, it is becoming clear that whether or not LTC insurers are meeting their obligations isn’t an issue at all. To further build public confidence in our product, we strongly support the idea of using expert third-party review of claim denials, with results binding on both parties. John Hancock has just launched policies with language following this concept, and we hope to see other carriers follow suit.
Another lesson learned from 17 years in the business is that it benefits both sides when financial planners and LTC insurance specialists work closely together.
Happily, we have entered an age where outsourcing makes sense for the busy financial planner, life insurance producer, accountant and other producer who has expertise and passion in areas other than LTC insurance. All it takes for collaboration to succeed are expertise and trust.
Here are some of the developments we see ahead that we are going to use in planning and setting objectives:
o Industry growth. We estimate that the industry will move ahead at a moderate pace of 3% to 5% each year, based on new policy count. Slightly higher premiums will allow an annualized premium increase of 5% to 8% over the next 5 years. All this would change if there is legislation providing more favorable tax treatment for LTC, which we expect to see in the next 5 years.
o Annuity-LTC insurance combination products. This type of product will be well received in the middle and upper-middle income market. Initial product offerings may not be as attractive as later ones. There is also the potential for some non-professional annuity producers to move money to these new products inappropriately, when the client would be better served to keep the current annuity (and lower loads, if any) and purchase a stand-alone LTC insurance policy. The industry needs to be aware that this issue can develop into bad publicity. After larger, well-rated carriers enter this business market, competitive pressures will cause the combination concept to be quite an attractive alternative to the annuity buyer.
o Partnership expansion. State Partnership program expansions will show lower asset protections than is widely projected, but the publicity from the growth of these products will be good for the market. The extra continuing-education requirements for LTC producers may cause some financial planners to stop writing the insurance, but many will team up with specialists, so any damage will be inconsequential. The extra training for all producers will contribute to the increasing popularity of the product.
o No more health questions. Of course, insurance companies have not lost their minds. But carriers and managing general agents will take over the medical questionnaire, so the financial planner won’t have to deal with time-consuming and embarrassing questions. This will make the process more professional and easier for the producer and the client, and it will relieve the producer from having to deliver the bad news about potential uninsurability.
o Price stability. Although we can never rule out price adjustments, the actuarial assumptions for today’s LTC products appear to be in good shape. Many smaller underwriters are gone, and the well-capitalized, large companies in the business are handling pricing quite well.
o Corporate market. Look for benefit planning experts and their firms to be routinely lobbying for executive benefit LTC insurance plans. The tax advantages to the client firm and to its executives are finally being understood, while the executive market for non-profits is also expanding.
In 2008, the LTC insurance industry appears quite healthy. Although sales and profits may not be as large or growing as fast as some had hoped, we are positioned for consistent growth and the ability to provide a great service for an increasing number of Americans.
Thomas H. Riekse Sr. is chairman of LTC Insurance Partners LLC, Libertyville, Ill. He can be reached via email at Tom.RiekseSr@ltcipartners.com.