The long view

For an established product trading in a mature market, a few percentage points of growth do not a good year make. But in a still-maturing business such as long term care insurance, where the gap between growth potential and actual performance has yet to be bridged, year-to-year gains of any kind represent progress and the promise of better things to come.

Thanks to positive movements in several key industry indicators, “2007 was actually a good year” for the LTCI market, says Jesse Slome, executive director of the American Association for Long-Term Care Insurance, a trade group based in Southern California. According to Slome, industry-wide earned premium increased to $10 billion in 2007 from $9.4 billion in 2006, a respectable increase of more than 6 percent, while growth in individual policy sales was more modest at 2 percent. Meanwhile, a handful of carriers with a major presence in the LTCI market reported sales increases of 10-20 percent for the year, “very promising news,” according to Slome.

All told, about half a million Americans purchased long term care insurance in 2007, roughly the same number as in 2006, bringing the total number of insureds to eight million. “It’s easy to see that number doubling a decade from now,” he says.

Still, Slome and other prominent voices in the industry acknowledge it’s going to take more than growth rates in the low-to-mid single-digits for LTCI to come of age. While the product and those who sell it have made significant inroads in recent years in the individual and group segments of the market, the various players in the LTCI business still have much work to do in the areas of product development, pricing, public messaging and strategic sales and marketing tactics.

There’s plenty happening on those fronts here in 2008. Let’s look at some of the key trends that experts see shaping the LTCI landscape in the months and years to come.

Product evolution. With the industry now targeting younger buyers, the time is ripe, says Debra C. Newman, CLU, ChFC, LTCP, president and CEO of Newman Long Term Care in Minneapolis, Minn., to move from “trying to solve an entire need with one product to having building-block products that let people buy a chunk of [LTCI] coverage today and buy another chunk later. You start with a modest benefit, then buy more to enhance the plan.”

Slome calls those kinds of policies “life-stage products,” and he sees them gaining appeal, particularly among baby boomers. “You buy them in your 40s or 50s when you’re in good health to affordably lock in your insurability, then you adjust the product as your needs and your situation in life change.”

Going forward, simplicity will be as important as affordability and flexibility in designing consumer-friendly LTCI coverage, says Slome. “Right now there are so many moving parts, it has the potential to get rather confusing for consumers. I think we’re slowly moving toward simpler product designs to make their choices easier.”

Sales channels. Sales via state-authorized partnership programs and through employer-sponsored benefits programs could be what lead LTCI to the promised land. Growth in the group market is already robust; according to Slome, sales of employer-sponsored policies increased 24 percent during the first half of 2007 compared to the same period in 2006. Producers such as Steve Elliott who specialize in individual LTCI sales are looking to build their presence in the group market because of the growth opportunities they see there. “The group market, I think, is going to take off,” says Elliott, principal at Capstone Financial in San Diego and one of the nation’s leading LTCI producers.

Making headway in the employer marketplace is no easy task, contends Newman, in large part because employee spouses tend to be resistant, even when there’s buy-in from the actual employee. “It’s hard to get the message home to the spouse.” Still, in 2007, group sales represented some 20 percent of her company’s throughput.

State partnership programs represent another potentially fruitful area for growing LTCI sales. Federal policy enacted in 2005 encourages states to adopt partnership programs such as those in place since the 1980s and 1990s in California, New York, Indiana and Connecticut. The number of states with partnership programs in place or in the works now stands at more than 30. What makes policies sold through those programs particularly attractive is the state-sponsored asset-protection features that backstop them, says Elliott, noting that about 80 percent of his sales are partnership products. “I definitely see partnership products becoming a major, major factor in the market. It’s really a no-brainer, because if someone’s policy benefits run out, it offers an extra level of asset protection at no extra cost.”