The growing number of Americans age 65 and up–more than 37 million strong–and the industries that support them are undergoing fundamental change.
Demographics, rising healthcare premiums and longer life spans have had a significant impact on the market for long term care insurance. From its earliest inception some 40 years ago as a product designed mostly for older Americans living in nursing homes, to its standing today as a key component of a comprehensive financial plan, LTC insurance has continuously evolved to meet the needs of the market.
Some LTC product changes, both past and future, stem from customer and agent input. Today, consumers want simpler, more flexible LTC policies. Agents are looking for products that are less complicated and easier to sell.
Other changes are driven by industry trends. For example, robust claims data is shedding new light on emerging experience; and new technology and medical treatments have become more readily available, affecting life span and underwriting criteria. Taken together, these changes are making an impact on all aspects of long term care insurance, including product development, pricing, marketing and distribution, underwriting, and claims.
As boomers prepare for retirement, LTC insurance buyer demographics and demands continue to change. These factors have spurred innovation in product features and design.
One result has been increased receptivity among people in their 50s to purchase LTC insurance. New research by the American Association for Long Term Care Insurance found that one-third of buyers of individual long term care insurance in 2007 were under age 55. And many (over 2 million, according to LIMRA International) bought it at the workplace through their employer.
Another result has been simpler products. Among recent innovations are products that allow individuals to buy a relatively small amount of LTC insurance to start and increase coverage over time.
Such developments show consumers that the LTC insurance industry is listening and adapting to their needs. Over the next few years, consumers are likely to see an influx of more innovative products. As with other industries, it’s a given that these products and the way they will be delivered to the market will evolve. For example, it would have been hard to predict 15-plus years ago that standard carrier correspondence would evolve to e-mail, which then further evolved to include text messaging.
Among the changes the industry is likely to see are bundled products, which combine LTC insurance with other products, such as life insurance and annuities.
LTC insurance has made great progress toward helping individuals safeguard their retirement income and assets and to pay for the care they may need. We can expect more advances from the industry in coming years.
Simply put, the longer individuals live, the greater their potential need for long term care. Prices have generally increased over time as more people use this valuable benefit.
So what will pricing look like in the future? It’s difficult to predict, as product changes and innovations depend largely on external factors, including demographics and advances in medicine. Progress in the way that we treat debilitating illnesses such as Alzheimer’s or Parkinson’s disease and changes in the economic environment will all likely affect the price of LTC insurance.
One thing is certain, however: With 77 million baby boomers approaching age 65, the need for LTC insurance will increase. As this happens, we need to provide product solutions that appeal to a broad consumer base as well as price points that address this need.
Marketing and distribution
The LTC insurance industry faces major challenges in marketing the product. The numbers themselves speak directly to the problem: The customer base for LTC insurance is estimated at 100 million, yet industry data reports that only 8 million own policies today. How will the industry address this challenge?
Certainly, one of the most significant issues is product complexity and pricing, which can cause individuals to walk away from buying LTC insurance. People are also reluctant to discuss long term care with loved ones or financial planners and are in denial about the possibility that they or a family member may one day need LTC services. They may believe that they will not need LTC insurance until they are significantly older. Or they may mistakenly believe that LTC is fully covered under other programs, such as their medical or disability plans or Medicare.
Right now, most LTC insurance sales come from firms that specialize in the product. While established life and annuity producers are well suited to sell LTC insurance, given their product expertise and client relationships, many aren’t including it in their product offering.
Convincing life producers and financial planners to include LTC insurance in their practice is of utmost importance to the industry’s growth. There is also a need to increase the acceptance of selling this insurance by brokers, financial planners, agents and other financial advisors.
Greater sales will come from a combination of engaging new and existing producers differently, from introducing new products and from the industry continuing to increase public awareness and education.
Underwriting and claims
Experience with underwriting has increased over time as LTC insurance has matured and more claims data has become available. Based on this experience, as well as medical advances, underwriting guidelines continue to evolve.
In many cases, better medical treatments have made LTC insurance available to a broader population. For example:
o Arthritis has become a more insurable condition. With the advent of new approaches to prescription medication therapy, rheumatoid arthritis is often less disabling than it had been, allowing more individuals with this illness to be considered for LTC insurance.
o As more diabetics better control their blood sugar and thus prevent some of the vision complications once common with this disease, more will become eligible for LTC insurance.
o Advances in the development of treatments that stabilize and even reverse the loss of bone means that those with osteoporosis can now often be insurable.
o Underwriting tools have become more sophisticated, with client assessment interviews and cognitive screens now standard practices. Using the Medical Information Bureau and pharmacy screening tools has also become increasingly employed in the underwriting process.
LTC insurance claims have shifted over time from primarily covering nursing homes to also covering claims for home care and assisted living facilities. We are told time and again that insureds want to do everything possible to stay at home. It is critical to provide a positive experience for the insured and their family at time of claim. It is also important that the industry continue to educate the public about how this product has benefited so many when they needed it most. Consumers sharing these positive experiences will improve how people view LTC insurance.
Over time, the healthcare and caregiving systems will continue to change and will likely make an impact on claims practices. While it is hard to predict exactly how these changes will affect LTC insurance, one fact remains clear: medicine, technology and demographics will continue to drive innovation in care delivery, product design and sales.
In the short history of the LTC insurance industry, major shifts in demographics, medical advancements and technology have significantly affected the way carriers and producers sell this coverage. The real challenge for the industry is to broaden the appeal of LTC insurance to more individuals and to address closing the gap between 100 million people who could own LTC insurance and the 8 million people who actually do so.
This will require products that meet the evolving needs of broad cohorts of individuals, lower prices, more producers offering LTC insurance and continued public education about the value of LTC insurance.