What lies ahead for the somewhat embattled world of long-term care insurance sales? New regulations, including the Community Living Assistance Services and Support Act, and some new product innovation promise to turn the tide in 2011.
It continues to be a tough market for LTCI sales. According to LIMRA, sales for the first half of 2010 recovered from 2009′s low levels, but the numbers still weren’t great for individual policies: “Compared to the same period in 2009, which saw declines of over 30 percent, there were 11 percent more buyers and premium grew 13 percent in the first half of 2010.”
Those stats sound more encouraging than they really are, however, because the basis of comparison is a horrendous first half of 2009. LIMRA notes: “When current sales are compared to the first half of 2008, new lives and premium were down 23 and 22 percent, respectively.”
That’s the bad news. The good news is that regulatory and product developments could help LTCI sales get back on track. We asked several industry leaders for their views on the essential developments and trends advisors should monitor.
The CLASS effect
“The biggest development is the planned introduction of the CLASS Act,” says Jesse Slome, executive director of the American Association for Long-Term Care Insurance. “This is the government long-term care program that was included as part of health care reform, which was passed.”
But many of the CLASS Act’s details are still undetermined. “A lot of regs have to be developed over the next year or two,” says Malcolm Cheung, vice president of long-term care product and risk management for the Prudential Insurance Company of America. “The product design needs to be nailed down. The premiums need to be nailed down.”
These key unknowns include:
- The exact level of disability needed to obtain benefits will be determined by the secretary of Health and Human Services.
- The initial average benefit will be no less than $50 a day but will vary by level of disability.
- The legislation requires between two and six benefit levels but does not specify how many
levels or each level’s benefit.
The passage of the CLASS Act could provide another reason for prospects to delay buying LTCI. But the uncertainty and benefit limitations with the act present a potential business opportunity, as well, says Slome: “We’re recommending that producers take the initiative to make themselves local CLASS experts. They can start to position both the positives and the negatives of the CLASS Act, whom it’s for, whom it isn’t for, etc.”
Cheung offers similar advice. “The average cost of a nursing home in the U.S. today is over $200 per day,” he says. “So you would certainly need to supplement whatever CLASS benefits are provided,
and there are some features of CLASS that some consumers may not particularly care about.
“My advice to producers is to certainly not stop talking to your clients or prospects about long-term care insurance just because of the potential for this CLASS program to go into effect.”
The overall market for employer-sponsored sales has been mostly flat since 2007, according to LIMRA. Selling to affinity groups could offset the employer-channel’s slowdown for multilife producers. The definition of an affinity group can vary, but it generally includes membership organizations such as credit unions, civic and religious organizations, professional associations and so on.
With association multi-life sales, the applications are usually fully medically underwritten, Cheung says. Insureds, therefore, pay a lower premium but don’t get any concessions in underwriting, which helps reduce the insurer’s adverse selection risk. The market has potential: Cheung reports affinity group policy sales at Prudential have grown more than 30 percent over the past two years.
Hoping on hybrids
The Pension Protection Act took effect on Jan. 1, 2010, and clarified the taxation of LTCI hybrids and combination products (“combos”). It’s too early to gauge the PPA Act’s impact on hybrid sales, however, and at least parts of the industry haven’t jumped on the bandwagon. Slome sees the products appealing to a very defined and limited market; Cheung says Prudential doesn’t have any active plans to offer a hybrid, although they are monitoring the market’s response.
In contrast, Beth Ludden, senior vice president, LTC product development at Genworth Financial, says Genworth is seeing significant interest in those products. “Sales of our life-combo have grown significantly this year, so there’s clearly a lot of interest in those products,” she says. “(On) the annuity side, we’re still working through the regulatory hoops to get that product approved.
“The challenge with the hybrids is really around getting approvals in the states because they combine both long-term care and something else. It’s a dual-approval process in many states, and so that elongates the speed to market quite a bit. Some states have been a little equivocal about whether they feel that those are good products and whether they want to allow those products to be sold in their state.”
If the hybrids represent a more complex product, Prudential’s LTC Evolution policy, introduced in 2009 and still being rolled out nationally, could portend an emerging trend toward simplified LTCI coverage. Cheung says one goal in introducing Evolution was to “reduce significantly the number of decisions that a consumer would have to make and that a producer would have to help a consumer make in order to choose a product.”
That simplification affects several traditional policy buying decisions. Insureds no longer select daily benefit amounts; instead, they buy an amount of maximum lifetime coverage. The policy pays 80 percent of covered expenses until the insured uses up his or her lifetime maximum. “When somebody buys one of these Evolution policies, the only choice they have to make is the total amount of lifetime coverage that they want,” says Cheung. “One decision point as opposed to how many years of coverage, what daily benefit do you want for a nursing home, what daily benefit do you want for home health care, and what daily benefit do you want for assisted living facilities.”