The Essential Guide to LTCI

Finding affinity
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.”

Simplification?
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.”