Feel as if change is flooding in? High ground might be closer than you think. (LHP Photo/Allison Bell)

The long-term care (LTC) insurance industry continues to evolve. 

More companies have announced changes to their product lines, others have left the marketplace, and, in some cases, companies have returned to the marketplace. In addition, most companies have increased the rates quoted for new business and quite a number of companies have raised premiums on older blocks of policies. 

Insurers that were big in the group LTC market have also suspended new sales, asked for premium increases, and ended contracts with employers when up for renewal. Even multi-life sales have been suspended by a number of companies. 

The reasons most often stated by insurers for these changes are simple: Most companies experienced more claims than they had anticipated when they first priced their products. Increased claims as well as the prolonged low interest rate environment make it tougher for insurers to pay out claims and run a profitable business. 

For those insurers that have elected to stay in the marketplace, the changes have included the following:

  • Ending lifetime benefit riders and 10-year benefit periods.
  • Ending limited-pay premium options.
  • Discontinuing shared care riders.
  • Changing the definitions of home care coverage.
  • Discontinuing indemnity-style plans.
  • Introducing new less comprehensive and less expensive inflation options.

And the list goes on. 

Before you panic and get out of the LTC business altogether, it’s good to have a refresher on what’s really been going on and how you can better serve your prospective and even existing clients. 

Longtime insurance agents might recall a similar situation played out in the disability insurance (DI) industry in the early 1990s. Many insurance companies got into the product and for a variety of reasons pulled out of the marketplace.  Those reasons included more claims than anticipated and an inability to raise premiums, as many disability policies that were bought back then were “non-cancelable.” Definition of non-cancelable: Premiums could not be increased until, typically, age 65. 

Additionally, many of the insurers that left the industry decided that DI insurance really wasn’t part of their core marketplace and ultimately elected to return to their strengths.  The result was a reduced but committed group of insurers that still believed in the fundamental value of the product and elected to stay in the marketplace. 

Yes, some things changed. Underwriting rules tightened up quite a bit, and product features and definitions were amended and often made less liberal than before. And a number of mergers took place. But, amazingly, many of those same carriers that stayed on selling DI then are still in it and doing fine.

Just about everything that happened in the DI marketplace has happened to LTC insurance. The major difference is the interest rate environment. Eventually, the LTC industry will stabilize, interest rates will go up, and products will reflect the times. When this all happens is anyone’s guess, and it’s not good to get into the prediction game. 

So how do insurance agents continue to serve their clients appropriately? It helps to reflect on the concept that perhaps many policies bought in the past were far more comprehensive and benefit rich than most policyholders might ever need.

A surprising number of claims don’t go beyond three years, so those old lifetime benefit period policies were probably overkill. Additionally, home care agencies and assisted living facilities have matured so much in the care industry that they are adequately addressing the great majority of care needs today. 

Consider these ideas:

  • It may not be necessary for many consumers to buy LTC policies to cover the cost of nursing homes but rather focus their policy designs to cover home care needs and perhaps assisted living costs wherever they are incurred. Self insurance for the difference is an option.
  •  Re-think the inflation option your clients might purchase with their policies. Look at lower compound rates or other inflation rider variations. At most carriers, the old standard 5% compound inflation rider has become exorbitantly expensive.
  •  Consider a number of new inflation riders that now include lower compound rates such as 3% or 4%, CPI-based compound riders. Or, a new rider just launched by one carrier that is based on insurance company performance compared to a benchmark. The better the performance over the benchmark, the more the LTC benefit might go up.
  •  Lastly, remember to focus on core coverage benefits like daily or monthly benefit amounts and benefit periods. What has become obvious is that the multitude of riders, in most cases, are more than people need. It’s okay for many clients to consider planning to co-insure or contribute toward some of the costs they might face. 

At the end of the day, you have to remember that long-term care insurance still fills a very valuable need for clients who can’t or don’t want to risk all of their assets to pay for care themselves and who don’t want to pass on the caregiving burden to their families.

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