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5 questions: How should you handle the shift to gender-based LTCI pricing?

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This is not an especially easy time for anyone selling anything other than iPhone 5 telephones, but it may be an even less easy time for the people who sell long-term care insurance (LTCI).

You are selling a product that serves an obvious, enormous need.

The original prices turned out to be low — meaning that the insurers delivered fabulous bang for the premium buck.

But Federal Reserve Chairman Ben Bernanke is suffocating the LTCI carriers with low yields on bond portfolios in an effort to keep the banks alive and home equity reasonably stable.

Your clients might need LTCI coverage and other long-term planning products, such as annuities, but they also need the equity they’ve built up in their paid-off homes to have a value other zero, Bernanke has said, in more diplomatic language.

Some carriers have left the LTCI market in the past few years or tried to protect themselves against a flood of new, unsuitable applicants by changing their sales rules.

Some have eliminated group LTCI programs, or multi-life programs that sold discounted individual LTCI coverage through the worksite. Some eliminated lifetime benefit period options, suspended sales of limited-pay options or reduced discounts for spouses of policyholders.

At least one company — Genworth — is making a change that might be a little easier for consumers to understand: Instead of charging one blended unisex rate for all new LTCI customers, it plans to charge separate rates for men and for women who buy individual LTCI coverage in the states that allow for gender-based LTCI pricing.

LTCI producers and others interviewed said they could not remember hearing of other cases of carriers charging or talking about gender-based prices for LTCI coverage, but other carriers also have been announcing other LTCI pricing framework changes that could lead to producers updating their strategies for talking to consumers about the product.

The prices likely will be higher for women, because women tend to live longer, may spend more time getting long-term care (LTC) services, and, if they are married, tend to be more likely than men to end up needing formal LTC services, rather than being able to depend on a spouse to provide the services.

Genworth believes that using gender-based rates will decrease the likelihood that claims experience will be different from what the company expects simply because of fluctuations in the percentage of LTCI buyers who are women.

Two states appear to have regulations restricting use of gender-based LTCI pricing, and insurance commissioners in other states may have the authority to throw a monkey wrench into the effort to set up a gender-priced pricing system, but this might be a time when state regulators will tend to give LTCI carriers the benefit of the doubt.

Analysts at Fitch Ratings suggested in March that insurance regulators exacerbated the current turmoil in the LTCI market with rigid LTCI rate regulations that have limited the carriers’ ability to respond to changing market conditions.

Steve Zabel, a senior vice president at Genworth, says the company has received regulatory approvals to sell LTCI products with gender-priced pricing in about two dozen states. The company hopes to begin selling policies using the new pricing framework by mid-2013.

How can agents, brokers and other LTCI advisors handle the transition period, and the new framework?

Here some ideas, based on a telephone interview with Zabel; an e-mail interview with George Braddock II, Miami LTCI agent who holds the Certified in Long-Term Care professional designation; and conversations with others with an interest in the LTCI market.

1. LTCI advisors should make a conscious decision about whether to talk about the shift, especially during the transition period.

Genworth would much rather see advisors talk about consumers’ need for LTC planning solutions and how LTCI products can meet those needs, not prices, Zabel says.

But Genworth recognizes that some advisors may feel as if they have to bring up the topic when clients are making decisions about when to buy coverage, Zabel says.

Will the idea that change is coming be an important tool for LTCI advisors?

“It could be, if someone wants to make it a selling point for why women should insure without delay,” Braddock says. 

Braddock says he will discuss the pending change in every conversation he has with a women about LTCI coverage, and especially when he is talking to single women. 

2. How should producers think about the idea that one or more major carriers could end up charging gender-based LTCI rates?

Zabel says the transition may prove to be easier for buyers than it is for their advisors.

LTCI specialists might be used to blended rates, but, the real world, “very few people buy long-term care insurance more than once,” Zabel says.

Consumers in most states are used to paying gender-based prices for life insurance and for automobile liability insurance, and they may not be surprised by seeing that LTCI carriers also come with gender-based pricing, Zabel says.

3. If LTCI advisors will be discussing an LTCI’s carrier shift to a new pricing framework, how should they go about doing that?

A low-key approach based mainly on one-on-one conversations with consumers may be better for maintaining a collegial relationship between LTCI advisors and LTCI carriers.

LTCI carriers typically review ads and formal presentations developed by their agents, and they may not appreciate warnings about rate hikes appearing in 72-point type in local newspapers.

4. How should advisors explain why LTCI rates at some carriers are based on gender?

Zabel says advisors should talk to consumers about the same kinds of data that made Genworth think about adopting the new pricing framework.

Claims experience studies show that LTCI coverage is of great value to women who buy the coverage, Zabel says.

Women “could be reminded that, due to their greater life expectancy, they pay less than men for life insurance,” Braddock says.

5. What if male consumers are hoping the shift will reduce the rates they pay for LTCI coverage?

Braddock says he would tell male consumers that it’s never a good idea to put off looking into LTCI coverage.

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