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New products, new eyes

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I love long-term care insurance (LTCi).

It’s been my passion for more than 25 years and has earned me a wonderful living.

However, like any other FMO, I have to face facts. And the facts are sales in our industry are down 23 percent in 2013.

I believe this is due to a combination of factors — higher rates, negative press, the increasing popularity of hybrid products, and the growing number of declines.

In my experience, the number of declines is higher than ever. Whether clients are lying about their health, or carriers have tightened up on their underwriting standards -– or both -– who knows? As a brokerage, it is our challenge to find coverage for those clients who can’t qualify for or afford a traditional policy.

At my company, we began actively searching out and promoting “alternative LTCi” products about three years ago. It was a slow start. Not only did this require a major shift in the way we do business, but it also required a new mindset. 

My entire career was based on selling traditional LTCi – monthly benefits, years of coverage, cost of living riders, joint discounts. And, most important, carriers rated “A” or better. So the first mind I had to change was my own.

At first, I had a hard time defending the other types of products. After all, in my heart I felt “one year? What good is one year of coverage? No cost of living rider? What good is a policy with no inflation? A “B” rated carrier? No thanks.”

But then a funny thing happened. I attended a conference where an actuary with one of the biggest LTCi carriers stood up and said “49 percent of our claims are for less than one year.” 49 percent! Given the size of this carrier, this is not a small number. So I started thinking that maybe having one year of coverage was not such an awful idea. Plus we were losing so much business to declines that his seemed like a good way to help those clients and save our bottom line. Everybody wins.

Next I had to bring new products to our producers. The obvious producer is one who sells LTCi, so you would think that would be a natural fit.

However, most LTCi producers didn’t want to have anything to do with these alternative products.

I got responses like “one year? What good is one year?” (sound familiar?), or “I will never have anything to do with a ‘B’ rated company.” Or even, “What about that life insurance with the LTC rider? I heard the underwriting is easier for those.”

As more of their clients were declined, and the rest of their client base started aging and becoming unhealthier, more producers turned to us for solutions.

Now we have a plethora of products we can use with those clients who either can’t qualify for traditional LTCi or can’t afford it. This has opened up completely new markets for us. And, really, if I have a 75-year-old woman with diabetes and arthritis who only has her home, her Social Security and pension income and $75,000 in the bank -– don’t you think that client is just as interested in protecting her $75K as the client with $500K is with protecting her $500K? Is a one-year plan for $6,000 a month in benefits such a bad idea for her?

As for dealing with “B” rated carriers, I think with these products we’re OK. The benefits are finite, and most are sold without a cost-of-living rider.

Although I’m not at all mathematically inclined, I have to believe any actuary worth his salt should be able to price these products with relative stability. So far, none of our products has ever experienced a rate increase, and my carriers tell me they don’t see any coming in the future.

In the worst-case scenario, they are health products and would be covered by a state’s guaranty fund. Very few of these policies would exceed those limits. Until an “A” rated carrier comes out with some sort of short-term care (STC) policy, the “B” rated carriers will do just fine.

In the end, the reason we exist in brokerage is to serve our producers. The producer’s job is to serve his/her clients. The clients are interested in protecting themselves from risk. If a 70-year-old female client can’t afford to pay $400 per month for a traditional LTCi policy with a three-year benefit but can (and is willing to) afford $104 per month for a one-year plan with first-day coverage and a benefit pool of $72,000 (actual quote), then I’m OK with that.

I know there is still a lot of resistance from the established LTCi industry to these types of products. That’s OK. Sooner or later, you’re all going to have to come over to “the dark side.” But, in the meantime, if you have producers who want to get their unhealthy clients some coverage, send them our way. We’ll be happy to help them.

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