As society has undergone significant demographic and technological change over the last few decades, the long-term care insurance (LTCI) industry has struggled to keep pace. In many cases, policies that were designed in the early 1990s are still being sold today. Though prices are significantly higher, benefit structures are largely unchanged.
LTCI products simply do not account for advancements in longevity, health care technology, or the changing nature of retirement planning. Similarly, the replacement of defined benefit pension plans with 401(k) accounts is not yet fully reflected in the design of most LTCI product offerings today. To a large degree, this is why the market is demanding new types of products that reflect today’s realities.
Of course, the lack of evolution in product design is not the only challenge LTCI insurers have faced recently. Lower-than-expected lapse rates and investment returns, as well as unintended coverage expansions, have placed real pressure on profits. Other factors that have limited growth and put insurers on the defensive include large premium increases, increased litigation and regulatory reluctance to approve rate increases.
Some industry veterans look at these issues and conclude that LTCI is a product line fraught with peril that is too difficult to model and requires excessively high capital. But, taking an alternative view, other stakeholders see significant opportunities to seize rising market demand for LTCI insurance. The key is for insurers to rethink and redesign LTCI policies so that they reflect today’s financial and demographic realities while meeting naturally higher demands for the product. Though more consumers want and need such products, carriers must find ways to reduce their risk exposure.
This article highlights five steps insurers can – and should – take to deliver such win-win outcomes in addressing the top issues and opportunities in LTCI.
1. Recognize the growth opportunity in demographic.
There are clear reasons why LTCI should be a growth engine for insurers. Rising health care costs – including those associated with assisted living and custodial care – are of great concern to the huge wave of retiring baby boomers. This population may look to LTCI policies as a vehicle to help protect against rising health care costs, which are a particular risk for older people.
See also: 5 ways to sell LTCI to boomers
As highlighted in other articles in this series, LTCI insurance has become an essential element in effective retirement planning. The design, sales and servicing of such products must reflect where LTC fits in consumers’ portfolio and overall outlook. The bottom line is that LTCI insurance is a product that nearly all retirees need. To date, however, policies have focused primarily on the higher end of the market – that is, wealthy and upper middle-class consumers who can afford the high premiums.
2. Design simpler products to attract more consumers and reduce risks.
Because long-term care insurance is fundamentally a retirement planning product, insurers can boost sales by creating simpler products that are designed specifically to protect assets against health care catastrophes. The insurers’ goal for products is to be simple and inexpensive enough to attract consumers on the broadest possible scale. Some industry observers would argue that scaled-down products with long elimination periods meet this need for catastrophic policies, though their limited adoption to date suggests that different products might result in more sales.