“What’s the premium?”
Our firm is a brokerage general agency (BGA) for long-term care insurance (LTCI), and one of the services we offer is providing rate illustrations for insurance advisors. An advisor who may only write a couple of LTCI policies or long-term care (LTC) hybrid policies per year often contacts us because a client has asked for information about LTC planning products, including that all important question above.
The advisor will tell the client about the premium — and rightfully so — “It depends.” The advisor may explain some of the reasons why people buy LTC coverage, the cost of long-term care (using cost-of-care surveys), and how LTC products are underwritten. The advisor may discuss stand-alone LTCI, and also linked products, or life insurance products with riders.
Once we bring the case back to our office, we will compare various companies and then make a recommendation based on the information provided by the financial advisor.
We are not unlike many BGAs providing this service. For many years, it has been a method that has served both the carriers and the advisors well. However, beginning a couple of years ago, the model wasn’t working as well. Consumers were still interested in LTCI, but they weren’t buying at the same rate. In fact, the ratio of proposals to sales went down by 50 percent at our company and others. What happened?
What happened was premium price resistance. The old plans that were designed using the private cost of nursing home care, and a home-care benefit that was the same as that for nursing home care, with a three-year benefit period, and 5 percent automatic inflation coverage.
Ten years ago, this type of plan design had a premium level attractive to the buyer. Today, the same plan design presents a premium that is not attractive. And it isn’t valid to assume that, simply because your clients are wealthy enough to pay high premiums, they are willing to do so.
So what’s the answer? Our suggestion is to try something different and switch the order of the sales conversation. Instead of leading with plan design and then determining premium, state the desired premium-first and start searching for a plan design that fits the premium.
Of course, this is the approach that people use when buying a home or a car. They have a budget number in mind and then find the best fit for them based on that budget. Auto advertisements are loaded with reminders of monthly lease payments costs—often as the first item mentioned in the ad.
What about a sales strategy that doesn’t take this approach, like when a salesperson makes you wait to find out the price of a product or service?
I can think of two great examples of these—infomercials and timeshares.