Demographic shifts during the last few decades have changed the nature of long-term care insurance (LTCI) market demands. An aging population and the decline of defined benefits plans and traditional sources of retirement income have led to greater recognition of the need for “self-reliance.”
More consumers now feel an acute need to take action to protect their own financial assets as they head into their retirement years. New medical treatments and drugs mean that retirement time horizons today often extend for several decades, significantly longer than in the past. The result of this extended longevity is that more people will live to ages where the likelihood of suffering a serious health care event is high, much higher than their risk of being disabled during their working years.
Today’s LTCI product designs don’t reflect longevity needs, advancements in health care technology or current trends in retirement planning. Many companies continue to market products quite similar to those they sold 20 years ago. Yes, prices are significantly higher, but benefit and funding mechanisms are largely the same.
Despite the increasing demand for LTCI coverage, products have not kept pace with the evolving needs of everyday consumers, younger buyers in particular. Thus, insurers have yet to take full advantage of a significant growth opportunity.
So how can carriers reverse the situation? Here are four steps proactive insurers can undertake to revitalize the LTC planning marketplace.
1. Understand lessons from the past.
First and foremost, LTC insurers must reflect on their past if they are to shape a better market in the future. Specifically, insurers must understand past missteps and how they have shaped today’s market. Most important, they need to think about how to create value for their future customers, while minimizing the possibility of repeating history.
Key learnings could come from:
The haphazard addition of benefits in order to increase marketability without considering long-term costs
The assumption that underwriting adjustments would provide wider morbidity savings
The neglect of day-two initiatives, such as claims operations, that lead to claim leakage and poor process performance
The precedent of front-loaded, heaped commissions
The precedent of fixed, and level, premium payments
We believe individual insurers should not shy away from challenging the status quo and should avoid treading too carefully as they seek new innovations in funding mechanisms and product design. After all, LTC insurers did get many things right, such as the promotion of home health care models and linking benefits to the Consumer Price Index.
The bottom line is that insurers can — and should — apply the valuable lessons from recent history as they design offerings for an evolving market.
2. Apply simplicity, affordability and value considerations in the product design process.
To foster growth, LTCI policies should be simple enough for a wide cross-section of consumers to understand the value of the products being offered. Legacy products have traditionally scared away consumers due to their high cost and their “use it or lose it” nature.
In truth, LTCI is not like any other insurance product. It lacks familiar features, such as deductibles, and instead consumers must select from a range of unfamiliar options, including benefit levels, benefit periods, elimination periods and inflation rates, when they purchase their policies. Simpler designs can make it easier for applicants to navigate this complexity, and thus reduce the risk that they will fall out of the sales funnel when faced with too many questions.
So-called catastrophic LTCI products are one way to clarify the value proposition to consumers. Large, early benefits that protect against accidents and claims and that preserve 401(k) balances would help consumers get past the lingering concern that their premiums may never yield any benefits.