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Hybrid Policies Add to the LCTi Market Challenge

This month’s observance of Long-Term Care Insurance Awareness Month finds the industry aware that their product is facing yet another challenge.

The LTCi market already has taken a beating from low interest rates combined with a high wave of potential claims and the increasing cost of care. Now the introduction of hybrid or combo products could give traditional LTCi products some competition.

These hybrid or combo products combine life insurance or annuity products with a long-term care or critical illness rider. This gives policy holders flexibility at a more affordable rate.

“I think the traditional long-term care product will continue to give up market share to the combo policies,” said Aaron Skloff, chief executive officer of Skloff Financial Group in Berkeley Heights, N.J. “I believe the combination life and LTCi policies is a very good solution for people who need the assurance that if they don’t need the long-term care coverage, then their heirs will get the death benefit.”

That helps agents and advisors with one of the key objections they hear from prospects.

 “Consumers don’t like the idea of paying for something they may not use and they may not have a pile of cash to put into a traditional long-term care policy,” said Mark Goldberg, national sales manager with LTC Financial Partners.

Multi-purpose is the word of the day with many insurance products.

“I think they (hybrid products) are where the industry is heading,” said Mike Baker, director of brokerage and affinity markets, Target Insurance Services of Pennsylvania, Lemoyne, Pa. Target is a managing general agency focusing solely on LTCi.

Individual LTCi Sales Trends

“I think we will see more growth in products that serve multiple solutions. The idea of having products that pay out whether you live, die or quit is better than having one product that’s ‘use it or lose it.’ ”

Another trend that has appeared is the use of traditional life insurance products to fund long-term care. In 2013, eight states (California, Florida, Kentucky, Louisiana, Maine, New Jersey, New York and Texas) introduced Medicaid Life Settlement legislation as a way to encourage more use of private pay dollars for long-term care through the conversion of a life insurance policy into a long-term care benefit plan.

Among these states, Texas is the first state in the nation to enact this legislation into law. The law grants authority to the Medicaid department to inform and educate citizens that they already have the legal right to convert life insurance policies into a Medicaid qualified long-term care benefit plan and can choose any form of long-term care they want instead of abandoning a policy to go straight onto Medicaid.

“Seniors have been abandoning their life policies because they can’t afford the premiums and they’re looking at the Medicaid spend-down,” said Chris Orestis, chief executive officer of Life Care Funding. “We are seeing the trend of converting policies – selling them on the secondary market – to pay for care. It’s a great way to keep more people off Medicaid and remain private pay.” He added that the proceeds of this policy conversion are “locked” in a fund that can be used only for long-term care.

The U.S. Department of Health and Human Services estimates that at least 70 percent of those over the age of 65 will require some long-term care services at some point in their lives. And every day for the next 16 years, another 10,000 baby boomers will celebrate their 65th birthday. This all adds up to a “silver tsunami” of Americans with a need for care and the funds to pay for it.

So, what is on the horizon for LTCi?

LTCi sales have been creeping upward since reaching a low point in 2009, according to LIMRA figures. Meanwhile, the number of people who will need care in the future is about to explode with the graying of the baby boom generation. Still, experts in the field are optimistic as they describe LTCi as a ship making a course correction.

A number of developments have hit the LTCi marketplace in the last few years, with companies such as Prudential exiting the marketplace, companies such as Transamerica and Thrivent re-entering it and others announcing premium hikes and gender-based pricing. Some carriers are refusing to issue new policies to those over the age of 80, and women can expect to pay more in premiums than men, due to the reality that women are likely to outlive men. Underwriting also has become more stringent, with carriers seeking to be more selective in terms of accepting applicants.

In August, Genworth, the nation’s largest LTCi carrier, announced it would seek $200-300 million in rate increases on all policies sold between 1974 and 2001, and on one policy sold between 2001 and 2007. Company officials said the firm also was seeking state approval of changes that would allow Genworth to sell policies that would offer lower daily benefits and shorter benefit periods, with more stringent underwriting standards.

“I think the industry overall is still getting comfortable with the amount of risk out there and the amount of pricing on that risk,” Roger Schultz, Genworth vice president of long-term care product development, said in an interview with InsuranceNewsNet. As for the headlines surrounding gender-based pricing, Schultz pointed out that most of those who apply for long-term care insurance are couples. As such, they are eligible for discounts on premiums as opposed to single individuals. He said that about 10 percent of Genworth’s LTCi policy applicants are single women.

The risk plus interest rate equals price equation continues to dog the industry. It can take as long as 30 years from the time an LTCi policy is sold until the time an initial claim is made, and during that 30 years, there’s no guarantee of where interest rates on investment of the premium can go while the cost of care continues to climb. The low interest rate environment has led to apprehension and uncertainty about LTCi products, said Bradley Buechler, senior vice president of product performance at Mutual of Omaha.

“Adding to the challenges, premiums have essentially doubled from 10 years ago, benefits have been limited and underwriting has become more stringent,” he said. “At the same time, supply has been constrained, consumer demand for LTCi has increased with demographic tailwinds and the lack of a satisfactory government funding solution. The combined impact of these two forces has been that sales have hovered around a half a billion dollars for the past few years, which is half of what they were 10 years ago.”

John Hennessey, general manager of American Independent Marketing in Yakima, Wash., described the LTCi industry as “right-sizing and making the necessary adjustments for survival” after being hammered by a decade of low interest rates. “I wish more companies were coming in to the market instead of going out,” he added. “If interest rates would move in the right direction, LTCi would be more attractive to carriers.”

One advisor who sees something good coming out of the changes in the market is Mickey Batsell, a 29-year LTCi veteran from Georgetown, Texas. “A number of carriers saw (LTCi) as a market opportunity instead of being in it for the long haul,” he said. “What we’re seeing today is that premiums are now priced more in line with what services actually cost. Carriers now have some experience under their belt so that now they know where the market is going as far as price. It’s a good thing because the better the pricing, the more stable the product.”

But no matter which direction rates are headed, and no matter how many new products enter the marketplace, one issue remains the motivating factor on whether consumers buy LTCi.

“Having a personal experience with a family member needing care is the single most important event driving sales of long-term care products,” Goldberg said.


Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Follow her on Twitter @INNsusan. Contact her at [email protected].

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