Filed Under:Life Insurance, Life Products

Not your Grandpa’s long-term care

LTCI ain’t what it used to be — and that’s a good thing, says Jesse Slome, executive director of the American Association for Long-Term Care Insurance.

Advertisers used to trot out claims of “new and improved!” products all the time a few decades ago. Outside of infomercials, it’s not a ploy you see much these days … perhaps for good reason. It’s hard to trust the claims of a seller who used to tout a product he now deems inferior.

So when Jesse Slome, executive director of the American Association for Long-Term Care Insurance, says today’s long-term care insurance policies are better than their predecessors, it’s easy to be skeptical. Better than those policies that, just a few years ago, you told me were great, you say?

But Slome appears to be right. The long-term care insurance industry has suffered through several years of interest rate uncertainty, seemingly unending premium increases and a mass exodus of carriers offering the product — but it has emerged with products and strategies better suited to today’s consumers and the economic environment they live in.

“Sometimes ‘new and improved’ is just a bogus, meaningless claim,” Slome says. “But [in the case of LTCI], if you look at what’s going on, it’s not just fluff.”

Trouble is, Slome points out, most agents are accustomed to selling the old LTCI, and most customers are used to buying it. In fact, many are still unaware a change has even occurred. Here, in advance of the AALTCI-sponsored 10th National LTCI Summit  being held Nov. 10-12 in Las Vegas, Slome lays out what’s happening in the LTCI market and how agents need to adapt.

Big-time change

Slome doesn’t mince words when describing the change occurring in the LTCI industry: “historic,” “radical,” “revolutionary.” He likens it to what’s happened to the automobile industry in the last decade.

For instance, remember the Hummer? That vehicular behemoth that got a handful of miles per gallon? It used to be a fairly common vehicle — at least, until gas prices rose to, and stayed at, about $4 a gallon. And until the economy cratered, leaving a lot of Hummer — and other — drivers with no means to pay for that pricey gas. And until green became the new cool, and we all started checking our carbon footprints, buying local and carrying around reusable grocery bags.

These days, thanks to that perfect storm of economic and cultural changes, drivers have four different Prius models to choose from, while the Hummer line has been shuttered. And Slome says it’s an apt analogy for the LTCI marketplace today.

In the last several years, interest rates have sunk to historic lows, damaging the investment returns insurers depend on to pay long-term care claims and still make a profit. In response, many carriers have exited the LTCI market altogether. Those who’ve opted to stay have raised premiums dramatically, making LTCI unaffordable for many people, especially those with retirement plans and salaries bruised during the recession.

Even if a client can afford a policy, there’s no guarantee he’ll get it. With fewer players in the market, LTCI carriers have their pick of customers, and, unsurprisingly, they’re going for non-risky applicants in top-notch health.

But like car salesmen clinging to their Hummer dealerships, many agents are still peddling those expensive, traditional LTCI policies, hoping clients’ fears about paying for escalating long-term care costs will override their LTCI price concerns.

“Insurance agents are like car dealers,” Slome says. “They have all kinds of models that they’re trying to sell, and they need to understand what buyers want. There is a radical, radical change that’s taken place in the economy that has affected everything, and it’s also radically changed LTCI. But most insurance agents don’t understand what the changes are, and they’re also surprisingly resistant to change until it’s forced on them.”

Agents need to shed that reluctance, says Slome. After all, this isn’t the first time the LTCI marketplace has changed. For example, long-term care insurance used to be sold as “nursing home insurance” — branding that wouldn’t fly in today’s age-in-place society. The challenges facing LTCI right now aren’t insurmountable, Slome says, but they will require adaptation.

“LTCI is not a unique product; it’s just a product, just like everything else,” Slome says. “In any product’s evolution, there are always historic milestones when radical change takes place. The insurers are implementing changes that are required. It’s already a different market, and it’s going to be an even different market.”

LTCI sales, today

In today’s LTCI marketplace, an agent can no longer sell a policy to a client and call it good. “The days of one and done, when you’d buy LTCI, put it in your filing cabinet and never change anything — that’s done,” Slome says.

LTCI shopping now requires a layered approach — and a much earlier one as well. Because carriers have become choosy about the applicants they’ll insure, it’s essential for clients to buy LTCI early, even if it’s just a small amount, in order to health qualify. The average LTCI buyer has typically been in his or her 60s. Going forward, first-time buyers will need to purchase in their early to mid-50s, Slome says.

Because those buyers are younger, they’ll be less able to commit to a large LTCI plan that likely won’t be needed for a few decades. “In the new economy, where things can change so dramatically, you can’t tell a 50 year old to make a 30-year decision,” Slome says.

And that’s probably a good thing, because even if clients could commit to a covers-everything policy, they likely couldn’t afford it these days. Most consumers say they’re willing to spend about $80 to $100 a month for LTCI, Slome says. That amount, given LTCI premium increases and lingering low interest rates, can’t buy as much as it used to. But it can buy something, Slome points out, and that’s always better than nothing.

“The old ‘all’ approach was you take the potential highest cost of care and multiply it times the potential longest period of risk and that’s how much coverage you need,” Slome says. “Today, consumers have to share in some of the cost and some of the risk.”

That means, instead of buying a plan that offers a $150 daily benefit, a 5-year benefit period and 5 percent compound inflation growth, a consumer might have to settle for a plan with a $150 daily benefit, a 3-year benefit period and no inflation growth. If he can afford it, maybe he’ll pay a little more for a future purchase option, to ensure he can buy more protection when he’s older. If he still has money left over, he could opt to add the 3 percent compound growth option.

The shift to more modest policies means more affordable premiums — a single, 55 year old in good health will pay around $1,000 a year for the smallest policy in the preceding example versus more than $3,000 a year for the Cadillac plan. But it also means, of course, less coverage. When those long-term care bills come due, seniors will have to chip in more of their own cash.

Is it a raw deal for the client? Slome doesn’t think so. Most insurance products work that way, he points out, allowing clients who don’t want hefty premiums to assume more risk. “People understand and are willing to make a decision to save money,” he says. “It’s not like you’re asking them to do something dramatically different.”

Business won’t boom

Agents would be mistaken, however, to assume that new-and-improved LTCI will attract droves of new customers to the market, Slome says.

“For years, the world has told agents the LTCI marketplace is going to explode, and agents look and go, ‘Well, it hasn’t exploded, so this market has failed,’” he says. “But no. This market has been — and always will be — a very defined market. Post-recession, it’s going to be even more defined.”

AALTCI will continue to educate consumers about long-term care insurance through media outreach, and America’s aging population will increasingly look for solutions to long-term care costs. But LTCI is still a luxury many Americans can’t afford, Slome says.

“We are still in the great recession. There are millions of people unemployed and underemployed, and this is a discretionary purchase,” he says.

That doesn’t mean, however, that LTCI agents can’t be successful. According to Slome, 337,000 LTCI policies, individual or group, were purchased last year, accounting for roughly $300 million in first-year premium. Even better, many consumers, well aware of the challenges their elderly friends or parents have faced, don’t need much of a push to be sold on the product.

“The need for LTCI is already embedded in the public’s mind,” Slome says. “They get it. What they don’t get is how to address the problem.”

Agents have the solution those consumers are searching for, Slome says. They just have to be willing to embrace the new and improved LTCI.

“New and improved policies that take a ‘something’ approach rather than an ‘all-or-nothing’ approach are very sufficient and, often, much, much cheaper,” he says. “At the end of the day, ‘new and improved’ is not just puffery. I just truly believe that when we repackage, rebrand it and bring it out to the marketplace as a new concept, people will say, ‘This makes sense. This is the product I want.’”

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