How will carriers, advisors and consumers react to all of the new realities in long-term care insurance (LTCi)?
Now that the transitions of 2013 are behind us and 2014 is here, one point is clear: Each group needs the best possible information about the new market landscape.
What about people who have nursing home-only plans? They may need to consider enhancing their LTC protection plan or set aside money to pay home-care claims. For many, it may be time for an in-force policy review from an advisor.
And then there are the rate increases. Rate increases are affecting current policyholders and making big news. Many believe that getting a rate increase will lead to policyholders dropping coverage. Is that true? What actually happens when a policyholder gets a large rate increase? To the surprise of many, according to a U.S. Government Accountability Office study of federal employees who received increases on their private LTC plans, almost half (46 percent) didn’t change plan benefits and paid the additional premium. Other policyholders decided to reduce inflation coverage or benefits. Only 1.6 percent lapsed coverage. After older policyholders look at new LTC premiums, most conclude they made a wise choice buying LTC when they did, even with the rate increases.
In retrospect, carrier offerings of unlimited benefits periods and 5 percent compound inflation riders seemed too good to be true. Combined with easy underwriting, 10-pay policies and low premiums, it’s not surprising that many consumers flocked to the products — perhaps pushing new sales to artificially high levels in the ’90s and 2000s. Like unsustainable defined benefit pension plans, however, the party is over. The reckoning happened in the form of in-force premium increases. New products need to be designed to last.
It’s not a secret that the problems carriers are having with LTC insurance are due to earlier actuarial assumptions that didn’t happen. The misses on interest rate and lapse rate assumptions mean that a primary job of the LTC carrier has temporarily shifted from growing new business sales to shoring up existing books. Of course, in order to break even on existing blocks of LTC business it’s necessary that carriers get rate increases approved on those in-force blocks. So far, states have been granting these increases. Why are states approving the increases? It’s because the regulators want an active and healthy long-term care insurance business. States understand that more people planning for LTC and buying LTC insurance can help alleviate Medicaid LTC spending.
Financial professionals understand that health care planning in retirement, including LTC insurance, is a critical part of their client’s needs. However, because LTC planning is not a typical area of expertise, advisors need to have expert resources available. Those resources can take many forms, including the following:
- Carrier wholesalers - Many insurers offer feet on the street resources for advisors, especially those offering combination life/LTC products. These carrier wholesalers can provide a suitable solution for many clients, especially in situations where a carrier may have an attractive product at the time. On the other hand, today’s attractive product might be tomorrow’s market laggard. In addition, advisors looking for a more unbiased opinion on LTC planning or seeking a fiduciary standard may want to look at a multicarrier resource.
- LTC specialist - Another option is to partner with someone who specializes in LTC planning. There are a couple of ways to do this. In one model, the independent LTC specialist will then split compensation with the referring advisor and handle the client directly. Another evolving option is for advisors who do not have the required health insurance licenses or required LTC CE. In this model the advisor refers the client to an organization that can handle the complete LTC sale, sometimes even over the phone. The advisor will then receive a referral fee. The downside to using a specialist is lack of control and the possibility of a sales approach that may be at odds with the client experience the advisor is aiming for.
- Brokerage general agency - Brokerage general agencies (BGAs) tend to take two approaches to working with advisors. The traditional approach is to provide product and sales training resources to the advisor and have the advisor explain the concepts to the client. For many BGAs who don’t specialize in the LTC product line and don’t have large resources, this is the only feasible approach. Another approach that some larger specialty BGAs are using is called a “virtual-point of sale” which combines some of the aspects of carrier wholesalers with a LTC specialist approach. In this model, an employed BGA specialist works with the advisor and client to work through options over the phone and internet. The advisor is still nudging the sale along, but now they don’t have to have in-depth product, underwriting or application knowledge. Instead, they can rely on the expert to find the best product fit.
Which product to recommend? Advisors have to decide to recommend a traditional LTC product, a linked life/LTC plan or life insurance with LTC riders. They will need somebody to help guide them through the product differences and options.