In a single word, the market for asset-based long term care (ABLTC) protection is booming. All factors considered the growth outlook continues to be promising for financial professionals and carriers alike, and most important for the policyholders who seek the peace of mind provided by the guarantees and benefits that ABLTC provides.
In fact, 2017 marked the third consecutive year of double-digit growth for ABLTC products. In contrast, sales of stand-alone LTCI declined 22.8 percent from 2016 to 2017, following the 12.6 percent decline in 2016 (from 2015). ABLTC sales are now more than 10 times the premium volume of stand-alone LTCI.
In its recent report on sales of combination products, LIMRA reported more than $4.1 billion in premium, and more than 260,000 policies sold, in 2017.1 This includes policies with chronic illness and acceleration-only riders, as well as long term care extension products, which offer a more robust and fulsome long term care benefit solution. All told, these products now represent 80 percent of the overall market for individual long term care solutions.
When we look more narrowly at ABLTC products offering extension of benefits for long term care expenses, the data show those to be the fastest-growing segment. The number of long term care extension policies sold in 2017 grew 24 percent compared with 2016, while long term care acceleration policies sold grew two percent in that period, and chronic illness acceleration policies declined three percent. The latter two types are primarily life insurance sales and accordingly more closely follow life sales trends.
For the fast-growing ABLTC—or long term care extension—market, the top three carriers accounted for 68.8 percent of the market share in 2017, down slightly from 71.2 percent in 2016. Those three carriers —Lincoln Financial, OneAmerica® and Pacific Life—have remained unchanged, as have other carriers in the top 10 in terms of market share.
In addition to accelerating the policy death benefit, long term care extension products extend benefits for long term care expenses if the death benefit is exhausted. And, if a policyholder doesn’t exhaust the death benefit for long term care expenses, the remaining portion will still pass to heirs. Another common feature of these products is that they offer guaranteed premiums, benefits and cash surrender values. In an era of rate hikes on stand-alone LTCI policies, these products are becoming attractive to a growing number of people as they become aware of their options and the significant need for long term care planning as part of their overall financial plan.
More options, more carriers
The market is continuing to increasingly embrace recurring premium ABLTC protection, one of the more recent innovations since ABLTC products were first introduced several decades ago. Recurring premium options allow greater flexibility for long term care planning in the context of individuals’ overall financial plans, allowing them to choose say 10-year, 20-year, or even up to lifetime premium payment options.
Single-premium options, including annuity-based long term care protection, continue to remain attractive for many. As people re-evaluate their financial plans near retirement, repositioning an asset to provide long term care protection is often an opportunity and a common sales theme in this market. Other times, people have a lump sum—like an inheritance or buyout— and find a single-premium ABLTC product a good option to provide long term care protection if it’s needed or a way to leave a legacy to the next generation through the remaining death benefit if long term care benefits aren’t exhausted.
By the numbers, recurring premium policies are ever more popular and fueling the growth. Last year, recurring premium ABLTC policies accounted for 89 percent of all ABLTC policies sold according to LIMRA. The average premium for these policies was $6,397, and the average face amount was $319,776. At one time recurring premium options couldn’t compete on price with stand-alone LTCI insurance, but as rates have risen for stand-alone LTCI the value offered by the recurring premium options has become more attractive—especially given the guaranteed rates and additional benefits that stand-alone long term care insurance can’t provide.
As we’d expect, given the growth opportunity, more carriers are evaluating and entering the ABLTC market although the pace has been measured. These products offer growth potential, but they also offer some inherent complexity from both business and actuarial management perspectives. Given the challenges and headlines in the stand-alone LTCI market in recent years, it is important to “measure twice and cut once.” To me, this means taking the time to learn from challenges in the stand-alone LTCI market and ensure we have a full understanding of the risk profile so our products will stand the test of time.
Independent agents lead the way
In 2017, independent agents sold more than 60 percent of all ABLTC policies and reported 28 percent growth in premium on those policies, even though the number of policies sold remained flat from 2016 according to LIMRA. Across the market, we’re seeing a growing awareness among financial professionals of how ABLTC can help protect a client’s income throughout retirement by helping with long term care expenses.
Affiliated agents and broker/dealers also showed strong growth in both policies sold and premiums from 2016 to 2017, showing that, across distribution channels, financial professionals and their clients see the value in ABLTC protection. The only channel that posted declines in both ABLTC premium and policies was banking and savings institutions, which likely had more to do with structural changes and uncertainty around the DOL Fiduciary Rule than ABLTC products, and we would expect to see a rebound in that channel as DOL concerns are resolved.
Bright outlook continues
ABLTC’s emphasis on guarantees is likely to resonate even stronger if uncertainty in today’s broader economic climate continues to emerge, and their value will be magnified in the event of an economic downturn. The guarantees also provide a strong backdrop for advisors, regardless of what best-interest standard might emerge. Quite simply, these products do what they are designed to do: Provide peace of mind year after year.
Demographic trends also favor this market. The 50-and-over demographic is growing. By 2020, more than 118.7 million people will be 50+, up from an estimated 108.7 million in 2014.2 As the number of people grows who are either retired or preparing for retirement, the market for solid financial guidance grows as well.
That doesn’t mean ABLTC is only for those nearing retirement however. There’s growing evidence that younger people find ABLTC an attractive alternative to “use-it-or-lose-it” stand-alone LTCI protection. This generation is also seeing their older relatives cope with long term care expenses in retirement, and are increasingly building long term care protection into their financial plans. LIMRA reports that about half of in-force ABLTC policies—48 percent by number of policies and 56 percent by face amount—are held by people under 50, although those numbers include acceleration-only policies so aren’t necessarily indicative of broad long term care awareness.
And finally, a reminder of one of the chief advantages of ABLTC protection: Although growth in the market is fairly recent, the products themselves are time-tested. Throughout economic downturns, healthcare upheaval, and disruption in the stand-alone LTCI market, ABLTC products have a decades-long history of delivering on their promises when customers need them most!
FSA, FCIA, MAAA, is senior vice president of Individual Life and Financial Services for the companies of OneAmerica®. He formerly worked as senior vice president of Product and Business Development, overseeing insurance operations and product development for life, annuity and asset-based long term care, as well as broker-dealer operations. In addition, he provides leadership and vision for the current and future product portfolio and identifying opportunities for expansion. Martin joined the companies of OneAmerica® in 2009. Earlier in his career, he gained actuarial and marketing experience at Great-West Life in Canada and spent eight years with the Western & Southern Financial Group and Columbus Life building out their product development capabilities. In addition to his actuarial and product knowledge, Dennis has significant experience working directly with sales and distribution across multiple distribution channels. Martin is a graduate, with honors, of the University of Manitoba, with a Bachelor of Science degree in Statistics and Actuarial Science. He is a Fellow in the Society of Actuaries (FSA) and Canadian Institute of Actuaries (FCIA), and a Member of the American Academy of Actuaries (MAAA). Martin may be reached at OneAmerica, One American Square, P.O. Box 368, Indianapolis, IN 46205-0368. Telephone: 317-285-2672. Email: [email protected]