July 2010 LTCI survey
This 2010 Individual Long Term Care Insurance Survey is the twelfth consecutive annual review of individual long term care insurance (LTCI) published by BROKER WORLD magazine. This year’s survey was conducted by Milliman, Inc.
The survey’s objectives are to provide a consolidated comparison of available products, report data regarding sales and analyze the changing LTCI marketplace.
Highlights From This Year’s Survey
• LTCI annual premium for individual policy sales decreased in 2009. Twenty participating carriers sold 196,370 policies for $428,506,015 of new paid annualized stand-alone LTCI in 2009—20 percent fewer policies and 21 percent less annualized premium than the same 20 carriers sold in 2008. These sales figures do not include sales from future purchase options or upgrades on existing policies.
• The industry sold 21 single premium policies for a total of $432,766, most of which was sold by carriers participating in this survey. Single premium sales more than doubled compared to 2008.
• We estimate that the entire LTCI industry sold 225,000 annual premium individual policies for $480 million of annualized premium, down 24 percent from 2008. Carriers participating in this survey represent 90 percent of 2009 sales. Approximately 7 percent of 2009 sales were made by companies which have discontinued selling LTCI. The balance was sold by insurers that still sell LTCI but chose not to participate in this survey.
• Survey participants covered 3,303,339 lives on in-force individual policies, up 1.7 percent. In-force annualized premium increased to a greater degree (4.2 percent) because of (1) older policies with lower premiums terminating, (2) future purchase options and other increases in coverage being added, and (3) premium increases on new and in-force business.
• Fifteen participants reported having paid over $2.3 billion ($2,310,659,767) in 2009 and over $15 billion ($15,040,407,735) since they’ve been in the LTCI business. Clearly the LTCI industry has made a big difference for many families.
• Claims distributions for 2009 were as follows: nursing homes—44.4 percent; assisted living facilities—14.1 percent; and home care and adult day care—41.5 percent. The dollar amount of 2009 claims was distributed as follows: nursing homes—45.5 percent; assisted living facilities—24.9 percent; and home care and adult day care—29.6 percent. Of course, industry-wide, the percentage of nursing home claims is significantly higher because carriers that are out of the business have a higher percentage of older facility-only coverages than our participants.
• The original four partnership states (CA, CT, IN and NY), which produced 100 percent of partnership sales as recently as 2006, produced only 26 percent of partnership policies in 2009. However, the four original states produced 31 percent of partnership premium, presumably because the cost of facility care tends to be higher in those states. For more partnership data, see the “Market Perspective” section on page 38.
About the Survey
The survey displays information on 35 products from 19 carriers. American General is new to the industry and survey in 2010. On the other hand, Allianz, Equitable L&C, and Minnesota Life, which contributed to the 2009 survey, have discontinued sales, hence did not participate this year. Other companies which discontinued sales in 2009 include the Great American family (Great American, Loyal American, and United Teachers Associates) and UnitedHealth Care. UNUM, a long term contributor to these surveys, discontinued individual LTCI sales in 2009, but continues to be a major player in the group LTCI market. Northwestern’s product is not displayed, but it has contributed to the industry statistical analysis herein.
Only three carriers (American General, Bankers Life and Casualty, and State Farm) are displaying new products this year; however, several carriers modified their programs (most commonly, the design of their multi-life programs), while continuing to sell the same policy forms.
This article is arranged in the following sections:
• Market Perspective provides insights into the individual LTCI market.
• Statistical Analysis presents industry-level sales characteristics.
• Product Details provides a row-by-row definition and analysis of the product exhibit.
• Premium Exhibit Details explains the basis for the product-specific premium rate exhibit.
Unless otherwise noted, the data does not include group LTCI, combination products or sales outside the United States.
Market Perspective
• With the exception of 2007, sales of individual LTCI have been in a slump for several years. LTCI is viewed as an expensive buying decision, one that can be delayed amid economic instability and uncertainty regarding the country’s health care financing.
• The economic crisis has encouraged a greater amount of saving and a greater awareness of the need for protection against future economic uncertainty. As the economy rebounds and people become more confident of being able to commit to an ongoing LTCI premium, a rebound in LTCI sales could occur.
• Health care reform legislation in 2010 included the CLASS Act, which establishes a government-run LTCI program beginning in 2013. Many younger prospects might be inclined to “wait and see” what happens in 2013. Other people may view such a program as the first step of increasing government commitment. They may justify ignoring their potential LTC needs on the theory that, by the time they need care, the government will provide their care for free or on a subsidized basis.
• As of January 1, 2010, the participants sold partnership products in an average of 18 states (up from 11 states a year ago). The range increased from zero to 20 last year to zero to 28 states as of January 1, 2010.
• Sixty-three percent of the policies in the new partnership states were partnership policies, whereas only 41 percent of the policies in the original partnership states were partnership policies. Some participants reported 100 percent partnership sales in some jurisdictions. The partnership percentage in the new states will increase for at least one reason—in portions of 2009, these policies were not yet available in some of the new participating states. (In states in which the new partnerships were effective prior to July 2008, 67 percent of the 2009 policies sold were partnership, whereas in the states where the partnership became effective between July 2008 and June 2009, only 59 percent of the sales were partnership policies.) In the new states, the average premium was 25 percent higher than the average non-partnership premium, whereas this differential was only 4 percent in the original states. The differences mentioned in this paragraph are attributable to the fact that many policies with level premium compound benefit increases do not count as partnership policies in the original participating states.
• Despite the advent of the new state partnerships, the 2009 data shows some signs of benefit increase provisions shifting toward fixed future purchase options and the no increase option. More information about this aspect of LTCI is described in the “Statistical Analysis” section.
• Multi-life sales (individual policies sold through employers or other groups) accounted for 25.7 percent of new policies sold in 2009—more than twice the 2007 percentage. The average premium for association business is $2,053 and for employer business is $1,813, compared to an average premium of $2,182 for all sales included in this survey.
• Business tax incentives should become even more attractive as most people expect income tax and payroll tax rates to increase. However, individual tax incentives will reduce with the threshold for deductibility of medical and dental expenses increasing to 10 percent in 2013 (later for seniors).
• The Pension Protection Act of 2006 ushered in some potentially key changes as of January 1, 2010. The expansion of 1035 exchanges should spur the sales of single premium life/LTCI combinations, annuity/LTCI combinations and single premium stand-alone LTCI. It may also spur the funding of inforce and new LTCI policies with payouts from existing or new immediate and deferred annuities.
Statistical Analysis
In reviewing the statistical trends revealed below, it is important to recognize that characteristics of sales vary significantly from one insurer to another. Hence, variations in results from one year to the next may reflect a change in which insurers participate in the survey as well as an underlying change in the industry’s sales patterns.
• Market Share
This trend toward market share consolidation among the largest carriers stalled somewhat in 2009 (perhaps temporarily). The top two carriers’ market share (in terms of premium) increased from 46 to 47 percent, but the top three carriers produced 55 percent of first-year premium, compared to 57 percent in 2008. The top 10 carriers (shown in Table 1) constituted 84 percent of the market individual LTCI.
Table 1 lists participants that sold more than $10 million of new paid annualized individual premium in 2009. John Hancock passed Genworth in 2009, and Northwestern passed MetLife for third position. Mutual of Omaha and Berkshire also moved up.
• Characteristics of Policies Sold
Average Premium and Persistency. Ignoring single premium sales, the average premium per new policy dropped 1.3 percent from $2,210 in 2008 to $2,182 in 2009, reversing a long term trend of increasing average premium. The range narrowed, the lowest average premium/policy for a participant being $1,074, while the highest was $3,843. The average premium per new purchasing unit (i.e., one person or a couple) also decreased from $3,174 to $3,078.
The year-end in-force premium represents 97 percent of the sum of participants’ prior year in-force premium plus their 2009 sales. The same calculation for number of lives insured was 95.7 percent. Our calculation understates persistency of the previous year’s in force because we presume that no 2009 sales terminated by year end. The average in-force policy premium for participants increased from $1,803 to $1,840. These premium figures reflect premium increases on in-force policies and the exercise of future purchase options.
Issue Age. Average issue age increased back to the 2006-2007 range, indicating that last year’s number apparently was an aberration (see Table 2). Approximately 75 percent of the insurers who participated both last year and this year reported an older age distribution in 2009, with an overall age increase of 0.7 years among those carriers. The increase in issue age is particularly noteworthy given the increase in multi-life sales.
As shown in Table 3, the percentage of sales at ages under 35 and from 60 through 69 were greater than in either 2007 or 2008.
For in-force policies, the average issue age was 60.7, down 0.1 from 2008.
Benefit Period. Despite the data in Table 4, lifetime benefit period (BP) continued to be less common. The increase in lifetime BP from 12.4 to 15.2 percent of sales is attributable to a change in carriers contributing to the survey. For companies that participated in both the 2009 and 2010 surveys, lifetime BP sales dropped from 11.5 percent of sales to 10.4 percent of sales.
Similarly, the change in carriers muted the increase in short BPs. Among carriers that contributed in both years, the percentage of policies issued with a three-year or shorter BP increased from 38.2 to 41.1 percent.
The average BP of fixed-benefit period policies dropped slightly to 4.2 years.
Most policies issued with a shared care feature cause the average BP to understate the amount of protection that has been issued. If two four-year BP policies are shared, each is counted as a “four-year” BP policy. While the combined benefit period is limited to eight years, either insured could use more than four years, so the value of the coverage is understated.
When a couple purchases four-year BP policies and a third pool with an additional BP of four years, they are also counted as “four-year” policies, but either person has access to as much as eight years of benefit, and the total maximum is 12 years. However, there is an overstatement in protection when an eight-year joint shared policy is sold; each insured is counted as having an eight-year benefit period, but together they have only eight years.
Three participating insurers offer BPs of less than two years, other than as may be required in original partnership states. At the other extreme, 74 percent of the displayed products offer a lifetime BP. In 2004, 97.5 percent of the displayed policies offered a lifetime BP.
Nonetheless, seven carriers reported that lifetime benefit period sales were more frequent than any other benefit period.
Maximum Daily Benefit. As shown in Table 5, the percentage of sales with $200 or more maximum daily benefit continues to increase. Next year, we’ll subdivide the “$200 and above” sales. The apparent increase in sales between $50 and $99 is attributable to a change in the participating insurers this year. The average maximum daily benefit continues to be about $150 a day.
Benefit Increase Features. Despite the increasing availability of partnership policies, sales in 2009 showed some weakening in the quality of inflation protection, but to a much lesser degree than Table 6 suggests. Despite the economy, increasing prices (particularly for benefit increase features) and new products promoting less robust benefit increases, the distribution of sales remained surprisingly weighted to robust benefit increase features in 2007 and 2008.
In 2009, sales from carriers that participated in both the 2009 and 2010 surveys shifted toward “fixed future purchase options” and “no increase option” (combined, those categories increased from 18.2 percent to 20.1 percent of sales) and away from lifetime level premium increases (5 percent compound, 5 percent simple and CPI sales, which, on a combined basis, dropped from 75 percent to 72 percent of sales).
This year’s “other” category consists of deferred benefit increase features sold by three carriers. These features allow purchasers to add a level premium compound benefit increase within five years of issue as long as they have not been on claim. To the degree that clients do not exercise those options, these policies essentially belong in the “no increase” category. On the other hand, to the degree that clients exercise those options, the policies will approach level premium permanent fixed increase policies in terms of performance.
A shift in statistical contributors this year caused a large increase in FPOs and a decrease in sales of step-rated products (premiums increase when benefits increase in the future, but much less steeply than with attained age pricing).
Elimination Period. The average facility elimination period (EP) for new policies dropped from 84 days in 2008 to 82.3 days in 2009, due to a change in distribution of carriers, which caused the large increase in policies issued with a 31-89 day EP shown in Table 7. The percent of policies that were issued with a zero-day home care EP coupled with longer facility EP dropped from 25 to 19.2 percent, partly due to a change in carriers participating this year.
Sales to Couples and Gender Distribution. Fifty-seven percent of buyers were couples both buying in 2009 compared to 60.7 percent in 2008. Another 17.6 percent were reported as a one-of-a-couple purchase, compared to 16.5 percent in 2008. The remaining 25 percent (22.8 percent in 2008) were reported to be single.
One important point is that most companies that do not offer one-of-a-couple discounts cannot separate such sales from sales to single people. Carriers that offer one-of-a-couple discounts reported that 56.6 percent (versus 58.1 percent in 2008) of buyers were part of a couple both of whom bought, while 18.7 percent (21.0 percent in 2008) were one-of-a-couple sales and 24.7 percent (20.8 percent in 2008) were single people. Those couples where only one buys probably gravitate toward insurers with a one-of-a-couple discount. The one-of-a-couple discount may help salvage cases in which one spouse is declined.
Overall, our analysis suggests that 58 percent of buyers are women. The percentage ranged from 54 to 61 percent by carrier.
Shared Care and Other Couples Features. Nine companies each reported more than 100 couples buying shared care. Four carriers sold shared care to more than 50 percent of the couples who both bought limited benefit period policies (eligible couples). Overall, 42.4 percent of eligible couples purchased shared care; 46.2 percent when shared care was offered by the insurer.
Some products include joint waiver of premium (premium waived for both insureds if either qualifies). Others offer survivorship features that waive premiums for a survivor after the first death if specified policy conditions are met.
In 2009, 26.8 percent of the policies sold to couples-both-buying included joint waiver of premium and 21.2 percent included survivorship. Joint waiver of premium was a little less popular than in 2008, but survivorship dropped off sharply, probably because of a change in distribution of sales among insurers.
Existence and Type of Home Care Coverage. Although 10 participants reported 2009 sales of facility only policies (compared to 13 last year), these policies accounted for only 1.1 percent of total policies sold.
Only four participants reported home care only policies, which accounted for 5.4 percent of sales. Ninety percent of the comprehensive policies sold had a home care benefit at least equal to the facility benefit. Most of the other comprehensive policies had a 50 percent home care benefit.
Overall, only 1.8 percent of the sales were non-tax-qualified (NTQ). Six contributors sold NTQ policies in 2009, two of which increased the portion of their sales which were NTQ. One carrier sold more than 75 percent of its policies on an NTQ basis and two others sold close to 10 percent as NTQ. Participants reported that 4.6 percent of the in-force policies are NTQ.
Thirty-six percent (up from 31 percent in 2008) of the policies with home care benefits use a daily reimbursement home care benefit and 58 percent (down from 62 percent) use a weekly or monthly home care reimbursement benefit, reversing a trend away from daily reimbursement. Three and one-half percent (compared to 4.4 percent in 2008) use an indemnity home care benefit and 2.1 percent (down from 3 percent) use a cash home care benefit.
Limited Pay. In 2009, 10-year-pay accounted for 2.1 percent of the policies, continuing the decreased popularity of 10-year-pay. Pay-to-age-65 accounted for 0.33 percent, half-pay-after-65 accounted for 0.05 percent, 20-year-pay accounted for 0.02 percent, single pay accounted for 0.01 percent, and another 0.06 percent represented other unique premium patterns. The other 97.4 percent of the policies use lifetime premium payment. The proportion of premium that comes from limited pay policies is much larger than the proportion of policies.
Distributors. Carriers reported that 38.4 percent of the new policies in 2009 were sold by brokers (down from 42.3 percent in 2008), 47.2 percent were sold by captive agents (up from 40.4 percent), 13.4 percent were sold through their broker/dealer channels (down from 16.2 percent), 0.5 percent were sold on a direct response basis (down from 0.8 percent), and 0.4 percent were sold through banks and credit unions (up from 0.3 percent). By comparison, 69.2 percent of the in-force policies were sold by captive agents. Much of the differences from last year are attributable to a different group of participants this year.
Caution: Carriers are not necessarily able to classify distribution in the fashion a reader might expect. If a financial planner sells a policy through a brokerage general agent, such a policy is likely coded as a sale by a broker.
• Underwriting Data
Case Disposition. In reviewing this section, please note:
• Many applicants apply to multiple carriers, but they end up buying coverage from one insurer. The placed percentage quoted below reflects the quoting insurers’ perspective; the percentage of applicants who are offered coverage is significantly more favorable.
• If a carrier accepts 70 percent of applicants without modification, but issues joint policies, it likely would issue only 49 percent of its couples’ applications without modification since either applicant might not be acceptable in the applied-for class.
In 2009, 64.7 percent of applications were issued and placed, a dip from 66.9 percent last year. The declination rate rose from 18.3 to 19.9 percent. Another 15.3 percent of applications (compared to 14.8 percent) were either withdrawn during the underwriting process, not taken at delivery, or surrendered within the 30-day free look period.
Of the issued cases, 3.9 percent were reported as modified, rather than being issued as applied-for. However, several companies were unable to identify such cases; hence this figure is understated.
The 17 participants that reported decline percentages ranged from 13.8 to 33.9 percent declined, with seven carriers between 15 and 20 percent, and 5 between 20 and 25 percent.
The participants placed between 39.4 and 75.7 percent of their applications. Four carriers placed between 55 and 60 percent and eight placed between 65 and 70 percent.
Underwriting Time. As shown in Table 8, the reported time from receipt of application to mailing of a policy increased significantly, even though more carriers reported faster processing in 2009 than reported slower processing. Nearly two-thirds of the insurers reported an average processing time of 23 to 30 days.
Underwriting Tools. Table 9 shows the percentage of companies which used each underwriting tool and the reported percentage of applications that were underwritten using that tool. Changes in contributing carriers produced changes in underwriting tool usage compared to last year.
Rating Classification. The percentage of issued cases assigned to each rating classification is shown in Table 10. The increase in cases in the best underwriting class (increasing from 40.0 percent in 2008 to 44.4 percent in 2009) is almost entirely due to change in the carriers that contributed to the statistical survey. The percentage of substandard issues increased compared to 2008 but is still lower than in previous years.
Rating class distributions vary greatly among carriers. The percentage rated in the best rating classification varies from 8 to 100 percent. On the other hand, the percentage rated in the third best rating classification or lower varies from 0 to 66 percent. More than two-thirds of the insurers place between 26 and 55 percent of applicants in their most favorable rating classification. All but one carrier placed at least 75 percent of applicants in its top two rating classifications.
Product Details
This section describes and summarizes, row-by-row, the information displayed in the exhibit. Because many features cannot be fully described in limited space, please seek more information from insurers, as appropriate. The abbreviations in the exhibit are shown in Table 11.
• Company Name (rows 1 and 56) lists the participating carriers in alphabetical order at the top of each page. Each company may display as many as three products.
• Policy Type (row 2) distinguishes between comprehensive, home care only and facility only products. However, some products are listed as comprehensive, yet are available as facility only and/or home care only as well. Between row 2 and the “comment” rows (55 and 105), we identify nine carriers that offer facility only coverage and three carriers that offer home care only.
We identify a product as “Indemnity” or “Disability” if it is always sold that way for all levels of care. We have no indemnity products and one disability product this year. Some reimbursement products provide some indemnity or disability benefits or options which are indicated in rows 38-41.
Where appropriate, we have inserted indicators such as “Disability,” “Facility Only” to indicate why a particular row might not apply to that product.
• Product Marketing Name (rows 3 and 57) is the product’s common brand name.
• Policy Form Number (row 4) is generic; it may vary by state.
• Year First LTCI Policy Offered (row 5) is the year the insurer first offered individual LTCI coverage. If group LTCI was sold earlier, that group date is also shown.
• Year Current LTCI Policy Was Priced (row 6) is the year the current product was most recently priced. This row is new in 2010.
• Jurisdictions LTCI Available (row 7) generally shows the jurisdictions in which the insurer sells, or intends to sell, LTCI. A displayed product may not be available in all of these states.
• State Partnerships (row 8) identifies the number of state partnerships in which the insurer participated as of January 1, 2010 and specifically identifies any of the original four partnerships (CA, CT, IN and NY) in which the insurer participates.
• Financial Ratings & Ranking (rows 9-14) lists each company’s ratings from the four major rating agencies (A.M. Best, Standard & Poor’s, Moody’s, and Fitch) and its COMDEX ranking as of May 1, 2009.
The COMDEX ranking is from VitalSigns, a publication of EbixLife, Inc. EbixLife converts each company’s A.M. Best, Standard & Poor’s, Moody’s, and Fitch ratings into a percentile ranking. For insurers rated by at least two of these rating agencies, EbixLife produces a COMDEX ranking by averaging that insurer’s percentile rankings.
The COMDEX ranking has two key advantages: It combines the evaluations of several rating agencies and its percentile ranking makes it easier to understand how a company compares to its peers.
• Financials (rows 15-18) reflect the insurer’s statutory assets and surplus (in millions) for year-end 2009, and the percentage changes from year-end 2008. These figures do not include assets and surplus of related companies, nor do they reflect assets under management.
• LTCI Premiums (rows 19-22) lists the annualized premiums (in millions) of policies sold in 2009 and, separately, of policies in-force on December 31, 2009 and the percentage changes from the previous year. If single premium sales are included in the annualized premium, the amount of single premium is disclosed parenthetically.
• LTCI Lives Insured (rows 23-26) counts joint LTCI policies twice, because two lives are covered in such policies. The number of lives covered by new policies and by year-end in-force policies, as well as the year-to-year percentage changes, is shown.
• Policy Ranges and EP Terms (rows 27-34) shows the product’s issue age, daily benefit, benefit period (BP) and elimination period (EP) ranges. It also explains how the EP works.
Issue Age Range. Only two participants issue LTCI to people older than age 85.
Daily, Weekly or Monthly Benefit Range shows the minimum and maximum policy size that will be issued. The range is shown on a weekly or monthly basis only if home care, ALF care and facility care are always sold on a weekly or monthly basis. Most policies showing a daily benefit range offer an option to determine the benefit on a monthly basis, and some issue a daily benefit for one level of care and a monthly benefit for another level of care. The cost of monthly determination of benefits can be reflected in an additional premium and also a reduction in the annual maximum benefit from 365 x the daily benefit to 360 x the daily benefit.
Benefit Period. Most products still offer a lifetime benefit period, but three participants do not offer lifetime benefit periods. Three participants offer LTCI policies with BPs as short as one year. The partnerships may eventually make one-year BP more common.
Elimination Period. A cumulative EP means that someone could satisfy the EP in stages. For example, if they have a 180 day EP and need qualified care for 100 days and then recover, their remaining EP would be 80 days. A vanishing EP means that once the EP is satisfied, it never has to be satisfied again. One carrier offers products with non-vanishing EPs and another offers a non-cumulative EP.
Calendar Day EP is becoming more common. Nine insurers have products that include a calendar day EP automatically. Calendar day EP costs more than service day EP, but it has the following advantages:
• Clarity. Unfortunately, even if clients understand service day EP today, they may forget by the time they go on claim. A calendar day EP may reduce the potential for disputes.
• Flexibility. It is hard to predict finances, family status and preferences at the time of a future claim. Calendar-day EP allows the family to satisfy the EP with family care or perhaps informal care that would not satisfy a service day EP.
• Policy Benefits (rows 35-47). Row 36 shows whether home care and adult day care have a different benefit pool (and EP) from facility care. The first number represents the number of benefit pools; the second represents the number of EPs. A product can have two different benefit periods but a single pool. That is, a shorter home care BP could deplete part of a longer facility BP.
Row 37 shows how home and community based care (HCBC) benefits are determined. For policies that limit benefits to incurred expenses (reimbursement policies), monthly determination of benefit payments allows more benefit flexibility than does daily determination. With monthly determination, if less than any daily maximum is used one day, the unused amount for that day can fund additional reimbursement for a day in that month on which more than the daily maximum is spent. One policy has neither a daily nor a monthly maximum, but rather a lifetime maximum with a 20 percent co-pay.
An indemnity provision pays the full daily benefit on days when a qualified service is incurred, even if that full benefit exceeds the qualified expense. On days when there is no qualified expense, no benefit is paid. However, the term “indemnity” has been used in a variety of ways in the LTCI industry.
A disability provision (often called a cash benefit) pays the full benefit if the person satisfies the policy triggers, even if no qualified expense is incurred.
Row 38 indicates whether the facility benefit is an indemnity benefit and, separately, whether the home care benefit is indemnity-based, each either automatically or optionally at additional cost.
Row 39 shows whether a product is
