2011 Overview Of Multi-Life Long Term Care Insurance

    In 2010, Milliman began collecting demographic information about buyers in the multi-life (ML) market as well as policy configuration. This market consists of sales made with discounts and/or underwriting concessions to groups of people based on common employment or affinity relationships.

    Multi-life sales are generally made to employers with fewer than 500 employees (worksite sales) or to groups of people who share something in common (such as membership in an association) other than a common employer (affinity sales). They do not offer guaranteed issue. Multi-life sales can use either group policies with certificates or individual policies (individual policies and group certificates are collectively referred to as “policies” herein).

    The July 2011 issue of Broker World magazine reported on the overall individual long term care insurance (LTCI) market. Its policy exhibit displayed products available in the ML market, some of which are sold only in the ML market.

    This article compares the ML sales to the total sales (other than single premium) reported in the July 2011 survey. There is also a comparison of multi-life policy distribution to both individual LTCI policies that are not multi-life (NML) and the total individual market. The survey excludes large group cases (those likely to offer guaranteed issue) and combo (linked) products that pay life insurance, annuity or disability income benefits in addition to LTCI.

    The multi-life market has been a growing portion of LTCI sales. Many LTCI professionals look to the ML market—particularly the worksite market—as an opportunity to resume industry growth. There is a significant opportunity, but it is important to remember that new markets can grow at fast percentages because prior-year sales are low. It may be difficult for the worksite market to sustain the growth rate some people expect, because of (1) the economy; (2) young workers who have higher priorities for their take-home pay than buying LTCI; and (3) today’s higher LTCI prices, which dampen penetration rates.

    The government intends to spend $93 million to promote the Community Living Assistance Services and Support (CLASS) Act, a government-run LTCI program intended to be unfurled in 2013 and implemented through the worksite. Almost everyone agrees that CLASS will increase private LTCI sales in the short run; however, long-range prognostications vary from a permanent boost of private LTCI sales to total elimination of the industry.

    Some people believe the private LTCI industry will gravitate to selling policies which supplement CLASS, but there are many significant hurdles which would have to be overcome. Because CLASS would be available to employees only, it would have a greater initial impact on the ML market than the NML market.

    About the Survey
    Twelve insurers contributed data to this analysis of the multi-life market. Three of the other six insurers that congributed data to the 2011 Individual LTCI Survey do not serve this market, and the other three have very low ML sales.

    In the individual LTCI survey published in 2010, 14 of 20 participants reported ML sales. The number of ML carriers decreased from 14 to 12 because one ML carrier discontinued its LTCI business and because another carrier that reported 4 ML policies sold in 2009 reported no such policies in 2010. Depending on your definition of multi-life, our data may under-report sales. For example, if an insurer has a five-life requirement to grant a discount or underwriting concession and two business partners and their spouses buy coverage, the case will typically not be recognized as a ML case. Fraternal business (i.e., business sold by an organization created to serve people with a common religion, occupation or ethnicity) is not included as multi-life. Ironically, if that same group were served by a typical insurance company which granted members a discount, it would be recorded as ML business.

    Key Findings
    • In 2010, the 12 carriers sold 60,239 multi-life policies (a 20.5 percent increase over 2009) for $117,438,518 of new annualized premium (18.7 percent increase).
    The same carriers sold 50,005 ML policies for $98,945,942 of new annualized premium in 2009. These premium figures include exercise of future purchase options and upgrades on existing policies.

    • These 12 carriers’ multi-life LTCI sales accounted for 27.5 percent of new policies issued in 2010 by all 18 companies that contributed to the overall survey, up from 26.3 percent for the same 18 participants in 2009. However, the percentage of new annualized premium that was ML was almost unchanged, 24.2 percent in 2010 versus 24.3 percent in 2009.

    • Ignoring insurers that did not report multi-life sales, the 12 companies reported that 31 percent of their total sales were ML. Three insurers reported more than half of their policies being sold with ML discounts (72.4 percent, 60.1 percent and 53.2 percent respectively). Eight carriers ranged from 19.6 to 44.1 percent, with only one carrier reporting less than 19.6 percent of sales in the ML market.

    • The average premium for multi-life business dropped from $1,979 in 2009 to $1,950 in 2010. The 2010 ML average size premium was 83 percent of the average size premium for NML sales ($2,341).

    • Total reported in-force multi-life business consisted of 382,342 policies and $727,281,848 of annualized premium—11.5 percent of total in-force policies and 12.0 percent of total in-force premium. So the percentage of ML sales the past two years has been twice the current in-force percentage of ML, an indication of a growing market.

    • Most of the multi-life sales were reported to be affinity policies (73.7 percent) and affinity premium (77.8 percent), as opposed to worksite. However, some insurers report worksite cases as affinity cases if they don’t involve underwriting concessions.

    Statistical Analysis
    Insurers’ multi-life markets can differ tremendously.
    • One insurer might focus on executive carve-out sales and have issue ages weighted to those 40-65 years of age with a high percentage of large maximum monthly benefits, lifetime benefit period, short elimination periods, robust benefit increase options, a lot of limited pay sales, many couples both buying, and preferred health discounts.

    • Another might focus on voluntary programs in the worksite, perhaps with employers buying small coverage for every employee. Such a company might have a low issue age, low percentage of large maximum monthly benefits, few lifetime benefit periods, almost entirely 90-day elimination periods, weak benefit increase options, many single people, and few preferred health discounts.

    • A third might be dominated by an association of older-age individuals. Such a company would have a high issue age distribution, few lifetime benefit periods, many single people, and few preferred health discounts.

    Issue Age. Table 1 shows that multi-life sales are more weighted toward ages below age 55 than are other sales. The reverse is true for ages 55 and over. The overall average age of purchase in 2010 was 57.9, but it was 55.7 in the ML market and 58.8 in the NML market.

    The ML market includes segments with various characteristics: The worksite market has a young age distribution (35.5 percent of ML sales are below age 55 and that percentage would be higher for worksite business). The AARP market is entirely above age 50. The balance is other affinity business which may have a distribution similar to NML business (11.7 percent below age 50).

    Rating Classification. The multi-life market had a lower percentage of cases issued in the most favorable rating classification (41.4 percent) than did the NML market (49.5 percent). But that is primarily because the ML market includes simplified underwriting cases for which the most favorable classification is not available (see Table 2).

    The simplified underwriting business also causes the ML percentage of second-best classification to be higher than for the NML market.

    Looking at only the ML cases that involve full underwriting, the percentage assigned the most favorable rating increases to 48.4 percent.

    Benefit Period. Table 3 demonstrates that shorter benefit periods are more common in the multi-life market. Five-year benefit periods are about as common in each market, while longer benefit periods are more common in the NML market.

    For the five-year and 10-plus (but less than lifetime) benefit periods, the total market percentage is not within the bounds of the ML and NML markets. That is because the total column includes sales from carriers that do not sell multi-life.

    Only 8 percent of ML sales have a lifetime benefit period, whereas 15.2 percent of NML sales have a lifetime benefit period. That is partly because programs with simplified underwriting (fewer health questions) do not permit lifetime benefit period (although lifetime benefit period is available with additional underwriting sometimes) and because some small carve-out programs are not being picked up as ML.

    Among limited benefit period ML policies sold to couples, 43.5 percent include shared care, whereas only 40 percent of such policies in the NML market include shared care. The companies that don’t participate in the ML market also happen to be companies that sell less shared care in the NML market. The ML market is very different from the true group market in this respect because few true group programs offer shared care.

    Maximum Daily Benefit. More than half of the multi-life sales (50.3 percent) have an initial maximum benefit lower than $150/day, whereas only 42.4 percent of NML policies start with a maximum benefit lower than $150/day (see Table 4).

    Benefit Increase Features and Partnership Qualification Rates. Table 5 shows a lower percentage of multi-life policies are sold without a benefit increase feature than is the case for NML policies. Multi-life policies were twice as likely as NML policies to have a CPI increase feature.

    This is another striking difference compared to the group market, which sells a lot of future purchase options.

    The benefit increase requirement to qualify under the state partnership programs varies by age. Generally a level premium, permanent annual 3 percent or higher compound increase or an otherwise similar CPI increase is required for issue ages 60 or less. For issue ages 61 to 75, 5 percent simple increases also qualify and for issue ages 76 or older, policies qualify without regard to the benefit increase feature.

    Table 6 identifies the percentage of policies that would have qualified for the partnership program if it had existed with those rules in all states. However, if partnerships were available in all states (with the rules cited in the previous paragraph), the percentage of partnership policies would exceed the percentages shown in Table 6, because the distribution of sales would change in those states that don’t currently have partnership programs.

    The multi-life market is weighted more toward partnerships despite having a lower percentage of sales in the age 76-plus age range and despite having some core programs (where the employer pays for a small amount of coverage for all employees) that are not partnership-eligible.

    Elimination Period. Multi-Life sales are more clustered to 90-day elimination periods. There is less customization of this feature in the ML market than in the NML market (see Table 7).

    Sales to Couples and Gender Distribu­tion. The multi-life market had a lower percentage of female buyers in 2010 than the NML market, which might be explained by a different age distribution (many buyers above age 65 are single women). The overall market had a higher percentage of female sales than either the ML market or the NML market for the 12 insurers that contributed ML data. That’s because the carriers that did not contribute ML data had a high percentage of female purchasers, at least partly due to an older age distribution (see Table 8).

    The multi-life market also has fewer sales to couples who both buy and to single people, but has more sales to one-of-a-couple.

    Type of Home Care Coverage. Table 9 shows that multi-life had a similar distribution to NML sales for home care coverage except that nearly four times as high a percentage of ML policies (4.1 percent) as NML policies (1.1 percent) had a cash/disability design. A company that sells a lot of disability benefits had a larger share of the ML market than it did of the NML market.

    Limited Pay. Ten-year pay and paid-up at age 65 are more prevalent in multi-life sales situations than in the NML market, yet account for only 3 percent of the ML market. As noted earlier, some executive carve-out cases have not been coded as “ML.”

    We thank insurance company staff for submitting the data and responding to questions promptly. We also thank Nicole Gaspar of Milliman for managing the data expertly.

    Data has been reviewed for reasonableness; nonetheless, we cannot assure that all data is accurate. If you have suggestions for improving this survey, please contact one of the authors.

    Claude Thau is the national brokerage director for USA-BGA, which helps financial advisors nationwide serve their clients’ long term care, life insurance, annuity and disability planning needs. He also markets unique software that, among other exclusive features, provides fiduciary justification for advisors’ long term care projection assumptions and consults with entities interested in the long term care insurance industry.

    Thau is well-known to Broker World readers from authoring the annual LTCI surveys since 2005. His career highlights include being a former inner-city school teacher and actuary, running a national carrier’s LTCI division, consulting for the Federal government when it developed its LTCI program and being named by Senior Market Advisor as one of 10 honorees on its Long Term Care Insurance Power List in 2007.

    Milliman, Inc.

    FSA, MAAA, is a principal and consulting actuary in the Chicago office of Milliman, Inc. She can be reached at Milliman, Inc., 71 South Wacker Drive, 31st Floor, Chicago, IL 60606. Telephone: 312-499-5578. Email: dawn.helwig@milliman.com.

    Allen Schmitz, FSA, MAAA, is a principal and consulting actuary in the Milwaukee office of Milliman, Inc.

    He can be reached at 15800 Bluemound Road, Suite 400, Brookfield, WI 53005. Telephone: 262-796-3477. Email: allen.schmitz@milliman.com.