2012 Analysis Of Worksite LTC Insurance

    Long term care surveys have been published in Broker World magazine annually since 1999. This is the sixth year (since 2006) that this worksite-specific analysis has been published.

    The worksite market consists of sales made with discounts and/or underwriting concessions to groups of people based on common employment. These sales are generally made through employers with fewer than 500 employees. They are distinguished from “true group” sales in that they do not offer guaranteed issue.

    The analysis herein does not include group cases and combo products. (Also called linked benefits, combo products pay meaningful life insurance, annuity or disability income benefits in addition to LTCI.) However, worksite sales can use either group policies with certificates or individual policies; and individual policies and group certificates are collectively referred to as policies herein.

    The July 2012 issue of Broker World magazine reported on the overall LTCI market. Its policy exhibit displayed products available in the worksite market, some of which are sold only in the worksite market.

    This article compares worksite sales reported in the survey to total sales (other than single premium sales) reported in the survey and compares detailed distributions of worksite policies to both individual LTCI policies that are not worksite policies and to the total individual market. References are solely to the U.S. market and exclude the election of future purchase options unless specifically indicated.

    The data may under-report worksite sales because, as noted below under “Market Share,” some worksite sales may not be identified as such in an insurer’s administrative system.

    Many LTCI professionals look to the worksite market as an opportunity to resume industry growth. There is a significant opportunity, and sales should increase. There will be a short term artificial boost because a major competitor which sold “true group” LTCI in the small employer market has discontinued selling LTCI. The shift in such business from “true group” to worksite is likely to create an unsustainable near-term growth rate. Furthermore, it is appropriate to be cautious in projecting growth in worksite LTCI sales because young workers have higher priorities for their take-home pay than buying LTCI, and today’s higher LTCI prices dampen penetration rates.

    About the Survey

    Eight of the 12 insurers whose products are displayed in the 2012 LTCI Survey provide discounts and/or underwriting concessions for worksite  LTCI and all contributed data to this article. The other four insurers might make incidental worksite sales but do not identify worksite as a market. In addition to the displayed companies, LifeSecure, Prudential and Northwestern reported worksite sales, and Northwestern also contributed worksite sales distributions.

    Of the insurers which sold worksite business in 2011, only Berkshire (no longer selling LTCI), MetLife (stopped selling in 2010 but issued a few residual policies in 2011) and New York Life did not report their worksite sales to this analysis. We estimate the insurers that reported worksite sales and, thus, were included in this survey, represent 80 percent of the 2011 worksite market in terms of new annualized premium. Those that contributed to the sales distributions below represent two-thirds of the 2011 worksite market.

    Key Findings

     • In 2011, these carriers sold 16,000 worksite policies for nearly $30 million of new annualized premium (more than a 50 percent increase over their production the previous year). Part of the increase is due to a shift from MetLife (which sold a lot of worksite business in 2010) to this year’s participants.

     • These carriers’ worksite LTCI sales accounted for 6.0 percent of the new annualized premium sold in 2011. If we were able to include worksite sales from Berkshire, MetLife and NYLIC, worksite annualized new premium would be approximately 7.2 percent of the total industry production.

     • The 7.2 percent of total industry production translates to approximately 8.5 percent of new insured lives that resulted from the worksite market in 2011.

     • The average premium for worksite business rose 5 percent to $1,731 in 2011 and was 74 percent of the average premium for non-worksite sales.

     • Eighteen percent of the in-force annualized worksite premium and lives resulted from new sales. By comparison, for the non-worksite market, only 8 percent of in-force premium and 6.4 percent of in-force lives resulted from 2011 sales.

     • Market share varies significantly in the worksite market compared to the total market.

     • Issue age and maximum daily benefit are considerably lower in the worksite market and more than one-third of the policies do not have a benefit increase feature.

     • Only about 40 percent of the worksite policies meet qualifications for the State Partnerships for Long-Term Care program. Since the worksite market provides an avenue to reach people who are most likely to benefit from partnership programs, the industry would do well to find ways to increase the percentage of policies that qualify.

     • The worksite market is more successful in insuring both members of a couple as well as single people.

     • Preferred health discounts are less common in the worksite market because of simplified underwriting.

     • Limited pay policies are much more common in the worksite market.

    Statistical Analysis

    Insurers’ worksite markets can differ tremendously:

    One insurer might focus on executive carve-out sales and have issue ages weighted to ages 40-65, large maximum monthly benefits and a high percentage of lifetime benefit periods, short elimination periods, robust benefit increase options, limited pay sales, couples both buying, and preferred health discounts.

    Another insurer might focus on voluntary programs in the worksite, perhaps with employers buying a small amount of coverage for every employee. Such a company might have a low issue age distribution, low 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.

    Consequently, sales distributions can vary from year to year partly due to a change in participating insurers.

    Market Share. Market share information in the worksite market is less reliable than in the total individual market. There are several reasons why some worksite sales might not be identified. For example:

     • An insurer might sell LTCI to two business partners and their spouses without a discount or underwriting concession. Because such a business did not qualify for a discount or underwriting concession, it would not likely be classified as worksite.

     • At least one insurer classified worksite business as “affinity” business if it qualified for a discount, but not for underwriting concessions.

    For the above reasons, the relative market shares in Table 1 may not be accurate, but it is clear that the worksite market is distributed differently than the individual market. Note: Mutual of Omaha and United of Omaha sales are combined below because they are related insurers.

    Issue Age. Table 2 shows that nearly the same percentage of worksite sales and non-worksite sales occur in the 50-59 age range. However, the worksite market has more than three times as many sales below age 50 and the non-worksite market has more than twice as many sales at ages 60 and above.

    The overall average age of purchase in 2011 was 51 in the worksite market, compared to 58.6 in the non-worksite market.

    Rating Classification. As shown in Table 3, the worksite market had a much lower percentage of cases issued in the most favorable rating classification (28.3 percent) than did the non-worksite market (44.9 percent), despite having a much younger age distribution as noted above. That is because the worksite market includes simplified underwriting cases for which the most favorable classification is not available. The less frequent granting of preferred health discounts helps to permit the simplified underwriting.

    Surprisingly, 10.4 percent of the worksite cases were assigned a very highly rated underwriting class. Although 94 percent of those cases came from a single insurer and may have been related to an unusual case.

    Benefit Period. Table 4 demonstrates that three-year and four-year benefit periods comprise 51.9 percent of the worksite market, but only 43.2 percent of the individual market. Simplified underwriting limits contribute to that effect.

    Surprisingly, benefit periods less than three years constitute a bigger percentage of the non-worksite market than the worksite market. That’s likely because the non-worksite market includes some carriers specializing in sales to elderly people.

    The worksite market had a smaller percentage of policies with a lifetime benefit period than the non-worksite market (9.8 percent versus 12.9 percent)—even though a lifetime benefit period appears to be most common in the executive carve-out market.

    The executive carve-out lifetime benefit period sales were diluted by simplified underwriting sales, which do not permit lifetime benefit period. Furthermore, some lifetime benefit period sales to business owners probably were not classified as worksite sales because the group was not large enough to qualify for a discount.

    Of the worksite couples who both bought limited benefit periods, only 20.4 percent purchased shared care, compared to 37.3 percent in the non-worksite market. In the “true group” market, fewer couples both bought, and shared care is less common among those couples who did both buy.

    Maximum Daily Benefit. Table 5 illustrates that the biggest difference in maximum daily benefit between the worksite and non-worksite market is that 19.1 percent of worksite sales were below $100 a day (and below the similar $3,000 a month size). The large percentage of small daily maximums is probably attributable to core/buy-up programs and perhaps some small policies being purchased to reach minimum penetration requirements to justify simplified underwriting.

    Benefit Increase Features. The striking difference shown in Table 6 is that 33.4 percent of worksite policies had no increase option and another 5.9 percent had only a deferred option to add a benefit increase feature later. In the non-worksite market, the corresponding percentages were 7.6 percent and 1.7 percent. Thus, these designs were four times more frequent in the worksite market. Unfortunately, the younger age policyholders with worksite LTCI are likely to find that their policies will cover only a small percentage of their eventual long term care costs.

    Only 9.3 percent of worksite policies had a future purchase option (FPO), which guarantees the right—under some circumstances—to purchase additional coverage periodically without having to provide evidence of insurability. FPO is much more common in the true group market.

    Partnership Qualification Rates. 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 Consumer Price Index increase is required for issue ages 60 or less. For issue ages 61-75, 5 percent simple increases also qualify and for issue ages 76 or older, policies qualify without regard to the benefit increase feature.

    Table 7 identifies the percentage of policies which would have qualified for partnership programs if they had existed with those rules in all states. However, if partnerships were available in all states (with the rules cited in this paragraph), the percentage of partnership policies would exceed the percentages shown in Table 7 because the distribution of sales would change in those states that don’t currently have partnership programs.

    The worksite market provides an opportunity for the industry to serve less-affluent consumers efficiently—those who would most benefit from partnership qualification. However, only about 41 percent of the policies sold in the worksite market meet partnership qualifications.

    Elimination Period. Worksite sales are more clustered to 90-day elimination

    periods (see Table 8). There is less cus-tomization of this feature in the worksite market than in the non-worksite market.

    Sales to Couples and Gender Distribu­tion. Table 9 shows that worksite market sales are more evenly split between the genders (48.2 percent female and 51.2 percent male compared to 57.0 percent/43.0 percent in the individual market). The worksite market is more weighted to males even though a lot more sales are made to single people (29.6 percent) than in the non-worksite market (21.7 percent), running counter to the general expectation that single females are most likely to buy.

    The high percentage of male buyers may be partly attributable to employer-paid coverage. No one will refuse employer-paid coverage, and the employers might be paying for more male than female employees. Furthermore, the younger age distribution probably contributes to the gender shift. At older issue ages, there are fewer insurable men than insurable women.

    Many people might anticipate that the worksite market would be less efficient in covering spouses (and significant others). Certainly the “true group” market is less efficient in that regard. However, only 27.3 percent of the worksite couples chose to buy for only one spouse, while 30.4 percent of non-worksite couples bought for only one spouse.

    Of the seven companies that contributed to the couples’ analysis, five were more successful covering spouses in the worksite market, demonstrating that the phenomenon was not caused by any one carrier having peculiar results.

    The greater propensity to buy for both spouses may be caused by:

     1. For younger ages, there are fewer uninsurable spouses.

     2. Simplified underwriting for employees results in fewer uninsurable spouses.

     3. For a younger age distribution, the other spouse is less likely to already have coverage.

     4. In some cases, employers are paying for the spouse.

    However, the younger age distribution would lead to an expectation of more one-of-a-couple sales—especially to the degree that there are core/buy-up programs.

    Type of Home Care Coverage. Table 10 shows that 98.4 percent of worksite sales had the same home care benefit as facility benefit, compared to only 91.4 percent of the non-worksite market. Stated in reverse, 8.6 percent of non-worksite policies had different daily or monthly maximums for home care than for facility care, whereas only 1.6 percent of worksite policies had that characteristic. That’s because in the non-worksite market, 3.0 percent of the policies were home care only, 1.2 percent were facility only, and 1.3 percent had a home care benefit larger than the facility benefit. No reported worksite policies had such characteristics.

    The worksite market has more than four times as high a percentage of indemnity sales as the non-worksite market and 21 times as high a percentage of disability or cash sales. One insurer contributed all the indemnity sales (and no longer offers indemnity) and one insurer contributed all the cash/disability sales and had a much larger market share in worksite than in non-worksite. A second carrier also sold indemnity coverage in the worksite market in 2011, but that carrier is no longer selling LTCI and did not contribute to the worksite survey.

    Limited Pay. As illustrated in Table 11, 6.3 percent of worksite sales were limited pay policies (guaranteed that premiums would stop within 20 years or by age 65), whereas only 2.2 percent of non-worksite market policies had such characteristics. Executive carve-out programs contributed to the greater percentage of limited pay policies in the worksite market.

    Closing

    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.

    We reviewed data 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.