July 2012
2012 Long Term Care Insurance Survey
LTC Survey
Claude Thau
Dawn Helwig
Allen Schmitz
The 2012 Long Term Care Insurance Survey is the 14th consecutive annual review of long term care insurance (LTCI) published by BROKER WORLD magazine. The survey compares products, reports sales distributions and analyzes the changing marketplace.
Unless otherwise indicated, references are solely to the U.S. stand-alone LTCI market and exclude the exercise of future purchase options or other changes to existing coverage. Stand-alone refers to LTCI policies that do not include death, annuity or disability income benefits (other than returning premiums upon death or waiving a surviving spouse’s premiums). The data includes multi-life groups, which are certificates or individual policies sold with discounts and/or underwriting concessions, but not guaranteed issue, to groups of people based on common employment or affinity relationships. Except where true group is specifically mentioned, comments and data do not include sales of certificates to groups on a guaranteed issue basis. Note: Comparisons of worksite sales characteristics to overall sales characteristics will be discussed in the August issue of BROKER WORLD magazine.
Highlights from This Year’s Survey
• Sales
• The 14 carriers that contributed statistical data to this survey sold 195,288 policies for $453,530,347 of new annualized premium in 2011 (plus $5.5 million from 123 single premium policies), 1.3 percent more policies for 7.1 percent more annualized premium in 2011 than in 2010, not counting single premium cases.
• We estimate that the entire stand-alone LTCI industry sold 231,100 policies (2.9 percent fewer than in 2010) for $537.3 million of annualized premium (1.4 percent more than in 2010).
• Genworth, Prudential and Unum collectively sold true group LTCI to 120,920 new* insureds, resulting in $64,979,000 of new annualized premium, not including exercised future purchase options or other additions to in-force certificates. Unum's discontinuation of group LTCI sales to new cases should cause 2012 average premium per certificate to be much higher than 2011 ($537 per certificate). Because of its many core/buy-up programs, Unum sold 3.6 times as many certificates as Genworth and Prudential combined, but only 20 percent more premium.
*Note: True group sales figures include transfers of cases issued by other insurers in the past. Hence the amount of sales can change markedly from year to year, and reported new sales may greatly exceed the number of new insureds for the industry.
• Market Consolidation
We are aware of only 20 insurers currently selling individual LTCI and only two insurers in the true group guarantee issue market. Among current carriers, market share is shifting tremendously.
• Claims
• Twelve participant companies reported individual (including multi-life) claims for 2011 and five reported true group claims. Total claim payments by these carriers rose to $2,653,456,000 for 2011, 13 percent over apples-to-apples 2011 figures, whereas their total in-force premium rose only 7 percent, demonstrating the “tip of the iceberg” nature of LTCI claims. Those companies have paid $18,591,242,000 in claims paid since inception, an 18 percent increase over what they had paid through 2010.
• The LTCI industry has made a much bigger difference than the above numbers indicate because a lot of claims are paid by insurers who no longer sell LTCI. According to the NAIC’s report for 2010 (the most recent report available when this was written), the industry incurred more than $6 billion in claims, boosting the industry to more than $55 billion of claims incurred since inception.
About the Survey
This article is arranged in the following sections:
• Highlights (beginning on page 42) provide a high-level view of results.
• Market Perspective (on this page) provides insights into the LTCI market.
• Claims (on page 46) presents industry level claims data.
• Sales Statistical Analysis (on page 50) presents industry level sales distributions reflecting data from 14 insurers, representing 93.1 percent of 2011 sales of carriers currently selling LTCI. In addition to the 13 participants whose products are displayed, Northwestern contributed data. Only one carrier, that sold at least $4 million in 2011 and is currently selling LTCI, did not contribute to this data. Seven other insurers (some that no longer sell LTCI) contributed to the estimate of total 2011 individual LTCI sales. We estimate that those 21 insurers produced 99.8 percent of the 2011 market. Three true group insurers (Genworth, Prudential and Unum) contributed to our estimate of true group sales in 2011.
• Multi-Life Programs (on page 58) provides information about sales sponsored by employers and affinity groups. More information about worksite sales will appear in the August issue of Broker World magazine.
• Partnership Programs (on page 58) discusses the impact of the state partnerships for LTC.
• Product Details (on page 64) provides a row-by-row definition of the product exhibit. There are 24 products displayed, including 4 products that were not displayed in 2011. Several others have changed premiums, design options and/or multi-life parameters since 2011.
• Premium Rate Details (on page 90) explains the basis for the product-specific premium rate exhibit.
Market Perspective
• When last year’s report was published, the specter of increased government competition hung over the LTCI industry. However, the government has since conceded that the CLASS Act was unworkable.
With increased pressure for fiscal solvency, we may eventually see Medicaid reform that could spur LTCI sales by encouraging more people to take personal responsibility for their prospective long term care needs. However, expectations change very slowly and it is unclear what percentage of the population is willing to prepare financially for an undesirable circumstance which may not occur and which, if it does occur, frequently occurs beyond age 80.
• The market consolidated significantly. CUNA Mutual discontinued sales late in 2010 (which we did not report last year). American Fidelity, Assurity, CNA (group), Berkshire and the Wisconsin Education Association discontinued sales in 2011. In early 2012 sales were discontinued by Prudential (individual only, continuing in group) and Unum (group only, had previously discontinued individual).
What remains is 20 insurers in the individual LTCI market and two in the guarantee issue group market. (Prudential and Berkshire combined generated $50 million of new 2011 sales. Their market share will most likely shift to other carriers).
• The top 10 insurers wrote 93.6 percent of the business in 2011, up from 88.1 percent in 2010. Genworth wrote 38 percent of the individual LTCI premium sold in 2011. Genworth, Northwestern and John Hancock wrote 61 percent of the premium. Although there have been no new entrants since last year’s report, we know three large carriers are considering entering the LTCI market.
• In addition to fewer carriers, re-pricing continues to reshape the industry. Premiums have been raised significantly since the beginning of 2011 by five of the carriers leading in sales for 2011 currently selling individual LTCI, and three of those companies have also discontinued previously offered features or have tightened provisions.
• Multi-life business produced 21.7 percent of new annualized premium (24.5 percent of policies), including Prudential and Northwestern, as well as the displayed participants. Worksite sales should increase in 2012 because cases that would have gone to Unum’s true group plan will now most likely be multi-life sales with other insurers.
In 2011, insurers seemed to specialize more in either the individual, affinity or worksite markets. Look below and in the August issue of Broker World magazine for more analysis of the multi-life market.
• The quality of underwriting has improved in both the individual and worksite markets. In the individual market, more insurers use drug scripts and the Medical Inspection Bureau (MIB) (which identifies another insurer’s adverse decision relative to an applicant), neither of which delays underwriting decisions. Insurers are also getting attending physician statements more frequently, even though that does delay underwriting.
In the worksite market, the leader in aggressive underwriting concessions dropped out of the market in 2010. Within six months, several major worksite carriers backed off aggressive concessions. In the future, underwriting results could be threatened if genetic testing and at-home cognitive screening increase and insurers are unable to access results known to applicants.
• Existing policyholders are continuing to see large rate increases. The industry was rocked this year by a 90 percent rate increase assessed on a major block of business. The good news is that the insurer wanted to reduce the risk of a series of rate increases, and sought only 23 percent on the next more recent block of business and 17 percent on the block that followed next. The recent lower increases demonstrate that the industry has substantially reduced the exposure of new purchasers to future rate increases. Indeed, a strong case can be made that insurers will see favorable deviations overall, in the future, relative to today’s pricing assumptions.
• A problem with investment income assumptions is on the horizon and requires attention. When pricing non-participating LTCI, actuaries are currently required to guarantee their investment income assumptions. If interest rates rise substantially in the future, actuaries won’t feel comfortable guaranteeing those interest rates prospectively, without perhaps expensive hedging strategies. Thus, non-participating LTCI would likely become very unattractive. Competing insurance and investment products do not guarantee the investment yield. To help people protect against long term care needs, regulatory action should be taken to permit non-participating LTCI to compete on a level playing field.
• Claims regulations are likely to continue to increase. Overall, the industry has done a good job of paying claims, as demonstrated by a 2010 study commissioned by the Federal government. Auditors concluded that insurers paid 3.3 percent more in claims than the auditors felt were justified under the terms of the contract. Naturally, some mistakes occur and some carriers have been severely criticized for claims denials. Slow processing has also been a problem at times. Unfortunately, the industry did not create methods to increase public confidence in claims adjudication, hence regulators felt obligated to mandate independent review (IR). Largely as a result of the interstate compact (which allows a one-stop filing to be approved for 36 jurisdictions), IR is required by 37 jurisdictions. However, few states have implemented the review panels that must be in place to make IR effective. IR will continue to mature in the coming years. Similarly, there will be more regulatory pressure for prompt claims handling.
• Life/LTCI and annuity/LTCI products (referred to as hybrid, combination, linked or asset-based products) continue to become a larger factor in long term care planning, accounting for more than $1.5 billion in single premium sales in 2011. These products are attractive because benefits are certain to be received; pricing has been more stable than for past stand-alone LTCI policies; and certificates of deposit have low yields. These products may supplement stand-alone LTCI. If interest rates rise sharply in the future, there may be an avalanche of 1035 tax-free exchanges to hybrid annuities.
Claims
Please note that a tremendous amount of LTCI claims are being paid by insurers that no longer sell LTCI and, hence, are not included in this survey. Their claims might differ significantly from the data reported because their policyholders might be more likely to have facility-only coverage, be older (thus less likely to still be married), have smaller policies, etc.
Twelve participants reported individual (including multi-life) claims for 2011, all of which had also contributed claims info in 2010. Five reported true group claims (only 4 had done so in 2010, so the year-to-year percentage increase removes the new participant’s data).
Table 1 shows the dollar amount of paid LTCI claims. Twelve participants paid $2,653,456,000 in claims in 2011 (13 percent more than they paid in 2010) and have paid $18,591,242,000 since inception. Group claims were 4.1 percent of the 2011 total and 3.3 percent since inception. Although group represented only 4.1 percent of survey participants’ paid claims in 2011, according to the NAIC, group claims accounted for about 10.7 percent of the industry’s total incurred claims in 2010.
Table 1 shows that the portion of claims dollars paid for home care and assisted living facilities (ALFs) is greater recently than it has been since inception. Claims will continue to shift away from nursing homes due to consumer preference for home care and ALFs; the growth of the home care and ALF industries, making such services more available; and new sales that are primarily comprehensive policies, covering home care, adult day care, ALFs and nursing homes (many older policies covered only nursing homes). Claims which could not be categorized by provider were ignored when determining the distribution by provider type.
Table 2 shows the number of LTCI claimants paid and distribution of those claims by venue. Table 3 shows the average claim paid since inception. These tables may be less reliable than Table 1 for the following reasons.
1. One insurer participant submitted number of claim payments as opposed to number of claims. We removed that insurer, as appropriate, to maintain consistency.
2. Eight participants counted a person who received payments for claims in more than one venue as two (or conceivably, three) claimants. Four participants avoided such over-counting of claimants. Their data indicated that such identification reduced the number of claimants since inception by 27 percent for individual and group claims combined (24, 26, 34 and 40 percent, respectively, for the four carriers). We have adjusted the number of reported claims to correct (approximately) for double counting.
3. Participants reported some claim payments that could not be split by venue (undifferentiated); thus such claims were ignored when determining the distribution of claimants by venue. Based on the data, the number of such claims was excluded when determining the average size individual claim but included when determining the average size group claim.
Note: There were more undifferentiated group claims than differentiated group claims, so it would have been foolish to ignore them. They also had an average size of 60 percent of the other group claims. But fewer than 20 percent of the individual claims were undifferentiated and they had an average size of only 6 percent of the other individual claims.
The dollars of claims are more weighted toward nursing homes than are the number of claims. That is because ALFs and home care typically cost less than nursing home care and because some policies (especially the older ones most likely to generate claims) have lower maximums for ALFs and home care than for nursing homes.
The average claims in Table 3 may look low for the following reasons:
1. A lot of very small claims drive down the average.
2. Older policies typically have lower maximum benefits and because these policies were sold to older people, they resulted in shorter claims. Thus, the average claim should increase over time. Issued benefit periods are now starting to decrease, but recent issues will not be significantly reflected in claims data for many years and shared care features will offset some of the impact of shorter benefit periods.
3. Any average which includes open claims understates the eventual average size. Thirty-two percent of the inception-to-date individual claims included 2011 payments as did 28 percent of the corresponding group claims. It appears that a significant percentage of the inception-to-date claims are still open.
4. Some people have claims in multiple venues. The data has been adjusted in an attempt to make the total average claim reflect the sum of the home care, ALF, plus nursing home claims by the same person. Venue-specific average claims, of course, do not consider this factor.
However, to the degree that policy maximums do not increase automatically and to the degree that people do not exercise future purchase options, claims will generally be low relative to the costs incurred by the client. It is desirable to sell policies with robust benefit increase provisions.
ALF claims have high averages in the individual market. Perhaps these claims are more recent and are from more recent policies, hence have higher costs and limits. Also, on average, ALF claims probably last longer because there were a lot of short nursing home claims. In addition, nursing home claims are less likely to be fully covered.
Statistical Analysis
The carriers whose products are displayed herein (and Northwestern) contributed to this statistical analysis. Some insurers were unable to contribute data in some areas. Sales characteristics vary significantly among insurers. Hence, year-to-year variations may reflect a change in participants or changes in market share, as well as industry trends.
• Market Share
As described earlier, market share has consolidated. Table 4 lists the top 10 carriers in terms of 2011 new premium. The top carrier had 38 percent market share, compared to 27 percent for the top carrier in 2010. The top ten carriers produced 93.6 percent, up from 88 percent. In 2012, consolidation appears to be increasing. It might not take $10 million in sales to be in the top 10 in 2012.
• Characteristics of Policies Sold
Average Premium. Ignoring single premium sales, participants’ average premium per new policy increased 5.8 percent, from $2,195 in 2010 to $2,322 in 2011. The lowest average size premium among participants was $1,219, while the highest was $3,301. The average premium per new purchasing unit (i.e., one person or a couple) was $3,416. The average in-force policy premium for participants increased 4.2 percent, from $1,854 to $1,932.
Issue Age. The average issue age (58.1 in 2011) has fluctuated between 57.7 and 58.1 since 2006. Table 5 shows that the percentage of policies sold increased in 2011 for people ages 50-64, but decreased in all other age cells. The concentration between ages 55-64 is the highest ever.
Benefit Period. Table 6 shows the continued drop in lifetime benefit period (BP) sales, to 12.7 percent. In 2004, 33.2 percent of the sales were lifetime BP. In 2010, six carriers sold more lifetime benefit period than any other benefit period. In 2011, only 3 insurers did so.
Two-year and shorter benefit periods were less common in 2011, because a major issuer of short benefit periods ceased sales. One-year benefit periods should increase in the future because of the partnership programs.
The average length of fixed-benefit period policies increased from 4.16 to 4.32 years, which undervalues the coverage sold because of the following shared care considerations:
Most shared care policies allow a claimant to dip into their spouse’s policy, after exhausting their own policy. If two four-year BP policies are shared, each is counted as a four-year BP policy in this study. While the combined benefit period is limited to eight years, either insured could use more than four years, added value that is not reflected in our 4.32 statistic.
Some shared care policies maintain independent coverage for each insured, but add a third pool that either insured could use. If the base coverage is four years, the survey classifies them as four-year policies, but either person has access to eight years of benefit, and the total maximum is 12 years.
Partly offsetting these understatements of protection, there is an overstatement 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. Such sales started to decrease in the latter part of 2011.
Maximum Daily or Monthly Benefit. As indicated in Table 7 the average maximum daily benefit continued to increase slightly, to about $156 per day. Although the table displays maximum daily benefit, 72.8 percent of 2011 policies were sold with a monthly or weekly maximum, which is superior. Because of higher prices, some buyers are beginning to select lower benefits, focusing on covering meaningful home care coverage and co-insuring some of the cost of nursing home care, should that become necessary.
More than 10 percent of the policies each year have had lower than $100 a day (or $3,000 a month) initial maximum benefits. One spouse might not really want coverage or might already have coverage, but buys a minimal policy to obtain a both-buy discount for the other spouse. Sometimes small policies are purchased as core/buy-up multi-life programs or to satisfy minimum number-of-lives requirements.
Benefit Increase Features. Benefit increases were as robust in 2011 as in 2010, which is surprising given some carriers’ slogans that “3 percent is the new 5 percent.” Applying the distribution of benefit increase features (and making some assumptions according to the consumer price index (CPI) and election rates) to project the age 80 maximum benefit for a 58-year-old purchaser, we conclude that 2011 purchasers will have 5 percent more benefit available at age 80 than 2010 purchasers, mainly due to the higher initial maximum daily benefit in 2011. That’s encouraging!
Three percent compound increases enlarged market share by 8.3 percent at the expense of CPI indexed increases, which were minus 6.3 percent, and 5 percent simple for life increases, which were minus 2.5 percent. We consider 3 percent compound increases to be less protective than CPI indexed increases and similar to 5 percent simple for life increases. Partly countering the greater sales of 3 percent compound increases, the percentage of 5 percent compound for life, 5 percent level for 20 years, 4 percent compound, other compound, and age adjusted increases grew from 39.2 percent of sales to 40.7 percent of sales. Future purchase options lost market share to sales with no increases and sales with deferred options.
The line in Table 8 (on page 52) labeled “Other Increases” consists primarily of benefit features which compound at 5 percent until age 65, then 5 percent simple until age 76, at which point they stop increasing. The deferred compound option allows purchasers to add a level premium compound benefit increase feature (based on its price at the age when they add the rider) within five years of issue if they have not been on claim. If clients exercise those options, benefits will approach those of level premium permanent fixed increase policies. If clients do not exercise those options, these policies will be in the no benefit increase category.
Based on data from five participants, 24.4 percent of 69,344 insureds exercised future purchase options that were available in 2011, down from 27 percent in 2010. The percentages varied from 8 to 39 percent by insurer. Percentage elections are likely to decrease as people age because the cost of each election increases dramatically (both the amount to purchase and the price per unit increase). Thus, buyers gravitate toward a flat benefit.
Elimination Period. As Table 9 indicates, policies are increasingly being sold with 90-day elimination periods (EP) for facility care, but the shift from 2010 to 2011 is misleading. In 2009, a new carrier started contributing data, and their 84-day EP boosted the previous 31-89 day cell. We concluded it would be better to include the 84-day EP with the 90-day EP. On the other hand, 31.0 percent of the policies included a zero-day home care EP coupled with a longer facility EP, up from 26.6 percent in 2010.
Sales to Couples and Gender Distribution. Sixty-four percent of buyers were part of couples who both bought in 2011—13.9 percent were reported as one-of-a-couple purchasers, and 22.1 percent were reported as single.
One-of-a-couple discounts help retain the healthy spouse when the other spouse is declined, thereby salvaging the underwriting investment and pleasing distributors. Overall, 30.2 percent of couples in 2011 were reported to insure only one person.
A few insurers were able to share data which showed that when one partner is declined, approximately 73 percent of the well spouses accept their policies.
Overall, our analysis (shown in Table 10) suggests that 56.5 percent of buyers are women, but 70.1 percent of single people who buy are female.
Shared Care and Other Couples’ Features. In 2011, only 36.2 percent of couples who both bought limited benefit period policies (eligible couples) purchased shared care, a surprisingly low percentage compared to previous years (see Table 11). Of the 10 participant companies that offered shared care, eight sold it to a higher percentage of eligible couples in 2012 than in 2011, but a major carrier reported less shared care, some companies with above-average shared care dropped out of the survey, and a change in the distribution of sales among insurers all combined to overwhelm the increases for those eight insurers.
Some products offer (or include automatically) joint waiver of premium (premium waived for both insureds if either qualifies) and/or survivorship features that waive premiums for a survivor after the first death if specified policy conditions are met. In 2011, 25.1 percent of policies sold to couples-both-buying included joint waiver of premium and 35.3 percent included survivorship.
Existence and Type of Home Care Coverage. Three participants reported home care only policies, which accounted for 2.8 percent of sales. Six participants reported sales of facility only policies, which accounted for only 1.1 percent of total sales.
More than 96.8 percent of the comprehensive policies included home care benefits at least equal to the facility benefit.
Most (72.8 percent) policies use a weekly or monthly reimbursement design, while 24.6 percent use a daily reimbursement home care benefit, a dramatic reversal of earlier characteristics. Thus, 97.4 percent use a reimbursement method. Two percent (2.1) use a disability or cash definition, paying benefits fully regardless of whether qualified care is purchased. Indemnity (0.5 percent) is nearly extinct.
In addition to the 2.1 percent of cash policies, 13.3 percent included a partial cash alternative, up from 9.6 percent in 2011. Such features allow people, in lieu of any other benefit, to use a percentage of their benefits (between 33 and 40 percent) for whatever purpose they wish.
Other Characteristics. Two (2.3) percent of the policies included return of premium features, which return some or all premiums (usually reduced by paid LTCI benefits) when a policyholder dies, sometimes only after a defined number of years or before a particular age. About five-sixths of those provisions were elected options requiring additional premium.
Twelve percent of the policies with limited benefit periods included a restoration of benefits (ROB) provision. ROB provisions restore used benefits when the insured does not need services for at least six months. Approximately 62 percent of the ROB features required additional premium.
Only 1 percent included a shortened benefit period (SBP) non-forfeiture option. SBP makes limited future LTCI benefits available to people who terminate coverage after three or more years.
The percentage of non-tax-qualified (NTQ) policies remained below 1 percent (0.9). Only 4.3 percent of participant companies’ in-force policies are NTQ.
Limited Pay. Single premium sales increased from 72 policies to 123 policies, while the premium rose from $3.5 million to $5.25 million. Only one insurer offers such policies.
In 2011, 1.9 percent of policies were issued on a 10-year-pay basis and 0.6 percent were issued on other limited pay bases. Only 0.1 percent used all other non-level premium patterns combined. The other 97.4 percent of the policies use lifetime premium payment.
Multi-Life Programs
Affinity business produced 17.6 percent of the 2011 new insureds and 16.3 percent of the premium. Worksite business produced 6.9 percent of new insureds, but only 5.5 percent of new premium.
Worksite is understated because some of these cases were reported in affinity sales and because small cases that do not qualify for a multi-life discount are not considered to be multi-life. Although most of our statistics are based upon displayed participants, Northwestern and Prudential provided multi-life sales as well as aggregate sales and, thus, were included in this calculation.
Six participating insurers are not active in either the affinity market or the worksite market. One carrier reported that 52.5 percent of its new insureds came from the employer market, another reported that 37.2 percent of its new insureds came from the affinity market, and a third reported that 75.4 percent of its sales were either affinity or worksite.
Look for the August issue of Broker World magazine for more analysis.
Partnership Programs
As of January 1, 2012, the participant companies sold partnership products in an average of 26 states. One participant did not sell these policies anywhere. At the other extreme, one participant reported offering these policies in 36 states.
The 12 participating companies that reported partnership sales by state had sales in a total of 38 states in 2011. Forty states now permit partnerships.
In those jurisdictions participating in the Deficit Reduction Act (DRA) LTC Partnership program, two-thirds (66.6%) of the policies issued were partnership policies. We estimate that if partnership regulations had applied in all states, 69.3 percent of the policies issued in the United States would have qualified. If all carriers had implemented DRA-Partnership policies by January 1, 2011 in all of the states that sanctioned the program, the actual percentage might have exceeded our estimates. There was a three-year span between the first insurers to adopt the DRA-Partnership program and the most recent insurers.
Maine led with 88.2 percent of participant policies being partnership-qualified; followed by Minnesota with 87.1 percent; North Dakota, 86.0 percent; Wisconsin, 85.7 percent; Virginia, 84.9 percent; and Nebraska, 82.8 percent.
The original partnership states mostly lagged in this regard, largely because their laws inhibit participation: California, 36.8 percent; Connecticut, 39.5 percent; Indiana, 56.8 percent; and New York, 31.5 percent.
Of the 15 insurers that participated in this year’s survey, only 4 sell partnership policies in California, 4 in New York, 6 in Indiana, and 7 in Connecticut.
One carrier had 66.5 percent of all of its policies qualify for partnership. Looking only at DRA-Partnership states, one company had 88.7 percent of its policies qualify. In the origin
