The Analysis of Worksite Long Term Care Insurance has been published in Broker World magazine annually since 2011. The worksite multi-life market (WS) consists of sales made with discounts and/or underwriting concessions to groups of people based on common employment. Unlike true group sales, the WS market does not offer guaranteed issue.
This analysis excludes true group and combo products (also called linked benefits). Combo products pay meaningful life insurance, annuity or disability income benefits in addition to LTCI. WS sales can use either group policies with certificates or individual policies, collectively referred to as policies herein.
The July 2013 issue of Broker World magazine reported on the overall LTCI market. Its policy exhibit displayed three WS products—John Hancock, LifeSecure and Transamerica. Two other participating companies—MassMutual and MedAmerica—showed worksite discounts in their display of their street products.
This article compares WS sales reported in the survey to total sales (other than single premium sales) reported in the survey and compares detailed distributions of WS policies to both individual LTCI policies that are not worksite policies (NWS) and to the total individual market (Total). References are solely to the U.S. market and exclude exercised future purchase options unless specifically indicated.
Our data may under-report WS sales, because some of these sales may not be identified as such in the insurers’ administrative systems.
About the Survey
As this article is written, five (identified above) of the 11 insurers whose products are displayed in the 2013 LTCI Survey provide discounts and/or underwriting concessions for WS LTCI, and all contributed data to this article. In addition, Genworth (which suspended WS sales in March 2013) and Northwestern contributed WS sales and WS sales distribution data. Mutual of Omaha and United of Omaha (both of which suspended worksite sales in 2012) and New York Life provided aggregate WS sales data, but are not reflected in the sales distributions.
To the best of our knowledge, the following reported sales figures represent the entire industry and the sales distributions represent more than 85 percent of the 2012 worksite market.
Highlights from This Year’s Survey
• In 2012, insurers reported sales of 18,076 WS policies for $35,556,483 of new annualized premium.
• Of the seven carriers that contributed WS sales for both 2011 and 2012, five increased sales in 2012 (by as much as 88 percent) and two experienced sales decreases (by as much as 55 percent).
• Reported WS LTCI sales accounted for 6.3 percent of the LTCI industry’s new annualized premium sold in 2012 and 7.8 percent of the number of policies sold. The percentage of business for companies producing WS sales ranged from 1 to 74 percent of total LTCI sales, as measured by annualized premium.
• Reflecting seven carriers which reported both sales and in-force figures, new WS annualized premium in 2012 was 12.5 percent of the year-end in force. New WS policies were 15.4 percent of the year-end in-force. By comparison, for the NWS market, the corresponding figures were 7.5 and 5.8 percent. The WS market is newer, hence growing more quickly, but the new WS policies in 2012 had a lower average size premium than the in-force, the opposite of the NWS market.
• Market share by carrier varies significantly in the WS market compared to the total market. Table 1 lists the top carriers in terms of premium and compares WS sales to individual sales (NWS).
• The nine insurers’ average WS premium per policy was $1,967, down 3 percent from 2011. This result is influenced by the mix of contributors to the survey; the average premium rose 0.8 percent for carriers that contributed data in both 2011 and 2012. The 2012 WS average size premium was 77 percent of the average size premium for NWS sales ($2,544) because the average age is younger and there are some small core premiums.
• Four insurers reported the average number of policies per employer case, which ranged from 19 to 140.
• Issue age and maximum daily benefit are considerably lower in the WS market, and 37.7 percent of the WS policies (down from 48.6 percent in 2011) either did not have a benefit increase feature or had a feature that would require significant future premium increases.
• More than half (57 percent) of the WS policies meet partnership qualifications, compared to 66 percent in the NWS market. The executive carve-out WS market insures people who generally don’t need or can’t benefit from the partnership programs. But the rest of the WS market provides an avenue to reach people who are more likely to benefit from partnership programs.
Market Perspectives
We urge caution in projecting WS LTCI market growth for the following reasons:
1. Young workers have higher priorities for their take-home pay than buying LTCI.
2. Higher LTCI prices dampen penetration rates, reducing the interest of brokers and employers, but especially of middle class employees.
3. There are fewer carriers in the WS market.
4. Participation requirements have increased, which narrows the market and may cause more WS business to look like NWS business in insurers’ sales reports.
5. Underwriting requirements have become tougher, not only causing more applications to be denied, but also making WS LTCI less attractive to some employers.
6. The move to gender-distinct rates may cause gender-neutral pricing to be less available and/or less competitive for employers with fewer than 10 employees.
Insurers’ worksite markets can differ tremendously:
• One insurer might focus on executive carve-out sales and have issue ages weighted to 40-65 year olds, 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 might focus on voluntary programs in the worksite, perhaps core/buy-up programs in which employers buy small coverage for a large class of employees. 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, an insurer’s sales distributions can vary greatly from industry averages, and industry distributions may vary significantly from year to year partly due to a change in participating insurers.
Statistical Analysis
Market Share. WS market share is less reliable than total individual market share because some carriers understate WS sales for the following reasons:
• Two business partners and their spouses might buy LTCI without a discount or underwriting concession. Because there was no discount or underwriting concession, some insurers would not report these sales as WS.
• An insurer might classify WS business as affinity business if this business qualified for a discount, but not for underwriting concessions.
Nonetheless, it is clear that WS market share is distributed very differently than the individual market.
Issue Age. Table 2 shows that the WS market has more than three times as many sales to clients younger than age 40 and the NWS market has more than twice as many sales to ages 60 and older. Both markets made a higher percentage of new sales to people below age 50 than in 2011.
The average age of purchase in 2012 was 49.9 in the WS market, compared to 56.7 in the NWS market.
Rating Classification: As shown in Table 3, the WS market had less than one-third as many policies issued in the most favorable rating classification (18.7 percent) than in the NWS market (58.9 percent), despite having a much younger age distribution. That is because simplified underwriting precludes the most favorable classification. The less frequent granting of preferred health discounts helps to permit the simplified underwriting.
Benefit Period. Table 4 demonstrates that 45.8 percent of WS policies had a three-year benefit period (BP) or less compared to 34.2 percent of the NWS market. On the other hand, 5.6 percent of the WS market had lifetime BP, whereas 20.9 percent of the NWS was lifetime. The relative distribution by BP was very different in 2012 than in 2011, partly because there were different contributors.
Ninety-two percent of the WS eight-year BP policies were issued by a particular carrier.
Maximum Daily Benefit. Table 5 shows the WS market had 20.2 percent of its sales below $100 a day (and below the similar $3,000 a month size) compared to 12.6 percent of the NWS market and 58.3 percent below $150 a day compared to 42.4 percent for the NWS market. 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. The average initial maximum benefit for WS sales is approximately $137 a day compared to $164 a day for the NWS market.
Benefit Increase Features. Table 6 shows many differences between the WS and NWS markets, in regard to benefit increase features. The combined total of 3 and 5 percent compound increases is similar, but the WS is weighted much more to 3 percent compound. The WS market had 37.7 percent of its policies sold with either no increases, a deferred option or future purchase option (FPO), whereas 31.8 percent of the NWS policies had such features. The best estimate we have of FPO election rate was reported in the July article—our data (reflecting three carriers) shows an election rate varying between 24.4 and 27.0 percent during the past three years.
The previous paragraph indicates that WS sales had less robust benefit increase features. The lower initial benefit and younger age distribution in the WS market exacerbate the possibility that people with WS LTCI may find that their policies cover a smaller portion of their eventual long term care costs than they might have anticipated.
We calculated what percentage of the cost of a private room in a nursing home would be reimbursed at age 80 for a typical WS and NWS buyer. First, we projected the median cost of a private room in a nursing home at 5 percent (based on the 2012 Genworth Cost of Care Survey). Then we calculated how the maximum daily benefit would compare to that figure. The percentage reimbursed would be higher than our calculation if the cost of a private room in a nursing home inflates at less than 5 percent per year and also if less expensive home care or assisted living facility care was used. So our calculation clearly understates the typical reimbursement percentage, but the relationship between the WS and NWS figures is meaningful.
We used the average ages of 49.9 (WS) and 56.7 (NWS), the average initial maximum daily benefits of $137 (WS) and $164 (NWS) and what we calculated as approximate composite compound benefit increase rates of 2.6 percent for the WS market and 3.3 percent for the NWS market. The result was that a typical WS sale would cover 34 percent of the projected cost of a private room in a nursing home at age 80 and a typical NWS sale would cover 57 percent of the cost.
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 CPI 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 these programs would cause the distribution of sales to change in states that don’t currently have them.
The WS market provides an opportunity for the industry to serve the less-affluent efficiently, and these are the people who would most benefit from partnership qualification. Our data last year suggested that only 41 percent of the policies sold in the WS market met partnership qualifications, but the data this year improved to 56.6 percent. In the total market, the percentage that would qualify for partnership dropped from 69.3 to 64.2 percent.
Elimination Period. In Table 8, WS sales are more clustered to 90-day elimination periods (EPs). There is less customization of this feature in the WS market than in the NWS market.
The zero-day home care EP (in conjunction with a longer facility EP) and the calendar day EP are both significantly more common in the WS market, partly because the carriers that sell such features are also more active in the WS market.
Sales to Couples and Gender Distribution. Relative to gender sales, the most striking difference between the WS market and the NWS market is that 45.8 percent of WS couples insure only one partner, versus 26.4 percent in the NWS market, as shown in Table 9. Particularly in core/buy-up programs, employers are likely to pay for the employee but not the spouse.
Perhaps partly because of young people covered by core/buy-up programs, the percentage of single people among WS insureds is 24.2 percent compared to 19.6 percent in the NWS market.
The above two factors cause the percentage of both-buy couples to be much lower in the WS market and the percentage of one-of-a-couple sales to be much higher in the WS market.
Shared care is sold less in the WS market because, as noted, fewer couples buy together in this market. Furthermore, of the WS couples who both bought limited benefit periods, only 26.0 percent purchased shared care, compared to 40.6 percent in the NWS market.
Type of Home Care Coverage. Table 10 shows that all comprehensive WS sales had the same home care benefit as facility benefit. The WS market has 0.3 percent facility only sales and no home care only sales, whereas the NWS market has 1.0 percent facility only sales and 2.7 percent home care only sales. Years ago, the WS market (particularly group insurance) was much less likely to have identical home care and facility maximums than was the NWS market.
The WS market had five times as high a percentage of indemnity sales as the NWS market and six 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 WS market than in the NWS market.
Limited Pay. Limited pay policies were more popular in 2012 in both the WS and NWS markets in reaction to rate increases on older policies and because consumers rushed to buy limited pay policies from insurers who were discontinuing such sales. As shown in Table 11, 9.4 percent of WS policies were limited pay compared to 2.7 percent in the NWS 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. While we reviewed data for reasonableness, we cannot assure that all data is accurate. If you have suggestions for improving this survey, please contact one of the authors.
