The Analysis of Long Term Care Insurance has been published in Broker World magazine annually since 2005 and has covered worksite long term care insurance (LTCI) in detail 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. The analysis herein 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.) However, WS sales can use either group policies with certificates or individual policies, collectively referred to as policies herein.
The July 2014 issue of Broker World magazine reported on the overall LTCI market. Its policy exhibit displayed two WS products (LifeSecure and Transamerica). Three other participating companies (MassMutual, MedAmerica and United Security) showed worksite discounts in the display of their “street” products. John Hancock applies its affinity discount to worksite sales. Mutual of Omaha displayed a common-employer discount, but that discount is expressly not a worksite program.
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, as explained under “Market Share,” some WS sales may not be identified as such in the insurers’ administrative systems.
About the Survey
As this article is written, six (identified above) of the 13 insurers whose products are displayed in the 2014 LTCI Survey provide discounts and/or underwriting concessions for WS LTCI. All but United Security contributed data to this article. In addition, Genworth (which suspended accepting new WS cases in March 2013 but still accepts new entrants), Mutual of Omaha (which discontinued accepting new cases in 2012 but continued to accept new entrants into its worksite programs until September 2013) and Northwestern contributed data. MedAmerica and New York Life provided aggregate WS sales data, but no sales distributions.
To the best of our knowledge, our reported sales figures represent almost the entire worksite LTCI industry, and the sales distributions below represent more than 80 percent of the 2013 worksite market.
Highlights from This Year’s Survey
• In 2013, participants reported sales of 17,810 worksite policies for $27.6 million of new annualized premium, a 6.4 percent drop in policies sold, and a 28.6 percent drop in new annualized premium compared to 2012, resulting in a 24 percent drop in the average worksite premium from $2,033 in 2012 to $1,551 in 2013. The sales decrease was partly attributable to insurers abandoning the worksite market or making their worksite offering less attractive. Half of the reduction in average premium was due to a shift of sales among insurers and the balance was primarily attributable to reduced limited pay and less robust benefit increase features.
• Of the nine carriers that contributed WS sales for both 2012 and 2013, two had large increases (43 percent and 141 percent), two were almost unchanged (+4 percent and -0.1 percent) and five dropped 39 percent or more. (Note: Genworth restated its 2012 sales upward by $3.1 million because it had not captured all blocks of WS sales when it reported a year ago. Although comparing last year’s article to this year’s article would suggest that Genworth had an increase in sales, it actually had a reduction between 2012 and 2013, as would be expected for an insurer that discontinued new WS sales.)
• Reported WS LTCI sales accounted for 6.8 percent of the LTCI industry’s new annualized premium sold in 2013 and 10.2 percent of the number of policies sold. For three insurers, WS was a major part of their new policy sales (from 47 percent to 65 percent). For another three insurers, WS contributed 7 percent to 18 percent of new policies. For the remaining three insurers, WS contributed 1 percent to 3 percent of new policies.
• 2013 WS market share by carrier varied significantly from market shares in the total market and to WS market shares in 2012. (See Table 1.)
• Four insurers reported the average number of policies per employer case, with a wide range from 6 to 139. Obviously, some insurers focus on small cases while others focus on large cases. Furthermore, if two business partners and their spouses buy LTCI paid through their business, many insurers would not grant a discount, hence would not classify them as WS sales.
• In a reversal of past experience, the WS market had a higher average benefit period (4.26 years) than the individual sales (NWS) market (4.04 years). Lifetime benefit periods were excluded from the calculation.
• Only 51.6 percent of the WS policies met partnership qualifications (down from 57 percent in 2012), compared to 60.9 percent in the NWS market. The executive carve-out WS market insures people who are unlikely to benefit from the partnership, but those policies probably all were partnership-qualified. The WS market provides an avenue to reach people more likely to benefit from partnership programs, but most of them do not get partnership coverage (many may be provided a non-partnership core and choose not to buy up).
Market Perspective
Last year we explained why we cautioned against projecting WS LTCI market growth. Our warning was well-justified and continues. Worksite sales might drop less in 2014 than in 2013, but could also drop significantly in 2015. Higher prices continue to erode voluntary WS sales in particular and the impact of the industry’s shift to gender-distinct pricing has not yet been fully reflected.
We also caution that an insurer’s sales distributions can vary greatly from industry averages because the insurer focuses on a different sub-market. Furthermore, industry distributions may vary significantly from year-to-year partly due to a change in participating insurers that provide sales distributions.
Statistical Analysis
Market Share. WS market share is less reliable than total individual market share because, as noted above, some carriers might not identify some sales as being WS sales. 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 three times as many sales below age 40 and the NWS market has more than twice as many sales at ages 60 and above.
The average age of purchase in 2013 was seven years younger in the WS market (50.4, compared to 49.9 last year) than in the NWS market (57.4).
Rating Classification. In 2013 the WS market had about two-thirds as many sales issued in the most favorable rating classification (23.5 percent) as did the NWS market (34.7 percent), compared to only one-third as many in 2012. The change is attributable to having more carriers reflected in this data set for 2013 than for 2012. Despite its younger age distribution, the WS market has a lower percentage of policies issued in the best underwriting classification because simplified underwriting precludes the most favorable classification. (See Table 3.)
Benefit Period. Table 4 demonstrates that the distribution of benefit period (BP) was much more similar between the WS market and the NWS market than in the past. In fact, the WS market actually had a longer average BP for limited BP policies than did the NWS market. This change occurred because:
1. In the past, long BPs were less common in the WS market, but that distinction largely disappeared because the industry backed away from selling long BPs “on the street.”
2. Two of the carriers reflected in the NWS market focus on senior sales, thereby selling a higher percentage of short BPs.
3. An insurer that sells a lot of eight-year BP policies has a much higher market share on WS business than “on the street.”
Maximum Monthly Benefit. Table 5 shows that the WS market had 53.9 percent of its sales below $150 a day compared to 38.7 percent for the NWS market. Each market had fewer sales below $150 a day than in 2012, but the difference in the percentages remained similar. The average initial maximum benefit for WS sales is approximately $143 a day compared to $168 a day for the NWS market. The smaller WS daily maximums are 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. Table 6 shows a lot of differences between the WS and NWS markets, as regards benefit increase features. The combined total of 3 percent and 5 percent compound increases is similar, but the WS is weighted much more to 3 percent compound. The WS market had 46.2 percent of its policies sold with either no increases, a deferred option or future purchase options (FPO), whereas 31.1 percent of the NWS policies had such features, more than double the spread of 2012.
The previous paragraph indicates that WS sales had less robust benefit increase features.
Future Protection. The lower initial benefit and younger age distribution in the WS market increase 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.
Based on a $20 an hour cost for non-professional home care (which is the median cost according to Genworth’s 2014 study), the typical WS sale’s average maximum daily benefit of $143 would cover 7.2 hours of care per day at issue, whereas the typical “on the street” average daily benefit of $168 would cover 8.4 hours of care per day at issue.
According to the American Association for Long-Term Care Insurance’s annual Sourcebook, approximately two-thirds of individual LTCI claims start at age 80 or later. To determine the coverage at age 80, we projected, based on the distribution of benefit increase provisions, the daily maximums from the average issue age to age 80. We used the 24 percent FPO election rate reported in the July article.
We projected the cost of care at age 80 using a variety of inflation rates. The results are shown in Table 7.
Table 7 shows that the average WS policy would reimburse 83 percent as much care as would the average “street” product on day one. However, the disparity grows over time. With 4 percent home-care-cost inflation, the relative value of the WS coverage drops to 76 percent at age 80.
Table 7 suggests strongly that “something is better than nothing” because even limited commercial home care can be a huge blessing! However, it is important to remember that:
1. Results vary significantly based on the particular insured’s issue age, selection of maximum daily benefit and benefit increase feature, as well as the inflation rate and the age at which the need for care occurs.
2. With 5 percent inflation, the average coverage at age 80 for any type of care is only 53 percent as much for a typical WS sale (3.8/7.2) and 64 percent as much for a typical “street” sale as at issue. It is important that purchasers be educated so that they have reasonable expectations. If they think of their purchase as covering a large percentage of the cost of a nursing home, they might be disappointed at claim time.
3. Table 7 could be distorted by some simplifications in our calculations. For example, we assumed that each benefit increase option was issued with the same average maximum daily benefit and that everyone has a home care benefit equal to their facility benefit.
Note: We thank George Braddock for his critique of last year’s published survey. The above calculations and explanation are an improvement of our 2013 effort because he stimulated us to find a better way to address this issue.
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 8 identifies the percentage of policies which would have qualified for partnership if partnership programs 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 8, because partnership programs would cause the distribution of sales to change in those states that don’t currently have partnership programs.
The WS market provides an opportunity for the industry to serve less-affluent people efficiently. These are the people who would most benefit from partnership qualification. Unfortunately, the percentage of policies sold in the WS market that would meet partnership qualifications fell from 56.6 percent in 2012 to 51.6 percent in 2013. In the total market, the percentage that would qualify for partnership dropped from 64.2 percent to 60.3 percent. Our July survey article discussed some ways to improve these percentages. In the WS market, core programs might lower the initial monthly maximum benefit in return for adding 3 percent compound increases.
Elimination Period. In Table 9, 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 elimination period (in conjunction with a longer facility EP) is more common in the WS market because the carriers that sell such features are 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 continues to be that the WS market is much more likely to insure only one partner (54.8 percent vs. 35.2 percent), a bigger difference than in 2012. Particularly in core/buy-up programs, employers are likely to pay for the employee but not the spouse. (See Table 10.)
The percentage of single people among WS insureds is 23.9 percent compared to 18.1 percent in the NWS market, probably because the WS market is younger and because of core programs.
The above two factors cause the percentage of both-buy couples to be much lower in the WS market.
Perhaps reflecting 2013’s last-chance opportunity (with many insurers) for females to get unisex pricing in the NWS market, females comprised 3.5 percent less of the WS market than the NWS market. In 2012, the difference was only 1.4 percent.
Shared care is sold less in the WS market because, as noted above, fewer couples buy together in the WS market. Furthermore, shared care is not typically included in executive carve-out programs that include single executives. Of the WS couples who both bought limited benefit periods, only 33.6 percent purchased shared care, compared to 40.4 percent in the NWS market.
Type of Home Care Coverage. Table 11 shows that the main difference between WS and NWS as regards home care is that WS is much less likely to have weekly or monthly determination. We suspect that is because of a desire to minimize the cost for core programs.
Other Features. Return of premium (ROP) was much more common in the WS market (24.8 percent) than in the NWS market (4.4 percent), probably because an embedded limited (e.g., for death occurring before age 67) ROP benefit is an inexpensive way to encourage more young people to buy coverage. Voluntary purchase of ROP is rare in the worksite.
Partial cash alternative was also more common in the WS market (30.0 percent) than in the NWS market (16.7 percent) because the carriers offering this feature have a bigger market share in the WS market.
Shortened BP was also more common in the WS market (2.4 percent) than in the NWS market (1.0 percent). One company seemed to be particularly responsible for the difference.
On the other hand, restoration of benefits was less common in the WS market (5.0 percent) than in the NWS market (8.8 percent) and was more likely to be embedded in the WS market than in the NWS market.
Limited Pay. 2013 saw a large decrease in limited pay sales because fewer carriers offer limited pay (the industry is down to three such carriers in summer 2014) and because there was an unusually high percentage of limited pay sales in 2012 due to “fire sale” opportunities. Limited pay accounted for 4.0 percent of WS sales (down from 9.4 percent) and 1.5 percent of NWS sales (down from 2.7 percent). See Table 12.
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.
