The 2016 Milliman Long Term Care Insurance Survey is the eighteenth consecutive annual review of long-term care insurance (LTCI) published by Broker World magazine. It analyzes the marketplace, reports sales distributions, and details available products. 

The data includes certificates or individual policies sold to multi-life groups (primarily small groups) with discounts and/or underwriting concessions, but excludes group policies aimed only at the large group market except where “true group” is specifically mentioned. 

Analysis of worksite sales will appear in the August issue of Broker World.

Unless otherwise indicated, references are solely to U.S. stand-alone LTCI sales, excluding exercised future purchase options or other changes to existing coverage. “Stand-alone” refers to LTCI policies which do not include death benefits (other than returning premiums upon death or waiving a surviving spouse’s premiums) or annuity or disability income benefits. 

In the September issue of Broker World we intend to publish a brief survey regarding combo life and LTCI policies which offer extension of benefits features (LTCI benefits can continue after the death benefit is exhausted).

Highlights from This Year’s Survey

 

Participants

As in 2015, fifteen carriers participated broadly in this survey. 

We are pleased to welcome an anticipated new carrier in the industry –National Guardian Life Insurance Company (NGL), which is not affiliated with the Guardian Life Insurance Company of America, a.k.a The Guardian or Guardian Life.  Last year, we included LifeCare Assurance, which was planning to issue a product on its own paper.  LifeCare subsequently reached an agreement to support NGL’s intended entry into the market. The NGL LTCI product was pending approval when we finalized this article, but we expect it to be very similar to last year’s LifeCare product.

Although not displaying product, MedAmerica and Northwestern LTC provided background statistical information. MedAmerica stopped selling LTCI effective February 15, 2015. United Security contributed to the sales total, and Genworth and Unum provided sales of new true group certificates.

 

Sales Summary (more detail in other parts of the article).

• The 16 carriers reported sales of 102,970 policies ($257,097,874 of new annualized premium) in 2015. We estimate that these carriers sold well over 99 percent of the stand-alone LTCI industry’s 2015 sales.

• Although six insurers increased sales, 22.2 percent fewer stand-alone LTCI policies were sold for 18.3 percent less annualized premium than in 2014.

• The average issue age dipped to 55.9, the lowest ever reported in this survey, fueled by a record 3.2 percent of buyers under age 30 even though many insurers no longer accept people below age 30. Most insurers no longer accept people age 80 or over.

• The average premium per new sale increased slightly from $2,368 to $2,497, despite the lower issue age, shorter benefit periods and less-robust benefit increase features.

• The placement rate dropped to an all-time low 58.6 percent, despite a significant drop in sales above age 70. 

• Reported worksite business produced 12.5 percent of new insureds (up from 10.2 percent in 2014 and 8.0 percent in 2013), but only 8.7 percent of premium (up from about 6 percent in 2013-14). Worksite sales are understated because small cases that do not qualify for a multi-life discount are often not considered to be multi-life. More information about worksite sales will appear in the August issue of Broker World.

• Reported affinity business amounted to 6.8 percent of the 2015 new insureds (7.8 percent in 2013-2014) but only 5.8 percent of the premium (vs. ~6.3 percent in 2013-2014).  

• Thrivent cracked into the top 10 insurers, in terms of premium sold, ranking 8th. Bankers Life dropped out of the top 10. The top five carriers have been the same since 2013, but their market share has dropped from 76.5 percent to 70.2 percent, essentially the same as last year but very different insurer-by-insurer.

• Genworth and Unum collectively sold true group LTCI to 80,961 new insureds, demonstrating that group cases can generate a lot of renewal applications ($20.9 million of new annualized premium, not including additions to inforce certificates). That’s a drop of 7-8 percent compared to 2014. 

• Deaths and lapses totaled 3.1 percent of previous year-end inforce policies, for the second consecutive year. Weak sales were unable to overcome those terminations, so the number of inforce policies dropped (0.2 percent), for the first time in our survey. 

• Nonetheless year-end inforce premium increased 2.4 percent from 2014. Inforce premium is impacted by sales, terminations, partial terminations, shifts to paid-up status for various reasons, and price increases.  

• Claims: Twelve insurers reported $4 billion in claims in 2015 (an 8 percent increase over 2014) and $33.3 billion since inception. Overall, the LTCI industry incurred $8.7 billion in claims in 2014 (the most recent year reported in NAIC reports), much paid by insurers which no longer sell LTCI.

 

About the Survey

This article is arranged in the following sections:

• Highlights (see page 36) provides a high-level view of results. 

• Market Perspective (this page) provides insights into the LTCI market.

• Claims (see page 42) presents industry-level claims data.

• Sales Statistical Analysis (see page 43)presents industry-level sales distributions reflecting data from 14 insurers (National Guardian had no sales last year), representing 98 percent of 2015 sales. 

• Partnership Programs (see page 48) discusses the impact of the State Partnerships for LTC.

• Premium Rate Details (see page 49) explains the basis for the product-specific premium rate exhibit.

• Product Details (see page 50) provides a row-by-row definition of the product exhibit. We have 18 products displayed, including 4 products that were not displayed in 2015. 

 

Market Perspective (More detail in subsequent parts of the article). 

• Shift to gender-distinct pricing. Claims data clearly indicates that women incur more long term care costs, but insurers historically were reluctant to charge females more than males. Insurers believed women stimulate LTCI purchases and feared women would be less likely to do so if they were charged higher prices. In 2013, four insurers started charging gender-distinct prices (other than in worksite sales). During 2015, five insurers still sold individual-market LTCI policies with “unisex” prices for single people. Only one insurer displays such a product this year. We expect unisex pricing to disappear, other than in the worksite. (Note: two carriers offer unisex pricing to couples.)  

• Impact of gender-distinct pricing. It is unclear to what degree gender-distinct pricing has contributed to the continuing sales decline. In the worksite market, insurers now fear gender anti-selection, as unisex worksite prices offer women large discounts compared to gender-distinct “street” pricing, while men generally pay more at work than “on the street.”  Overall, worksite price discounts are becoming less attractive. At the beginning of 2013, more than half of the insurers offered small group worksite LTCI, whereas now fewer than half do so. Depending on size of the group, expected participation, gender distribution and other factors, it can be hard for some employers to find an insurer. Several insurers won’t issue coverage to employees below age 40. Business associations are also difficult to serve well. Insurers market gender-distinct pricing to business associations, but business association members generally want to pay through their business to earn tax breaks. Paying through their business is more risky with gender-distinct pricing.

• Stable pricing. Only one displayed product was priced before 2013 (down from four a year ago). Recently-priced policies use more conservative assumptions, hence are more stable. In analysis published by the Society of Actuaries, 95 percent of scenarios resulted in policies priced in 2014 having only a 10 percent chance of a future rate increase and such an increase would likely be about 10 percent. (For more information, see https://www.soa.org/research/research-projects/ltc/research-2014-understanding-volatility.aspx.) Assumptions in 2014 (compared to assumptions in 2000) were based on 16 times as much data, with 70 times as much data for policy years 10 or later at attained ages 80 or higher. With today’s low investment assumptions, many people believe insurers will benefit from favorable investment deviations. With ultimate voluntary termination (“lapse”) assumptions below one percent, the lapse risk has shrunk tremendously. Better underwriting and tighter policy form wording also reduce risk of rate increases.

• With more conservative pricing, the chance of a favorable future deviation becomes more likely. So we show in the display (row 82), for products which have dividends or other mechanisms to feed favorable deviations back to policyholders, when such credits are first expected to appear.

• Potential impact of regulation. The detrimental impact of the Affordable Care Act on worksite LTCI sales should wane, as the ACA is likely to demand less attention from employers and employee benefit brokers going forward. The new Department of Labor fiduciary rules do not appear to impact LTCI directly, but increased need for detailed documentation may leave financial advisors less time for ancillary services such as LTCI sales. Furthermore, some advisors may become more reluctant to discuss LTCI with their clients, concerned that they lack the expertise to meet fiduciary standards.

• Sales of alternative approaches to cover long term care risk continue to grow. Accelerated death benefits allow insureds to access their beneficiaries’ death benefit to pay for long term care expenses. Policies with “extension of benefits” continue paying for long term care after the death benefit has been exhausted by long term care expenses and increasingly offer features that, in the past, were more common in the stand-alone LTCI market. Some critical illness policies also cover some long term care expenses. Overall, an increasing number of people have protection against long term care risks.

• Various government and non-government think tanks (such as Scan Foundation, AARP, Leading Age, the LTC Financing Collaborative, the BiPartisan Policy Center, the Society of Actuaries’ Think Tank, American Society of Aging) are exploring how the U.S. can address its looming long term care tsunami. As opposed to the ill-fated “first dollar” Class Act coverage that was originally part of the Affordable Care Act, the Bipartisan Policy Center and others are now recommending a catastrophic government LTCI program, leaving the less catastrophic costs to private insurance. Only one insurer now offers an “endless” (“unlimited benefit period”) stand-alone LTCI policy (one offers an endless combo policy). The substantial disappearance of “endless” options is one of many factors causing increased support for Federal catastrophic coverage. However, many questions remain with respect to such a program.

• The value of future benefits from current sales continues to drop. The average 56-year-old buyer in 2015 would have a maximum daily benefit of $291 at age 80 in 2039, 23 percent less than if he had purchased an average policy in 2012.

• The drop in sales with compound increases continues to negatively impact Partnership sales, particularly in the original Partnership states.  (See the Partnership section.)

• Underwriting continues to evolve. 

Several insurers decline marijuana use. For medicinal use (whether legal or not), many other insurers classify the insured based on the underlying condition, ignoring marijuana use. Several insurers are tougher on recreational use than medicinal use. Some insurers may decline or restrict the underwriting class, sometimes depending on degree of usage. 

Most insurers do not determine rate classification based on family history (they may seek more health information however). For other insurers, family history can block a preferred rating or cause a decline. It can also limit design (to five-year benefit period, for example). Relevant family history includes biological parents’ and siblings’ ages at onset of conditions such as dementia, coronary conditions, stroke, Huntington’s or Parkinson’s.

• To reduce wastage, most insurers require cash with the application (CWA), except when multiple insureds will be listed on a single bill. Submitting cash is good for applicants because some insurers grant conditional receipt coverage. Based on seven insurers, those which require CWA lost 21.1 percent of their non-declined applications to suspension, withdrawal, NTO (refusal upon delivery) or free-look-period cancellation, while those which do not require CWA lost 25.2 percent. Ironically, the insurer with the highest rate of such losses requires CWA (but only on about two thirds of its business). Based on 12 insurers, those which are mostly brokerage lost 24.4 percent, whereas those which are mostly not brokerage lost 18.1 percent.  Requiring CWA and having a more-controlled distribution system both reduce wastage, with the distribution system being more significant.

• Discounts for unmarried partners. When both partners buy, all but three carriers offer the same discount to married and unmarried couples. However, in most jurisdictions, five insurers require that unmarried couples live together for three years in order to qualify for such a discount. One insurer requires two years, one requires one year, and three insurers treat unmarried partners the same as married couples (no cohabitation period required).  One insurer requires 5 years of cohabitation and two insurers do not offer any discount to unmarried couples.

• Only five participants offer coverage in all U.S. jurisdictions; no worksite insurer sells in all those jurisdictions. When a jurisdiction is slow to approve a new product, restricts rate increases or has unfavorable legislation or regulations, insurers increasingly opt to stop sales in that jurisdiction.

• If an insurer concludes that a claimant is not chronically ill, the claimant can appeal the decision to binding independent review (IR). Sixty percent  of our participants have extended IR beyond statutory requirements, most commonly to policies issued prior to the effective date of IR. We are aware of only 46 times claimants have resorted to IR, and the insurers’ denials were upheld 87 percent of the time. The existence and voluntary expansion of IR and the insurer success rate should all increase distributors’ and consumers’ confidence in the industry.

Claims

• Twelve participants reported individual claims for 2015 and three reported true group claims (the same number as last year). Their total claim payments rose to $4.0 billion in 2015, eight percent over 2014, whereas the total number of inforce policies decreased, demonstrating the delayed nature of LTCI claims. Claims increase from year to year as insureds get older, maximums increase according to benefit increase features including future purchase options, long term care costs rise, and claims shift to more recently issued policies which have larger maximum benefits, etc. These 12 insurers have paid $33.3 billion in LTCI claims from inception through 2015.

• The LTCI industry has had a much bigger impact than indicated above because a lot of claims are paid by insurers which no longer sell LTCI. According to the NAIC’s report for 2014 (the most recent report available when this was written), the industry incurred $8.7 billion in claims in 2014, boosting the industry to $98.1 billion of claims incurred since 1991. 

LTCI claims paid by insurers which no longer sell LTCI might differ significantly from data reported herein because their claimants might be more likely to have facility-only coverage, be older, have smaller policies, etc. 

Table 1 shows claims distribution based on dollars of payments whereas Table 2 shows distribution based on number of claims. In the distribution based on number of claims, if someone received care in more than one venue, they are counted more than once. Table 1 shows a shift in cost from nursing home claims to assisted living facility (ALF) claims; Table 2 shows the number of claims shifted from nursing homes to home care. Claims will continue to shift away from nursing homes because of preference for home care and ALFs and because newer sales are overwhelmingly “comprehensive” policies (covering home care and adult day care, as well as facilities), whereas many older policies covered only nursing homes. Claims which could not be categorized as to venue were ignored in determining the distribution by provider-type. 

Table 3 shows the average size individual and group claim since inception. The average total claim, all venues combined, is large compared to the averages by venue because 38.3 percent of individual policy claimants and 32.4 percent of group claimants receive benefits in more than one venue (assuming none are in more than two venues). The percentage with claims in multiple venues will increase as comprehensive policies increasingly dominate future claims.

Average claim size may be misleadingly low because:

1. The many small claims drive down the average. The purpose of insurance is to protect against a non-average result. The potential claim is more relevant than the average claim.

2. People who have multiple claims are counted as though they are multiple insureds.  We are not able to add their various claims together.

3. Older policies had lower average maximum benefits and were sold to older people, resulting in smaller claims for shorter periods of time than might result from today’s sales. 

4. Twenty-six percent (25.7) of inception-to-date individual claims included 2015 payments as did 22.5 percent of the corresponding group claims. Some of those closed in 2015, but a meaningful percentage of inception-to-date claims are still open. Our data does not include reserve estimates for future payments on open claims.

The average group claim is 73 percent of the average individual claim, probably because of shorter benefit periods, lower maximum daily benefits and fewer benefit increase features. Core programs are particularly likely to insure only a small portion of the eventual need, but may not affect claims data much because they are less likely to exist when long term care is needed. 

Individual ALF claims are more recent and from more recently-issued policies, hence have higher costs and limits. Also, ALF claims probably last longer, on average, because there are a lot of short nursing home claims and because ALFs have a higher percentage of cognitively-impaired residents. Nursing home claims are least likely to reflect the full cost of care, because nursing home charges often exceed policy maximums.

Statistical Analysis

Market Share

Table 4 lists the top 10 carriers in 2015 new premium.  For the first time, Northwestern is number one.  Mutual of Omaha moved from number four to number two, as Genworth slid. Transamerica had a 60 percent gain over 2014.

Fourteen insurers contributed to the following statistical analysis, but some 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.

Characteristics of Policies Sold

Average Premium

The average premium per new sale increased 5.5 percent from $2,368 to $2,497. The average premium among participants ranged from $1,373 to $3,117. Five insurers had a lower average premium than in 2014 but only one dropped more than four percent. The average premium per new purchasing unit (i.e., one person or a couple) increased similarly, from $3,325 to $3,525. The average inforce premium rose three percent to $2,100.

Issue Age

The average issue age dropped from 56.3 to 55.9, a record low. Table 5 shows an astounding 3.2 percent of buyers were under age 30. Even removing worksite sales, 3.0 percent of buyers were below 30. The increasing percentage of sales below age 40 may reverse, as four participants have a minimum issue age of 40, two won’t issue below 30 and two won’t issue below 25. Only five issue to age 18. However, for the second straight year, a large insurer sold more than 10 percent of its policies to people under age 30.

Benefit Period 

Three-year benefit period continues to grab market-share, up to 41.5 percent of sales. Six-year benefit solidified its hold on second place (18.0 percent) as frequently the longest benefit period available. The average length of fixed-benefit periods dipped slightly from 4.07 years to 4.01 years (see Table 6). Coverage was better than the 4.01 average suggests because of shared care. It will be interesting to see what happens with a new “endless” (“lifetime”) benefit period available from one company in most states beginning in July 2016.

Maximum Monthly Benefit

Seventy-nine percent (78.6) of 2015 policies were sold with a monthly or weekly maximum, which is superior to a daily maximum. That percentage had been increasing but was one percent lower in 2015 than in 2014. 

The average maximum benefit decreased very slightly, to about $4,800 per month.

The percentage of policies sold with a $6000 or higher initial maximum monthly benefit was the lowest it has been since 2012 (see Table 7).  Each additional $3000 of initial monthly maximum costs as much as the first $3000 but the portion that is paid as claims drops significantly as initial size increases because most people will not use a large policy’s maximum.

Benefit Increase Features

Sales of five percent compound increases, 47.6 percent of sales in 2009, now account for only four percent of sales. The growing three percent compound sales tapered off in 2015 as one insurer stopped selling this design because it is hard to invest its reserves adequately (see Table 8).

Future purchase options (insureds buy more coverage in the future at attained age prices) and step-rated designs (insureds buy more coverage in the future at issue age prices) gained the most.

We added the 3.5 percent compound line because 3.5 percent compounding qualifies for both the Connecticut and New York Partnership programs.

We project the age-80 maximum daily benefit by applying the distribution of benefit increase features (and making assumptions as to CPI and election rates) to the average daily benefit purchased. The maximum benefit at age 80 (in 2039) for our 2015 average 56-year-old purchaser projects to $292/day. Had our average buyer bought an average 2014 policy at age 55, his age 80 benefit would be $312.  The corresponding figures for 2013 or 2012 purchase are $356 and $378. This projected maximum daily value at age 80 has dropped 23 percent in 3 years, from $378/day to $291/day. The drop in coverage is really greater because the average claim payment (as opposed to start) age is greater than 80.

The “Deferred Compound” option allows purchasers to add level premium compound benefit increases within five years of issue if they have not been on claim.

The “Age-Adjusted” benefit increase features typically increase benefits by five percent through age 60, by three percent compound or five percent simple from 61 to 75, and by zero percent after age 75.

“Indexed Level Premium” policies are priced to have a level premium, but the benefit increase is tied to an index such as the Consumer Price Index (CPI).

Five insurers provided both the number of available future purchase options (at attained age rates) in 2015 and the number exercised. Based on their data, 33.9 percent of insureds exercised future purchase options that were available in 2015. As shown in Table 9, this percentage is unusually high. By insurer, election rates varied from 14 percent to 75 percent (the latter with a negative election approach; i.e., the increase applies unless rejected). 

Elimination Period

As Table 10 indicates, facility elimination period selections were even more overwhelmingly 90 days than in the past.  Only 4.6 percent of policies had an EP shorter than 84 days.

The percentage of policies with zero-day home care elimination period (but a longer facility EP) has dropped from 38.9 percent in 2013 to 27.5 percent in 2015, largely due to change in sales distribution among carriers. In 2015, 31.6 percent of the policies had a calendar-day EP definition, slightly fewer than in the recent past (32.2 percent). When a calendar-day EP was available, 51.2 percent of policies had the feature; in some cases, it was automatic.

Sales to Couples and Gender Distribution

Table 11 shows the percentages of buyers who are female has been steady and the percentage of single buyers who are female has been dropping slightly. Offsetting factors affect this distribution. For example, sales at older ages are predominantly to single women, so the reduction in sales at those ages skews sales less to women. On the other hand, insurers which had gender-distinct pricing all year had 59.7 percent females among their single non-worksite insureds. Insurers which had gender-distinct pricing part of the year had 65.2 percent females among their single non-worksite insureds and insurers which had unisex pricing essentially all year had 73.1 percent females among those insureds.

In 2011 and 2012, years with all unisex pricing, 70 percent to 71.5 percent of single insureds were female (including worksite sales). Now, insurers with established gender-distinct pricing are finding only 59.9 percent females among their single insureds (including worksite sales). That’s partly because single females are being diverted to insurers with unisex pricing and partly because the higher gender-distinct pricing discourages single females from buying.

For the last two years, one-of-a-couple sales have exceeded sales to single people. Compressed issue age ranges may contribute to this shift.

Shared Care and Other Couples’ Features

Table 12 shows that fewer couples who purchase limited benefit period opted for shared care (39.3 percent in total; 52.8 percent for insurers which offer shared care), despite the fact that three-year benefit period has a larger market share and has a high percentage of shared care sales.

Some products offer or imbed “joint waiver” (both insureds’ premiums are waived if either qualifies) and/or “survivorship”, which waives a survivor’s premium after the first death if specified conditions are met. When both partners bought coverage in 2015, only 20.9 percent of policies included joint waiver of premium (33.6 percent if the insurer offers joint waiver). 

Only 5.3 percent of policies included survivorship if both partners bought (8.0 percent if the insurer offers survivorship). 

The seeming reduced popularity of joint waiver and survivorship with carriers that make it available is misleading. A major insurer offers these features only on one of its policy offerings. We included all of its sales in the denominator.

For the past two years, the 3-year benefit period has been the benefit period most likely to add shared care (combining the traditional and third-pool designs).  Now 52.4 perccent of 3-year benefit period policies have shared care (see Table 13). Above, we stated shared care is selected by 39.3 percent of couples who both buy limited benefit period. Table 13 shows shared care comprised no more than 35.5 percent of any benefit period; that’s because Table 13 denominators include benefit periods for single buyers.

Existence and Type of Home Care Coverage

One participant reported home-care-only policies, which accounted for 1.2 percent of industry sales. Five participants reported sales of facility-only policies, which accounted for one percent of total sales, compared to two percent in 2014. 

Ninety-seven percent (96.8) of the comprehensive policies included home care benefits at least equal to the facility benefit, down slightly from 97.2 percent in 2014.

Partial cash alternative features (which allow claimants, in lieu of any other benefit that month, to use between 30 percent and 40 percent of their benefits for whatever purpose they wish) were included in 26.4 percent of sales, nearly double the 14.2 percent in 2014, because the two insurers which dominate such sales include these features automatically and increased their sales collectively by 36 percent in an industry in which total sales declined. 

One carrier reported eight indemnity policies.  Indemnity policies pay the full daily maximum if at least one dollar is spent on a qualified long term care service. 

Other Characteristics

 “Return of Premium” features (“ROP”) were included in 24.8 percent of all policies (up from 10.5 percent). They return some or all premiums (usually reduced by paid LTCI benefits) when a policyholder dies. Approximately 95 percent were embedded automatically. Embedded features are designed to cost little, decreasing the benefit to zero by age 75 except for an ROP which pays only for death after age 100 (or 25 years if later). 

Eleven percent of policies with limited benefit periods included a restoration of benefits (ROB) provision, up from 9.8 percent in 2104. ROB provisions typically restore used benefits when the insured does not need services for at least six months. Approximately 70 percent of the ROB features were embedded, compared to 63 percent last year, so optional ROB reduced.

Shortened benefit period (SBP) nonforfeiture option was included in 1.2 percent of policies. SBP makes limited future LTCI benefits available to people who stop paying premiums after three or more years.

Only 0.2 percent of policies were non-tax-qualified (NTQ), all coming from Bankers Life & Casualty. NTQ was 5 percent of their business.

“Captive” (dedicated to one insurer) agents produced 46.6 percent of the policies, up from 44.4 percent.

Sales distribution by jurisdiction is available at www.brokerworldmag.com.

Limited Pay

Only three insurers sold 10-year-pay, 20-year-pay, paid-to-65 or paid-to-75 policies and one of those insurers no longer sells LTCI. Limited-pay policies were 0.8 percent of sales (down from 1.25 percent). As LTCI is more conservatively priced, limited-pay is less attractive t