July 2011
2011 Individual
Long Term Care
Insurance Survey
CLAUDE THAU
DAWN HELWIG
ALLEN SCHMITZ
The 2011 Individual Long Term Care Insurance Survey is the thirteenth consecutive annual review of individual long term care insurance (LTCI) published by BROKER WORLD magazine. LTCI covers costs incrued from care homes, adult daycare, assisted living, other elder care Lynchburg services and other costs associated with long-term care of an adult person. The survey compares products, reports sales distributions, and analyzes the changing marketplace.
Unless otherwise indicated, references are solely to the U.S. stand-alone LTC insurance market, which includes individual policies and some group certificates sold to multi-life cases. “Stand-alone” refers to LTC insurance policies which do not include annuity, disability or death benefits (other than provisions such as “return of premium” or survivorship features). The large group market (which offers guaranteed issue) is not included in this report.
Highlights from This Year’s Survey
• LTCI sales increased in 2010. The 18 carriers that contributed statistical data to this survey sold 218,978 policies for $485,680,255 of new annualized premium in 2010 (plus $3.5 million from 72 single premium policies). This compares to 196,370 policies (11.5 percent more policies in this year’s survey) for $428,506,015 of new annualized premium (13.3 percent more premium) for the 20 such carriers in 2009.
The 18 participants that contributed both years sold 17.8 percent more policies and 19.5 percent more annualized premium in 2010 than in 2009. Thus, it is estimated that the entire stand-alone LTCI industry sold 238,000 policies for $530 million of annualized premium, approximately 6 and 10 percent increases respectively over 2009.
These figures do not include future purchase options or upgrades to existing policies. (Seven carriers reported a total of $4,493,236 of annual premium added from 15,746 FPOs.)
• Sixteen participants reported individual claims (including multi-life) and four reported true group claims. Their total paid claims exceeded $2.5 billion in 2010, approximately 94 percent of which were individual claims. The survey’s number of 2010 claims was distributed as follows: home care and adult daycare-39.7 percent, assisted living facilities-22.8 percent, and nursing homes-37.5 percent.
There are many facility only policies represented in the claims statistics because most claims come from policies sold long ago. The termination of facility only policies and increasing use of home care should both cause the percentage of home care claims to increase in the future.
• 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, the industry incurred more than $5 billion in claims in 2008, boosting the industry to more than $55 billion of claims incurred.
• One carrier is new to the LTCI industry-Humana, which is piloting a policy in six states-but not participating in this survey. Since our 2010 survey, four carriers have announced discontinuation of LTCI sales: MetLife, Berkshire (by December 29, 2011 at the latest), Assurity, and AFLAC (which continues to issue new coverage for existing cases).
In 2004, 36 carriers displayed products in our survey. Last year, 19 carriers did so; and this year, 16 carriers are displaying products. In total, we estimate that 25 carriers sell either individual or group stand-alone LTCI. Industry consolidation boosts the average sales per carrier.
• For the first time, sales characteristics differences between multi-life and non-multi-life sales will be reported. That data will appear in the August issue of Broker World.
About the Survey
This article is arranged in the following sections:
• Market Perspective (on page 4) provides insights into the individual LTCI market.
• Statistical Analysis (on page 4) presents industry level sales characteristics. In addition to the displayed participants, MetLife and Northwestern Mutual contributed data.
• Premium Rate Details (on page 27) explains the basis for the product-specific premium rate exhibit.
• Product Details (on page 9) provides a row-by-row definition of the product exhibit. There are 28 products displayed, including seven new products. Three of the new products are sold exclusively in the worksite (Genworth, Mutual of Omaha and United of Omaha); and four are available on-the-street (Genworth, John Hancock, Transamerica and United Security). Some other companies have made significant product modifications.
Claims. Sixteen participants reported individual claims and four companies reported group claims. Combined, paid claims exceeded $2.5 billion in 2010 and were distributed as follows: home care and adult daycare-39.7 percent, assisted living facilities-22.8 percent, and nursing homes-37.5 percent. These distributions will shift more toward home care as the industry in-force block shifts toward comprehensive policies and the use of home care increases.
The average annual amount paid per nursing home claim in 2010 was nearly the same on individual and group policies-$18,189 versus $18,457. The average claim is small compared to the annual cost of nursing homes because:
• Many claims started during 2010 or ended in 2010, thereby not contributing a full year of cost. Some started and also ended in 2010.
• The older policies probably have low maximum benefits because they were sold long ago, often without benefit increase features.
The average assisted living facility (ALF) claim was lower on individual policies than on group policies-$16,635 versus $18,138. As many group policies have lower maximums for ALFs, which cost less than nursing homes, it seems surprising that the average group ALF claim almost matched the average group nursing home claim. The data included only 375 group ALF claims.
The average home care claim was higher on individual policies than on group policies-$12,301 versus $9,693.
Total claims paid since inception for the 18 participants exceed $19 billion, which is about 30 percent of the total claims incurred in the industry since 1991. The $19 billion in claims were weighted (by number) much more heavily toward nursing homes: home care and adult daycare-30.9 percent, ALFs-11.5 percent, and nursing homes-57.6 percent.
The average claim paid since inception is much higher than the average claim paid last year because the average since inception reflects people having been on claim for more than one year. The average claims since inception are more statistically significant. For each type of claim, the individual average size is substantially larger than the group average size as shown in Table 1 (on page 4). The individual claim average exceeds the group average by a higher percentage for ALFs and for home care than for nursing home care because group policies have insured a lower maximum benefit for ALFs and home care than for nursing home care.
• An estimated 67 percent of policies issued in 2010 would have been partnership-qualified if all states had partnership programs that followed the Deficit Reduction act guidelines. More than 80 percent of sales are partnership-qualified in five states, but the average for all DRA partnership states is lower because implementation is not yet complete in all states.
• Life/LTCI and annuity/LTCI hybrid, combination or linked products are growing. This growth is due to their pricing stability compared to past stand-alone LTCI policies, attractiveness compared to low-yielding certificates of deposit, and benefits paid upon death or lapse. These products can be part of a person’s plan for long term care, may supplement stand-alone LTCI, and are likely to be much less impacted by CLASS. If interest rates rise sharply in the future, a major 1035 tax-free exchange to the hybrid annuities market might develop.
• Multi-life sales (individual policies sold through employers or other groups) accounted for about 25 percent of new policies sold in 2010. Look for the August 2011 issue of Broker World magazine for more analysis.
Market Perspective
The economy seemed to depress sales in 2009, but sales bounced back a bit in 2010 after the health bill passed. In early 2011, sales appear to be increasing further.
• The government’s intention to launch a government-run LTCI program (CLASS) in 2013 is stimulating worksite sales. The government intends to spend $93 million to promote CLASS, which most everyone agrees will increase private LTCI sales in the short run. However, long-range prognostications about CLASS range from a permanent boost to total elimination of the industry. Some believe the private LTCI industry will gravitate to selling policies which supplement CLASS, but there are many significant hurdles that would have to be overcome.
• An estimated 67 percent of the policies issued in 2010 would have been partnership-qualified if all states had partnership programs that followed the Deficit Reduction Act guidelines. More than 80 percent of sales are partnership-qualified in five states, but the average for all DRA partnership states is lower because implementation is not yet complete in all states.
• Life/LTCI and annuity/LTCI products (often referred to as hybrid, combination or linked products) are growing. This growth is due to their pricing stability compared to past stand-alone LTCI policies, attractiveness compared to low-yielding certificates of deposit, and benefits payable upon death or lapse. These products can be part of a person’s plan for LTC, may supplement stand-alone LTCI, and are likely to be much less impacted by CLASS. If interest rates rise sharply in the future, a major 1035 tax-free exchange to the hybrid annuities market might develop.
• Multi-life sales accounted for about 25 percent of new policies sold in 2010. (Look for the August issue of Broker World magazine for more analysis.)
• In 2010, the industry shifted toward less expensive policy designs. As detailed in the Statistical Analysis section: The percentage of lifetime benefit period policies dropped from 15.2 percent to 13.2 percent. The percentage of policies issued with elimination periods of 90 or more days increased from 76.1 percent to 80.5 percent. The average maximum daily benefit purchased increased slightly, but the benefit increase provisions were less robust, resulting in a 2 percent decrease in the projected maximum daily benefit at age 80 for someone who buys at age 58, the average issue age in 2010.
Partnership Programs. As of January 1, 2011, the participants sold partnership products in an average of 24 states (up from 18 states a year ago and 11 as of January 1, 2009). One company did not sell partnership policies anywhere; at the other extreme, two reported offering partnership policies in 33 of the 39 states which now permit partnerships and three reported selling in 32 states.
Implementation continues. Minnesota led all states with 86 percent of its policies being partnership-qualified followed by North Dakota with 84.5 percent; Virginia, 82.9 percent; Wisconsin, 81.1 percent; and Nebraska, 80.5 percent.
Because of differing laws, the original partnership states lagged in this regard: California-40.9 percent, Connecticut-39.5 percent, Indiana-53.4 percent, and New York-31.0 percent. Of the companies that participated in this year’s survey, only three sell partnership policies in California, whereas eight sell partnership policies in Connecticut (the original partnership states). Furthermore, the percentage of total policies (partnership and non-partnership combined) sold in the four original partnership states has dipped from 19.4 percent in 2007 to 18.2 percent in 2010, perhaps because of the new partnerships. Of interest is that sales increased steadily when these four states were the only ones with partnership programs. Perhaps LTCI sales could be increased if these states adopted the new partnership rules.
If states had DRA-type partnership programs, it is estimated that 67 percent of the policies issued in those states during 2010 would have been qualified. This estimate was arrived at by (1) calculating how many policies issued at ages under 61 had permanent level premium, compound increases of 3 percent or more, or had a permanent level-premium CPI feature (64 percent); (2) adding in those policies with 5 percent simple for ages 61-75; and (3) recognizing that all policies above issue age 75 would qualify. In a few circumstances, these policies would not qualify in a DRA-partnership state, but we think there are more situations where we have not counted policies which would qualify.
Statistical Analysis
As noted earlier, MetLife and Northwestern Mutual, as well as all the carriers whose products are displayed in this survey, have contributed to the following statistical analysis. Some insurers were unable to contribute data in some areas.
Sales characteristics vary significantly from one insurer to another. Hence, variations in results from one year to the next may reflect a change in which insurers participate in the survey as well as any underlying change in the industry’s sales patterns.
• Market Share
The number four carrier in 2009 (measured by new annualized premium) discontinued sales late in 2010 and the number one carrier for 2009 increased prices substantially in the second half of 2010. As a result, there was a major shift in sales by carrier, but it is largely masked by 2010 full-year data. Thus, the top two carriers produced 54 percent of the survey’s estimate for the entire industry (temporarily up from 47 percent last year) and the top 10 produced 88 percent (up from 84 percent last year).
Table 2 lists the top 10 participants in terms of new paid annualized 2010 individual premium. John Hancock barely held on to first place, but will drop in 2011. Mutual of Omaha/United of Omaha and Prudential showed the most growth compared to 2009. MetLife will drop off the table in 2011 and Berkshire will drop in 2012; thus, significant shifts in market share will occur in the next two years.
• Characteristics of Policies Sold
Average Premium and Persistency. Ignoring single premium sales, the average new policy premium increased 1.6 percent, from $2,182 in 2009 to $2,218 in 2010. The lowest average size premium among participants was $1,111 and the highest was $4,207. The average premium per new purchasing unit (i.e., one person or a couple) increased from $3,078 to $3,259. The average in-force policy premium for participants decreased from $1,840 to $1,815.
Issue Age. The average issue age (57.9 in 2010) has fluctuated between 57.7 and 58.1 since 2006. Table 3 shows that the percentage of sales in the 55 to 69 range has grown each of the past two years, with a reducing percentage of sales below age 55 and above 69. Few carriers issue above age 79. Table 4 shows more detail.
Benefit Period. Table 5 documents the continuing drop in lifetime benefit period (BP) sales since 2004, when 33.2 percent of the policies sold had a lifetime benefit period. Five carriers do not offer a lifetime benefit period, yet six carriers reported those sales were more frequent than any other benefit period for 2010.
Shorter benefit periods (two years or less) were less common in 2010 than in the past four years. However, a major carrier is just releasing a one-year benefit period and the partnership programs should encourage more such plans.
Three- and four-year benefit periods accounted for 42.4 percent of the sales, up from 39.4 percent.
The average length of fixed benefit period policies dropped 1.4 percent, but remained 4.2 years, which under-values the coverage sold because of the shared care factors discussed below.
Most shared care policies allow a claimant to dip into the spouse’s policy if he has exhausted his 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, and that added value is not reflected in the 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 is an overstatement when an eight-year joint shared policy is sold. Each insured is then counted as having an eight-year benefit period, but together they have only eight years.
Maximum Daily Benefit. The average maximum daily benefit is about $155 per day. This year, the $200-plus initial maximum daily benefit (MDB) category was subdivided. Also the less than $50 and $50-$99 categories were combined because $1,500 per month policies were being classified as less than $50 (see Table 6). If multi-life is excluded, the percentage of sales below $100 per day drops from 12 to 11 percent.
Benefit Increase Features. After holding steady in the past, sales plummeted in 2009 and 2010 for permanent 5 percent compound increases with premiums intended to stay level. They dropped 6.4 percent (arithmetically) in 2009 and 6.3 percent in 2010. Permanent simple 5 percent increases have fallen steadily, but more slowly, for four years.
Those options have been replaced by level premium options with permanent CPI increases and by other compound benefit increases, most notably 3 percent, as shown in Table 7.
More than one-fourth (25.5 percent) of the policies had no benefit increase feature or a future purchase option or a deferred benefit increase option.
The deferred compound option allows purchasers to add a level premium compound benefit increase within five years of issue if they have not been on claim. If clients exercise those options, policy benefits will approach those of level premium permanent fixed increase policies. If clients do not exercise those options, these policies become no benefit increase policies.
Based on data from five participants, 27 percent of 24,910 people exercised future purchase options that were available in 2010. The percentages varied from 9 to 43 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) and the buyer gravitates toward fixed income.
Elimination Period. The percentage of policies with 30-day or shorter facility elimination periods (EP) dropped from 12.2 to 8.7 percent, sharply accelerating a trend. However, 26.6 percent of the policies included a zero-day home care EP coupled with a longer facility EP. Many policies in the 31 to 89 day category have 84-day EPs, so we intend to broaden the 90 to 100 day category to 84 to 100 days next year (see Table 8).
Sales to Couples and Gender Distribution. Sixty-one percent of buyers were part of couples who both bought in 2010, 16.5 percent were reported as one-of-a-couple purchasers, and 22.5 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, 35.1 percent of the couples in 2010 were reported to insure only one person; however, that is understated because carriers that don’t offer one-of-a-couple discounts classify such buyers as single people. Companies with one-of-a-couple discounts that were on the order of half the both-buy discount reported that 40.5 percent of couples insured only one person. Yet companies with the less attractive one-of-a-couple discounts reported that 27.8 percent of couples insured only one person.
A few insurers were able to share data which showed that when one partner was declined, approximately two-thirds of the well spouses accepted their policies.
Overall, our analysis suggests that 58 percent of buyers are women, but 71 percent of single people who buy are female. Generally, a higher percentage of single buyers are women than of one-of-a-couple buyers.
Shared Care and Other Couples’ Features. In 2010, 41 percent of couples who both bought limited benefit period policies (eligible couples) purchased shared care; 44.8 percent bought shared care if it was offered by the insurer.
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 2010, 23.1 percent of policies sold to couples-both-buying included joint waiver of premium and 24.6 percent included survivorship.
Existence and Type of Home Care Coverage. Four participants reported home care only policies, which accounted for 3.3 percent of sales. Although nine participants reported 2010 sales of facility only policies, those policies accounted for only 1 percent of total sales.
More than 97 percent (97.5 percent) of the comprehensive policies included home care benefits at least equal to the facility benefit.
Most policies (57.6 percent) use a weekly or monthly reimbursement design, while 38.2 percent use a daily reimbursement home care benefit. Thus, 95.8 percent use a reimbursement method. Indemnity (2.2 percent) and cash/disability (2.0 percent) are becoming less common and well over 80 percent of the 2010 indemnity benefits were sold by carriers that will have stopped offering the feature by the end of 2011.
Partial cash alternative features are becoming popular. In lieu of any other benefit that month, these features allow policyholders to use a percentage of their benefits (between 33.3 and 50 percent) for whatever purpose they wish. Nearly ten percent (9.6 percent) of 2010 policies included a partial cash alternative feature.
Other Characteristics. Fewer than 2 percent (1.7 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 93 percent of those provisions were elected options requiring additional premium.
Fifteen percent of the policies included restoration of benefits (ROB) provisions, which restore used benefits when the insured does not need services for at least six months. Slightly more than half of the ROB features were automatically included.
Fewer than 2 percent (1.4 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.
As anticipated, the percentage of policies issued on a non-tax-qualified (NTQ) basis dropped below 1 percent. Only 4.2 percent of our participants’ in-force policies are NTQ.
Limited Pay. Single premium sales more than tripled from 21 policies to 72 policies, while the premium jumped eightfold to $3.5 million. However, two of the three insurers that sold single premium policies in 2010 have temporarily stopped doing so in 2011 due to the low interest rate environment.
In 2010, 1.9 percent of policies were issued on a ten year pay basis and .4 percent on a pay to age 65 basis. Only .1 percent used all other non-level premium patterns combined. The other 97.6 percent of the policies use lifetime premium payment. Limited pay policies are much more expensive than in the past and the likelihood of future premium increases on lifetime pay policies has substantially reduced. Nonetheless, four participants have raised rates on policies filed under rate stabilization laws.
• Underwriting Data
Case Disposition. In reviewing this section, please note:
• Placed percentages reflect the insurer’s perspective; a significantly higher percentage of applicants is offered coverage because applicants who are denied by one carrier are often issued coverage by another carrier.
• If a carrier accepts 70 percent of its applicants without modification but issues joint policies, it might issue only 49 percent of its couples’ applications without modification, since either applicant might not be acceptable in the applied-for class.
In 2010, 66.9 percent of applications were placed, an improvement back to 2008 results, despite a slight dip in those issued as applied for. The declination rate continued to rise-up to 20.1 percent (see Table 10). Fewer applications were suspended, withdrawn, not accepted or returned during the free look period.
Of the issued cases, 4.8 percent were modified, rather than issued as applied for.
All carriers declined between 15 and 30 percent of their applicants except two carriers-one at 13.1 percent and another at 34.6 percent.
For the first time, we can split out some business issued on a simplified underwriting basis. Removing such business exposes that the decline rate for fully underwritten business was 20.5 percent.
Underwriting Tools. Table 11 shows the percentage of companies that used each underwriting tool and the reported percentage of applications that were underwritten using that tool. The increased use of medical records should reduce the risk of future rate increases. Medical Inspection Bureau (MIB) and prescription profile usage is likely to increase.
Underwriting Time. Table 12 shows that average reported time from receipt of application to mailing of the policy has increased significantly in the past two years. The average processing time was 31 days in 2010, but three-quarters of the insurers reported average processing time of fewer than 30 days. Two carriers reported averages more than 40 days, skewing the average.
The increase in processing time from 2008 to 2009 was largely attributable to a change in participating insurers. However, in 2010 almost all companies reported longer processing times-mostly longer than in 2008. Increased use of medical records is important for sound underwriting, but contributes to longer processing times.
Rating Classification. A higher percentage of cases were issued in the most favorable rating classification (47.3 percent) than in many years, even though most carriers issued a lower percentage in that classification in 2010 than 2009.
The percentage rated in the best rating classification varies from 8 to 100 percent among carriers, and the percentage rated in the third-best (or worse) rating classification varies from zero to 69.7 percent. Six participants placed 21 to 30 percent of their applicants in their most favorable classification, and seven placed 40 to 55 percent in their most favorable classification. Only two carriers placed fewer than 85 percent of their cases in their two most favorable rating classifications (see Table 13).
Product Details
This section describes and summarizes, row-by-row, the information displayed in the exhibit. Because many features cannot be fully described in limited space, please seek more information from insurers, as appropriate. The abbreviations in the exhibit include the following (see Table 14 on page 23).
• Company Name (rows 1 and 56) lists the participating carriers in alphabetical order at the top of each page. Each company could display as many as three products.
• Policy Type (row 2) distinguishes between comprehensive, home care only and facility only products. However, some products are listed as comprehensive, yet are available as facility only and/or home care only as well. Between row 2 and the “Comment” rows (55 and 105), seven carriers are identified that offer facility only coverage and three carriers that offer home care only. For the first time, we are including three products sold exclusively in the worksite, and they all are comprehensive policies.
A product is identified as “Disability” (full benefit if someone becomes chronically ill) if it is always sold that way for all levels of care. There is one such disability product this year. There are no products with a 100 percent disability option, but three products offer indemnity coverage (full benefit if someone is chronically ill and incurs a qualified cost) for a higher premium (see row 38).
Where appropriate, we have inserted indicators such as “Disability,” “Facility Only” to indicate why a particular row might not apply to that product.
• Product Marketing Name (rows 3 and 57) is the product’s common brand name.
• Policy Form Number (row 4) is generic and may vary by state.
• Year First LTCI Policy Offered (row 5) is the year the insurer first offered individual LTCI coverage. If group LTCI was sold earlier, that group date is also shown.
• Year Current LTCI Policy Was Priced (row 6) is the year the current product was most recently priced.
• Jurisdictions LTCI Available (row 7) generally shows the jurisdictions in which the insurer sells, or intends to sell, LTCI. A displayed product may not be available in all of these states.
• State Partnerships (row 8) identifies the number of state partnerships in which the insurer participated as of January 1, 2011, and specifically identifies any of the original four state partnerships (CA, CT, IN and NY) in which the insurer participates.
• Financial Ratings and Ranking (rows 9-14) lists each company’s ratings from the four major rating agencies (A.M. Best, Standard & Poor’s, Moody’s, and Fitch) and its COMDEX ranking as of May 1, 2011.
The COMDEX ranking is from VitalSigns, a publication of EbixLife, Inc. EbixLife converts each company’s A.M. Best, Standard & Poor’s, Moody’s, and Fitch ratings into a percentile ranking. For insurers rated by at least two of these rating agencies, EbixLife produces a COMDEX ranking by averaging that insurer’s percentile rankings.
The COMDEX ranking has two key advantages: it combines the evaluations of several rating agencies and its percentile ranking makes it easier to understand how a company compares to its peers.
• Financials (rows 15-18) reflect the insurer’s statutory assets and surplus (in millions) for year-end 2010, and the percentage changes from year-end 2009. These figures do not include assets and surplus of related companies nor do they reflect assets under management.
• LTCI Premium (rows 19-22) lists (1) the annualized premiums (in millions) for policies sold in 2010, (2) policies in-force on December 31, 2010, and (3) the percentage changes from the previous year. If single premium sales are included in the annualized premium, the amount of single premium is disclosed parenthetically.
• LTCI Lives Insured (rows 23-26) counts joint LTCI policies twice, because two lives are covered in such policies. The number of lives c
