The Long Term Care Insurance Survey 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, using individual policies. 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.)
The July 2015 issue of Broker World reported on the overall LTCI market. Its policy exhibit displayed three WS products (John Hancock, LifeSecure and Transamerica). Three other participating companies (LifeCare, MassMutual and New York Life) showed worksite discounts in their display of their “street” products. Mutual of Omaha displayed a common-employer discount, but that discount is expressly not a worksite program.
This article compares the survey’s WS sales to its individual LTCI policies that are not worksite policies (NWS) and to its total individual sales (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 2015 LTCI Survey provide discounts and/or underwriting concessions for WS LTCI. All, except LifeCare which had no sales, contributed data to this article. In addition, Northwestern and MedAmerica contributed data (MedAmerica discontinued worksite sales in 2014). Only two companies provided information about simplified underwriting. To the best of our knowledge, our reported sales figures represent the entire worksite LTCI industry except for Genworth true group sales.
Comparisons to 2013 are not consistent with last year’s article because we added New York Life data to both years, and one carrier restated its 2013 worksite sales significantly.
Highlights from This Year’s Survey
• In 2014, participants reported sales of 13,460 worksite policies for $20.1 million of new annualized premium, a 3.9 percent drop in policies sold, and a 14.6 percent drop in new annualized premium compared to 2013. The worksite sales decrease (especially in policy count) does not look bad compared to the total sales decrease of 23.8 percent in terms of policies and 21.8 percent in terms of annualized premium. While the average premium for sales “on the street” increased, the average worksite premium per policy dropped 11 percent, from $1,684 in 2013 to $1,496 in 2014.
• Worksite market shares (See Table 1) changed markedly, as three carriers reported an increase in WS premium and six reported a decrease. Three carriers (one with an increase) reported sales but discontinued worksite sales in 2014.
• Reported WS LTCI sales accounted for 10.2 percent of the policies sold in the industry (up from 8.0 percent in 2013) and 6.1 percent of the annualized premium (up from 5.8 percent). One carrier got more than half of its new annualized premium from WS sales and another got more than one-third. No other carrier got as much as one-seventh of its sales from WS sales.
• The number of policies per case was particularly interesting. Two carriers reported an average of 34 to 35 policies per case. Two others reported an average of two policies per case. Selling executive carve-out LTCI to just one or two owner-employees and their spouses may become more difficult because of the shift to gender-distinct pricing.
• As occurred last year, the WS market had a higher average benefit period (4.28) than the NWS market (4.04).
• Only 41.7 percent of WS policies met partnership qualifications (down from 51.6 percent in 2013 and 57 percent in 2012), compared to 50.2 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, i.e., no benefit increases, and choose not to buy such increases at their own expense). The July issue of Broker World demonstrated the value of the partnership concept and outlined a number of ways to increase partnership success.
Market Perspective
Higher prices continue to erode voluntary WS sales, and the impact of the industry’s shift to gender-distinct pricing has not yet been fully reflected. Voluntary WS LTCI sales may gravitate toward combo products more quickly than the NWS market.
An insurer’s sales distributions can vary greatly from industry averages because the insurer focuses on a different sub-market. Furthermore, our survey 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 NWS market. (Note: One carrier restated 2013 WS sales.)
Issue Age. Table 2 shows that the WS market has nearly four times as much concentration below age 40 as the NWS market.
The average age of purchase in 2014 was 7.5 years younger in the WS market (49.5) than in the NWS market (57.0).
Rating Classification. Not surprisingly, despite its younger age distribution, the WS market has a much lower percentage of policies issued in the best underwriting classification because simplified underwriting precludes the most favorable classification.
Benefit Period. Table 4 demonstrates that the WS market had a lot more four-year and eight-year benefit periods than the NWS market. That’s because the largest WS sales company sells 33.3-month, 50-month and 100-month benefit periods that get mapped into three, four and eight years. The WS market also had a lot less lifetime benefit period. Because benefit periods have shrunk so much in the NWS market, the past huge difference between NWS and WS benefit period distribution has evaporated.
Maximum Monthly Benefit. Table 5 shows that nearly two-thirds of the WS market consists of sales below $150/day compared to 39.0 percent for the NWS market. Thus, the average initial maximum benefit for WS sales is approximately $124/day compared to $171/day for the NWS market.
Benefit Increase Features. Table 6 shows a lot of differences between the WS and NWS markets. In 2014, the WS market dropped back to the level of the NWS market, as regards level premium 3 percent compound increases, and in other types of compound increase features it stayed much below the NWS market. The WS market had 57.5 percent of its policies sold with either no increases, a deferred option or future purchase options (FPOs), compared to 38.3 percent of NWS policies, an even larger disparity than in 2013, which in turn was much larger than in 2012.
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/hour cost for non-professional home care (which is the median cost according to Genworth’s 2015 study), the typical worksite sale’s average maximum daily benefit of $124 would cover 6.21 hours of care per day at issue, whereas the typical “on the street” average daily benefit of $171 would cover 8.54 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, using methodology 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 (on page 26).
Table 7 shows that the average WS policy would reimburse 73 percent as much care as would the average “street” product on day one. Although the disparity grows over time if the inflation rate is 3 percent or more, even with 6 percent inflation, the average WS policy would cover more than two hours of home care at age 80.
Table 7 suggests strongly that “something is better than nothing” because even two hours of commercial home care can be a huge blessing! However, it is important to remember that:
1. Results vary significantly based on an insured’s issue age, initial maximum daily benefit and benefit increase feature, as well as the inflation rate and the age at which the need for care occurs. Many buyers would have lower purchasing power than the averages shown above.
2. Buyers might not expect that, on average, the group’s purchasing power at age 80 would be less than half of what it was at issue, if the inflation rate is 5 percent. It is important to educate purchasers so they have reasonable expectations.
3. The above does not reflect the cost of professional home care or a facility. If worksite buyers expect their purchase to cover a large part of the cost of a nursing home, most buyers who enter a nursing home might be very disappointed at claim time.
4. 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.
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 ages 60 or less. For ages 61-75, 5 percent simple increases also qualify, and for ages 76 or older, policies qualify without regard to the benefit increase feature. Table 8 identifies the percentage of policies that 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 and to 41.7 percent in 2014. Both the WS and NWS percentages dropped by 10 percent arithmetically between 2013 and 2014, but the overall total market percentage dropped 12 percent because the WS market was a larger percentage of the total market in 2014 than in 2013. Our July survey article identified several 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. The total market clusters to 90-day elimination periods (EPs). For that reason, most advisors think it is not a good use of time to offer multiple EPs in the WS market. Hence the WS market is 95 percent weighted toward 90-day EP.
The zero-day home care elimination period (in conjunction with a longer facility EP) was more common in the WS market than in the NWS market in 2013 because the carriers that sell such features were more active in the WS market. That switched in 2014. In 2014 the calendar-day EP was more common in the WS market than in the NWS market. The WS market was even more weighted toward calendar-day than the statistics suggest, because a carrier with a 90-day EP that applies only when the client enters a facility identifies its EP as a “service-day” EP. The EP definition is practically identical to a calendar-day EP.
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 (WS couples insure only one spouse 60.4 percent of the time, whereas only 40.7 percent of NWS couples insure only one spouse), a slightly bigger discrepancy than in 2013, continuing a trend. Particularly in core/buy-up programs, employers are likely to pay for the employee but not the spouse.
The percentage of single people among WS insureds is 23.9 percent compared to 20.2 percent in the NWS market, probably because the WS market is younger and because of core programs.
The above factors cause the percentage of both-buy couples to be much lower in the WS market.
The percentage of female sales in the WS market was 4.4 percent lower than in the NWS market. In 2013, the differential was 3.5 percent, and in 2012 it was only 1.4 percent. What is causing a lower percentage of females in the WS market?
• Perhaps employers are paying for coverage more frequently for males than for females.
• Perhaps education at the WS encourages more males to buy than is the case outside the WS.
• Perhaps the male employees are more able to afford LTCI than female employees. For example, single males may be less likely to have dependent children than single females.
• Perhaps female employees are more likely to bring the offer home and get their spouses insured.
• Perhaps the NWS market has had an artificial boost in the percentages of female buyers to get unisex pricing while they can.
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. An insurer that uses a monthly determination for all venues increased its WS market share substantially in 2014. Table 11 reflects the impact, as the percentage of WS cases with weekly or monthly determination has grown much closer to the NWS market (76.2 percent vs. 80.0 percent) than was the case in 2013.
Other Features. Return of premium (ROP) was much more common in the WS market (29.3 percent) than in the NWS market (4.2 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 WS.
Partial cash alternative was also more common in the WS market (26.6 percent) than in the NWS market (13.4 percent) because one of the two carriers offering this feature has a strong WS market share.
Shortened benefit period was less common in 2014 in the WS market (0.5 percent) than in the NWS market (1.2 percent), reversing last year’s result.
On the other hand, restoration of benefits was less common in the WS market (6.0 percent) than in the NWS market (10.1 percent) and was more likely to be embedded in the WS market than in the NWS market.
Limited Pay. In 2014, the percentage of limited pay policies in the WS dropped to less than twice the percentage in the NWS market, whereas it was nearly three times as much in 2013. (See Table 12.) Only 2.0 percent of WS sales were limited pay, compared to 9.4 percent in 2012.
Closing
We thank insurance company staff for submitting the data and responding to questions promptly. We also thank Nicole Gaspar and Taylor Schmidt 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.
