This column has been relatively successful at just skirting the edge of a direct and personal attack on current industry practice or specific company indiscretions fueled by strategic wrong thinking. Not this month—there is simply no more room for political correctness on this subject. The time has come to call for the immediate end to the detrimental use of placement ratios in long term care insurance. This is a sentiment that has been bubbling to the surface for some time. Under present conditions it no longer reflects any meaningful measurement. There is absolutely no predictive or redemptive relationship that connects with the reality of distribution behavior. I have never enjoyed being punished for something over which I have no control. This is like threatening to cut off my electricity because I have not been adequately monitoring my personal contribution to global warming. This is an unfortunate remnant of a past that no longer exists. I categorically refuse to be judged by circumstances not of my making. I vehemently reject the notion that I can control the underwriting and placement of individual stand-alone LTCI. The prevailing premise of this recurring and entrenched madness is that the field is intentionally sending in bad business and then not working hard enough to get it placed. Horse Hockey!
In the dim and murky past of LTCI sales there might have been a reason for measuring submitted versus paid applications. In a distant and almost forgotten universe where the average age of buyers was 50 percent higher than today, premiums at least 50 percent lower and underwriting perhaps not as experienced it may have had some meaning. Maybe like the mythical Brigadoon somewhere in the highland mists there was a temporary and visible rationalization process to scrutinize bad applications and punish the evildoers that intentionally wasted everyone’s time and money. Perhaps once upon a time you might have been able to make an argument that there was some intrinsic value to holding distribution’s feet to the placement fire. That world is dead and gone, never to return. Individual sales no longer originate or conclude from the same sources. As we know, they are originating with much younger, wealthier and healthier consumers.
Look, I get it! Almost half of those who attempt to run the LTCI underwriting gauntlet no longer have any real prospect of crossing the finish line. I have simply had it with the notion that distribution is in a position to influence the current course of placement success in any meaningful way. The cost of doing business in this manner is patently absurd for all concerned. Neither of us can continue to operate in this manner. It must be clearly understood that the current financial pain is shared equally by company and distribution. The field is not intentionally throwing bad spaghetti against a Teflon and Pam sprayed wall. We understand that protecting the initial integrity of new business is critical to our mutual survival. We understand that the companies wish to accept every ‘good’ application possible and must reject those tainted by known and measurable future risk.
So whom is to blame for the unbelievable mess in which we all now find ourselves? There is more than enough responsibility to go around. Declines have been around 15 percent for many years. However, over the past 18 to 24 months they have risen to 25 to 30 percent. The prevailing assumption is that the field is simply submitting more bad business. Even if the numbers bear out that theory the question not being asked is why? Field underwriting has been abbreviated and discounted by the companies. Distribution does ask basic traditional pre-screening questions. The majority of agents and agencies understand that there is no point in even running numbers on prospective insureds without some degree of belief in completing the process successfully. Company sponsored “Underwriting Helplines” are frankly not helpful. What we know and ask about will not be the problem anyway. Some companies are even relying on extra-terrestrial (sorry I meant extra-territorial) para-meds to find those worthy of protection. Rarely is anyone knowingly submitting cases known to fail. Everyone involved will lose: client, broker, company and general agency. Then why so many declines? I submit that it involves the nature of today’s sales and the reduced veracity of proposed insureds in that environment. Every LTCI sale that has ever taken place involves some degree of adverse selection. The buyer always has some perception of future risk and expense. By definition they believe something seriously adverse could happen to them. Being completely honest with an insurance company that might pay their bills is asking a great deal of American consumers. A senior underwriter of one of our leading insurers recently explained that the number one reason for declines was incorrectly reported height and weight, not undisclosed medical conditions. The second most frequent reason for declines was diabetes. I suspect not “if they had it” but “how severe is the current pathology.” Please explain how the field could increase the accuracy of evaluating the clinical reality of that illness or, like some carnival con man, accurately guess someone’s actual height and weight?
The same is true in terms of the increase in withdrawn applications and not taken policies. The question is again not being asked: Why have these placement categories also risen so dramatically? More important, why should the responsibility for this problem fall most heavily on distribution? Frankly there is a crisis of faith in LTCI. Perpetual rate increases compounded by periodic and persistent bad press, much of which is a self-inflicted wound, has not helped new sales. In addition, rising declines directly affect placement—particularly when one spouse or the other does not make the cut.
The bottom line is that onerous and actionable (in the form of withheld bonus compensation) placement ratios are a myopic and outdated response to a problem that is much larger and cries out for a wiser and better focused solution. The corollary truth is that together we must find a better way to write and accept quality business.
Other than that I have no opinion on the subject.
