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Allen Schmitz, FSA, MAAA

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Allen Schmitz, FSA, MAAA, is a principal and consulting actuary in the Milwaukee office of Milliman, Inc. He can be reached at 17335 Golf Parkway, Suite 100 Brookfield, WI 53045. Telephone: 262-796-3477. Email: allen.schmitz@milliman.com.

2013 Long Term Care Insurance Survey

July 2013

2013 Long Term Care Insurance Survey

Claude Thau, Thau, Inc.

Dawn Helwig, Milliman, Inc.

Allen Schmitz, Milliman, Inc.

This 2013 Long Term Care Insurance Survey is the fifteenth consecutive annual review of long term care insurance (LTCI) published by BROKER WORLD magazine. The survey compares products, reports sales distributions, and analyzes the changing marketplace.

Unless otherwise indicated, references are solely to the U.S. stand-alone LTCI market and exclude the exercise of 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.

The data includes multi-life groups, which are certificates or individual policies sold with discounts and/or underwriting concessions, but not guaranteed issue, to groups of people based on common employment or affinity relationships. Except where true group is specifically mentioned, comments and data do not include sales of certificates to groups on a guaranteed issue basis.

Comparisons of worksite sales characteristics to overall sales characteristics will be discussed in the August issue of BROKER WORLD magazine.

Highlights from This Year’s Survey

• Participants

LifeSecure and Thrivent are new participants in the survey, and Northwestern, while not displayed, contributed statistical data.

Mutual of Omaha/United of Omaha did not participate this year because the company is in the midst of a product change which includes gender-distinct pricing. New pricing was not complete and the company did not want gender-neutral pricing to appear in a publication that has a shelf-life to July 2014. United Security Assurance also is taking a one-year hiatus, but is still committed to the market and is filing its product in a new jurisdiction. In both cases, their products displayed last year are still available as this article is being written, except that Mutual of Omaha/United of Omaha discontinued its worksite program.

• Sales

 • The 12 carriers that contributed statistical data to this survey sold 190,353 policies for $466,167,460 of new annualized premium in 2012, plus 188 single premium policies with $9.78 million of premium. No carriers currently sell stand-alone LTCI on a single premium basis.

 • We estimate that the entire stand-alone LTCI industry, including insurers which discontinued sales, sold 232,800 policies (0.7 percent more than in 2011) for $564.3 million of annualized premium (5.0 percent more than in 2011).

 • Ignoring single premium sales, the reporting insurers sold 9.1 percent more policies in 2012 than in 2011 and 14.3 percent more annualized premium.

 • Genworth, Prudential and Unum collectively sold true group LTCI to 114,410 new insureds, resulting in $90.039 million of new annualized premium, not including exercised future purchase options or other additions to in-force certificates.

Note: true group sales include cases transferred from other insurers. Hence reported sales may significantly exceed the number of new insureds for the industry. The average premium increased from $537 per certificate to $787, as we had anticipated, due to the shift toward insurers selling fewer core programs. In addition, Genworth and Prudential reported $5.4 million of new annualized premium from 24,735 insureds who increased coverage.

 • A higher percentage of applications (69.3 percent) were placed than in the past, at least partly due to lower maximum issue ages.

• Market Consolidation

As of April 2013, 17 insurers sell stand-alone LTCI in the United States (down from 20 a year ago), and only one insurer (down from two a year ago) sells in the true group guarantee issue market. As reflected in Table 4 (on page 6) two insurers combined to account for 60 percent of the new individual annualized premium in 2012. In 2011, it took three insurers to account for 61 percent of new premium.

Financial strength of the carriers remaining in the industry is improving. Every carrier reported an increase in assets with an average 7.8 percent increase. All but two insurers reported an increase in statutory capital and surplus, with an average 8.5 percent increase.

• Claims

 • Ten participants reported individual claims for 2012 and two reported true group claims. Their total claim payments rose to $3.035 billion in 2012, 18 percent higher than their 2011 figures, whereas their total in-force premium rose only 5.8 percent, demonstrating the “tip of the iceberg” nature of LTCI claims. These insurers have paid more than $20 billion in LTCI claims through 2012.

 • 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’s report for 2011 (the most recent report available when this was written), the industry incurred $6.8 billion in claims in 2011, boosting the industry to $73.6 billion of claims incurred since 1991. Industry incurred claims increased 9.0 percent in 2010 and 9.6 percent in 2011.

About the Survey

This article is arranged in the following sections:

 • Highlights provides a high-level view of results.

 • Market Perspective provides insights into the LTCI market.

 • Claims presents industry-level claims data.

 • Sales Statistical Analysis presents industry-level sales distributions reflecting data from 12 insurers, representing 82 percent of the policies sold in 2012. Seven other insurers (some of which no longer sell LTCI) contributed to our estimate of total 2012 individual LTCI sales.

 • Multi-Life Programs provides information about sales sponsored by employers and affinity groups. More information about worksite sales will appear in the August issue of Broker World magazine.

 • Partnership Programs discusses the impact of the state partnerships for long term care.

 • Product Details provides a row-by-row definition of the product exhibit. We have 18 products displayed, including 5 products that were not displayed in 2012. Several others have changed premiums, design options and/or multi-life parameters since 2012.

 • Premium Rate Details explains the basis for the product-specific premium rate exhibit.

Market Perspective

 • The biggest news in 2012 was the industry’s initiation of gender-distinct pricing. Two major insurers initiated gender-distinct pricing in April 2013 and two others intend to do so in 2013. Together, those carriers accounted for 57 percent of the market in 2012. Most other carriers report that they are considering gender-distinct pricing. Between the two carriers, gender-distinct pricing was implemented in 43 jurisdictions, all but CA, CT, DC, FL, HI, IN, MT and NY. CO laws forbid gender-based pricing for LTCI, but as a member of the compact, CO has ceded to the compact the right to approve sound actuarial filings even if they violate CO laws.

Gender-distinct pricing is being implemented in different fashions by different carriers and will evolve over time. For example, some insurers are not using gender-distinct pricing for couples, perhaps partly because they don’t want to offend females by showing a much higher price for them than for their husbands (females drive most decisions to purchase LTCI).

Insurers are concerned that the Supreme Court’s Norris decision might make gender-distinct pricing illegal at the federal level for both voluntary and employer-paid LTCI in the worksite. Therefore, only some insurers will be creating gender-neutral pricing for worksites. Because of the fear of anti-selection, insurers will likely require significant participation to qualify for such gender-neutral products. It will be interesting to see what, if anything, small employers will be able to obtain as the industry evolves.

In addition to the above-mentioned issues, insurers identify the following challenges involved in shifting to gender-distinct rates:

 • How much of the expected gender difference should be reflected in the premiums?

 • How can gender-distinct pricing be implemented in a way that minimizes anti-selection?

Many observers wonder whether females who bought policies which were sold with gender-neutral pricing are exposed to large future increases. We believe that state regulators will not permit insurers to differentiate a rate increase based on a parameter which did not affect original pricing.

 • The market continues to consolidate. American General, COPIC (a physicians-owned company in Colorado), Guarantee Trust, Humana, and Physicians Mutual discontinued individual sales. Prudential and Unum discontinued writing new group policies in 2012, after having discontinued individual sales in the past.

An encouraging sign: Thrivent recommenced selling LTCI in 2012. LifeSecure and Thrivent are new participants in this year’s annual survey.

As stated before, Mutual of Omama/United of Omaha and United Security Assurance are taking a one-year hiatus, but are still committed to the market. In both cases, the products displayed last year are still available, except that Mutual of Omaha/United of Omaha discontinued its worksite program.

 • Multi-life business produced 10.7 percent of new annualized premium (13.1 percent of policies). Our reported percentage of multi-life sales is much lower than for 2011, because we were unable to include AARP business in the 2012 multi-life sales. Nearly 60 percent of the 2012 multi-life sales were worksite sales. There are fewer insurers than before in the worksite market and the participation requirements for underwriting concessions have toughened.

 • Existing policyholders are continuing to see large rate increases. A major carrier announced an intended 95 percent increase, following the 2011 announcement of a 90 percent increase by another major carrier. There have been increases as large as 60 percent on business priced under rate stabilization. More recent blocks are clearly substantially more stable and a strong case can be made that insurers will see favorable deviations overall, in the future, relative to today’s pricing assumptions.

 • Lower interest rates continue to cause price increases for new sales and existing policies. If interest rates rise substantially, actuaries won’t feel comfortable projecting those interest rates, without, perhaps, expensive hedging strategies. Thus, non-participating LTCI might lose market share to participating insurers, combo products and self-insurance. A 2012 product innovation uses a low interest rate assumption and grants paid-up additions based on a formula related to excess interest. Regulators and industry professionals have an opportunity to find ways to help existing and new premiums reflect higher interest rates.

 • Independent review (IR) is starting to take root, now being required by 37 jurisdictions. Nine of 12 participants have implemented IR beyond legal requirements, by extending it to in-force business and/or offering it (sometimes contractually) in states where it is not required and/or initiating it rather than waiting for the client to do so. IR can help protect an insurer from a subsequent lawsuit. So far, we are aware of 22 cases that have gone to IR and the insurer’s denial was upheld on 18 of those cases (82 percent), which speaks well of the industry while also demonstrating the value of the process.

 • There are many efforts underway to try to help solve our nation’s long term care funding issues. The fiscal cliff deal in February instituted a 15-member federal commission on long term care which is supposed to make recommendations at about the time this article is printed. (See Mark Warshawsky’s article in this issue.)

The report seems likely to be delayed as the commission members were named late and because it is a daunting task. Meanwhile, the Heritage Foundation, Urban Institute, Jewish Federation of North America and others have convened a group of individuals with different perspectives in an attempt to find solutions. The Society of Actuaries has also created a Delphi Study group to try to find solutions. The authors of this survey are among the approximately 40 people (including many non-actuaries and some non-insurance people) involved in the Delphi Study group.

Claims

A tremendous amount of LTCI claims are paid by insurers that no longer sell LTCI and, hence, are not included in this survey. Their claims might differ significantly from data reported below because their claimants might be more likely to have facility only coverage; be older (thus, less likely to still be married); have smaller policies; etc.

Ten insurers reported individual claims for 2012 and two reported true group claims.

Table 1 shows claims distribution based on dollars of payments, whereas Table 2 shows the distribution based on number of claims. The data is biased toward facility claims because more than half of the claims in the study were fully allocated to the last venue utilized. Nonetheless, each table reflects a decreasing percentage of claim payments for nursing home confinement. However, nursing home confinement still dominates group claims.

Claims will continue to shift away from nursing homes because of preference for home care and assisted living facilities (ALFs), because home care and ALFs are increasingly available and because new sales are nearly entirely comprehensive policies (covering home care, adult day care, ALFs and nursing homes), 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. These average claims may mislead because:

 1. A lot of very small claims drive down the average. People who recover, then have another claim, are counted twice.

 2. Older policies typically had lower maximum benefits and were sold to older people, hence result in smaller claims.

 3. Twenty-nine percent of the inception-to-date individual claims included 2012 payments as did 25 percent of the corresponding group claims. It appears that a meaningful percentage of the inception-to-date claims will have more claim payments in the future. The data does not include reserve estimates of such future payments.

 4. Insurers reported some claim payments that could not be identified as to venue. Most of the individual claimants receiving these payments appeared to have received other payments which were identified as to venue, but that did not seem to be the case for group claims. Thus it was hard to determine how many claimants there were in total. As the footnote indicates, we may have overstated the average individual claim and understated the average group claim.

 5. The data was adjusted in order to make the total average claim reflect the sum of an individual’s home care, ALF, and nursing home claims. (Venue-specific average claims do not need such an adjustment.) Because some data attributed the full claim to the last venue, the by-venue average claims might all be overstated.

To the degree that policy maximums do not increase automatically and to the degree that people do not exercise future purchase options, claims will generally be low relative to the service costs incurred by the client. It is desirable to sell policies with robust benefit increase provisions.

ALF claims have high individual LTCI claims averages. Perhaps ALF claims are more recent and from more recently-issued policies, hence have higher costs and higher limits. Also, ALF claims probably last longer, on average, because there are a lot of short nursing home claims. Third, nursing home claims are less likely to be fully covered.

Statistical Analysis

In addition to the carriers’ products displayed, Northwestern contributed to this statistical analysis. Some insurers were unable to contribute data in some areas.

Sales characteristics vary significantly among insurers. Thus, year-to-year variations may reflect a change in participants or changes in market share, as well as industry trends.

• Market Share

Table 4 lists the top 10 carriers in terms of new premium for 2012, ignoring single premium sales. As mentioned earlier, two insurers accounted for 60 percent of the market in 2012.

• Characteristics of Policies Sold

Average Premium. Ignoring single premium sales, participants’ average premium per new policy was $2,449, an increase of 5.5 percent compared to $2,322 in 2011. The lowest average size premium among participants was $1,293, while the highest was $3,341, with three carriers showing a lower average premium than in 2011. The average premium per new purchasing unit (i.e., one person or a couple) rose more (by 8 percent to $3,689), reflecting that several carriers reduced couples’ discounts. The average in-force policy premium for participants increased 2.5 percent, from $1,920 to $1,968.

Issue Age. The average issue age dropped dramatically—to 56.25—after having fluctuated between 57.7 and 58.1 since 2006. Only 16.5 percent of the reduction was due to changes in survey participants. Table 5 shows that the percentage of policies in each age group from 18-54 was the highest during the displayed five-year period.

Benefit Period. Table 6 shows that the percentage of lifetime benefit period  (BP) sales jumped from 12.7 to 19.9 percent. One carrier sold 72 percent of the lifetime benefit period policies in 2012. A bigger percentage of its 2012 sales were lifetime benefit period than in 2011 and it had a much bigger market share in 2012.

The average length of fixed-benefit period policies dropped from 4.32 years to 4.14 years, which undervalues the coverage because of the shared care considerations discussed below. Most shared care policies allow a claimant to dip into the spouse’s policy, after exhausting 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, added value not reflected in our 4.14 statistic.

Some shared care policies maintain independent coverage for each insured, but add a third pool that either insured can 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.

Maximum Daily or Monthly Benefit. As indicated in Table 7, the average maximum daily benefit increased from $156 per day to $160. The $100-$199 range had its lowest percentage of sales in a long time, with more sales below $100 and $200+. The below $100 sales result from securing a small policy to supplement an existing policy or to qualify a spouse for a both-buy discount, from purchasing two policies to have more flexibility, from covering meaningful home care expenses while either co-insuring the cost of facility home care or relying on Medicaid to cover that exigency, etc. Although Table 7 displays maximum daily benefit, 73.5 percent of 2012 policies were sold with a monthly or weekly maximum, which is superior.

Benefit Increase Features (Table 8). There was a strong shift toward future purchase options—partly because of different distribution among insurers—and 3 percent compound also increased its market share, both at the expense of 5 percent compound.

Applying the distribution of benefit increase features (and making some assumptions as to CPI and election rates) to project the age 80 maximum benefit for a 58-year-old purchaser, we conclude that 2012 purchasers will have the same benefit available at age 80 as will 2011 purchasers, despite having started with a higher initial benefit. In other words, the purchasing power of the average 2012 policy at age 80 will be lower, compared to a 2011 policy, by that year’s inflation rate..

The age-adjusted benefit increase feature typically increases benefits by 5 percent through age 60, by 3 percent compound or 5 percent simple from 61 to 75, and by zero percent after age 75.

The deferred compound option allows purchasers to add a level premium compound benefit increase feature (based on its price at the age when they add the rider) 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.

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).

Several insurers provided data regarding future purchase options, but only three insurers were able to provide both the number of available options and the number exercised. Based on their data, 25.5 percent of insureds exercised future purchase options that were available in 2012. As shown in Table 9, this percentage has held fairly steady since we started reporting it. However, election rates 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. As Table 10 indicates, elimination period (EP) selections were pretty similar to 2011 except that EPs of more than 100 days increased in popularity.

The percentage of policies with zero-day home care EP (but a longer facility EP) increased from 31.0 percent in 2011 to 37.6 percent in 2012. Calendar day EP was included in 17.9 percent of the policies. One of the major non-participants issues all of its policies with calendar EP.

Sales to Couples and Gender Distribution. Table 11 shows that sixty-seven percent of buyers were part of couples who both bought in 2012, 12.9 percent were reported as one-of-a-couple purchasers, and 19.9 percent were reported as single. Tighter underwriting would tend to depress the percentage of couples who both buy, especially as the industry seems to be improving at conserving the well spouse’s policy (up to 75.8 percent based on limited data in 2012). Some insurers also lowered couples’ discounts in 2012. Nonetheless, the percentage of both-buy couples increased, perhaps due to fire sales before the reductions in couples’ discounts, as well as a change in mix of contributing insurers and a change in reporting methodology by one participant.

One-of-a-couple sales are understated because 4.8 percent of sales were reported by insurers that could not identify such sales and some insurers may not be able to identify all such sales. Hence, although the carriers reported that 12.9 percent of buyers were one-of-a-couple in 2012, the true percentage may be 14 percent, with a corresponding decrease in single insureds. Overall, 27.7 percent of the couples in 2012 were reported to insure only one person.

Overall, our analysis suggests that 54.9 percent of buyers are women, but 69.1 percent of single people who buy are female. That should change somewhat with the shift to gender-distinct pricing.

Shared Care and Other Couples’ Features. Last year, we reported that the percentage of couples who both bought limited BP policies (eligible couples) and selected shared care was surprisingly low. This year it bounced back to 39.8 percent (Table 12). Among insurers that offer shared care, 47.7 percent of eligible insureds purchased it.

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 2012, 31 percent of policies sold to couples both buying included joint waiver of premium (46.4 percent for carriers that offer that feature, because it is often automatic) and 36 percent included survivorship (53.7 percent for carriers that offer that feature).

This year we queried, for the first time, about shared care sales by BP. Table 13 combines traditional and third-pool shared care features, counting each person’s coverage based on that person’s core BP, prior to shared care.

Column A adds up to 100 percent, reporting how many shared care policies are in each BP. It shows that the highest percentage of shared care policies had three-year or four-year BPs.

Column B, on the other hand, shows for each BP, what percentage of those policies had shared care. Because each BP can have up to 100 percent shared care, the sum of the percentages in Column B is not meaningful. The BP that has the highest percentage of shared care is the eight-year BP. Readers might think that eight-year BP is sold largely by carriers that offer shared care, but that was not the case.

Existence and Type of Home Care Coverage. Two participants reported home care only policies, which accounted for 2.5 percent of sales. Five participants reported sales of facility only policies, which accounted for only 1 percent of total sales.

More than 99 percent of the comprehensive policies included home care benefits at least equal to the facility benefit. Most (73.5 percent) policies use a weekly or monthly reimbursement design, while 23.9 percent used a daily reimbursement home care benefit. Thus, 97.4 percent used a reimbursement method. Two percent used a disability or cash definition, paying benefits fully regardless of whether qualified care is purchased. Indemnity accounted for 0.6 percent of sales, but the insurer that produced the bulk of those sales has dropped its indemnity feature.

In addition to the 2 percent cash policies, 5.8 percent included a partial cash alternative, a significant drop due to a major proponent having discontinued sales and another not participating in the survey this year. If the non-participant’s data were reflected, cash alternative would have continued its dramatic increase, from 9.6 percent of the policies in 2010 to 13.3 percent in 2011 to 23.1 percent in 2012. Such features allow people to use (in lieu of any other benefit that month) a percentage of their benefits (between 33 and 35 percent) for whatever purpose they wish.

Other Characteristics. Nearly 5 percent (4.8 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 after only a defined number of years or before a particular age. Approximately 80 percent were embedded automatically; embedded features are designed to cost little, so the death benefit decreases to zero by age 75.

Nearly 9 percent (8.8 percent) of the policies with limited BPs included a restoration of benefits (ROB) provision. ROB provisions restore used benefits when the insured does not need services for at least six months. Approximately 42 percent of the ROB features were embedded. Only 0.7 percent included a shortened benefit period (SBP) nonforfeiture option. SBP makes limited future LTCI benefits available to people who stop paying premiums after three or more years.

The percentage of non-tax-qualified (NTQ) policies dropped to 0.4 percent, partly because of a change in carriers. Only 2.3 percent of our participants’ in-force policies are NTQ.

Limited Pay. Single premium sales increased from 123 policies to 188 policies, but sales were discontinued in the third quarter of 2012.

As it was being pulled off the market by most insurers, 10-year-pay policies soared in popularity also. In 2012, 6.5 percent of policies were issued on a 10-year-pay basis and 1 percent were issued on longer limited pay bases, compared to 1.9 percent and 0.6 percent in 2011.

Multi-Life Programs

Reported affinity business amounted to 5.7 percent of the 2012 new insureds and 4.3 percent of the premium. Please note that AARP sales are not included in these affinity figures, but are included in the total sales figures.

Worksite business produced 7.4 percent of new insureds (up from 7.0 percent), but only 6.4 percent of the premium (up from 5.6 percent). Worksite sales are understated because small cases that do not qualify for a multi-life discount are not considered to be multi-life. Worksite sales might be challenged in the future as several carriers have discontinued such programs, others have increased participation requirements, and the shift to gender-distinct pricing may damage the worksite market.

Partnership Programs

Forty states have partnership programs which disregard assets up to the amount of benefits received from a qualified LTCI policy, when someone otherwise qualifies for Medicaid to provide long term care services. Participants sold partnership products in an average of 29 states in 2012. One participant did not sell partnership policies anywhere. At the other extreme, two participants sold partnership policies in 38 states.

In jurisdictions participating in the Deficit Reduction Act (DRA) LTC Partnership Program, 65.4 percent of the policies issued were partnership policies, down slightly (from 66.6  percent)—probably due to reduced sale of required benefit increase features. We estimate that if partnership regulations had applied in all states and all carriers had certified their products, 64 percent of the policies issued in the United States would have qualified (down from 69 percent).

Minnesota led all states with 84.5 percent of participant policies being partnership-qualified, followed by RI (83.9 percent), WI (83.0 percent), NE (82.8 percent) and WY (80.1 percent). ME, ND and VA dropped below 80 percent in 2012. They and IA, GA, OH and TN all exceeded 75 percent.

The original partnership states lagged in this regard—CA (29.1 percent), CT (45.7 percent), IN (53.1 percent) and NY (22.7 percent)—largely because their laws inhibit participation. Of the 12 insurers that participated in this year’s survey, only three sell partnership policies in CA, four in NY, six in IN and seven in CT.

One carrier issued 87.6 percent of its policies as partnership-qualified in states with DRA partnerships. Another carrier reached 82.1 percent. The highest partnership percentages for any insurers in original partnership states were CA (51 percent), CT (88 percent), IN (84 percent), and NY (46 percent). Thus, besides the smaller number of insurers involved in the original partnerships, the original partnership designs also reduce the percentage of policies that qualify. The original states might increase partnership sales significantly by adopting the DRA partnership regulations.

Many people are concerned that with today’s higher prices, state partnerships are having less success in encouraging LTCI purchases by the middle class. A $1,500 initial maximum monthly benefit would allow someone to get approximately four hours of home care every two days and may maintain that buying power with 5 percent compound benefit increases. For many middle-class citizens, such care could be very helpful and would be even more appreciated if, thanks to the partnership, they were able to accumulate some asset disregard, despite the fact that they may ultimately need Medicaid.

Underwriting Data

Case Disposition. In reviewing this section, please note that th

2012 Analysis Of Worksite LTC Insurance

Long term care surveys have been published in Broker World magazine annually since 1999. This is the sixth year (since 2006) that this worksite-specific analysis has been published.

The worksite market consists of sales made with discounts and/or underwriting concessions to groups of people based on common employment. These sales are generally made through employers with fewer than 500 employees. They are distinguished from “true group” sales in that they do not offer guaranteed issue.

The analysis herein does not include group cases and combo products. (Also called linked benefits, combo products pay meaningful life insurance, annuity or disability income benefits in addition to LTCI.) However, worksite sales can use either group policies with certificates or individual policies; and individual policies and group certificates are collectively referred to as policies herein.

The July 2012 issue of Broker World magazine reported on the overall LTCI market. Its policy exhibit displayed products available in the worksite market, some of which are sold only in the worksite market.

This article compares worksite sales reported in the survey to total sales (other than single premium sales) reported in the survey and compares detailed distributions of worksite policies to both individual LTCI policies that are not worksite policies and to the total individual market. References are solely to the U.S. market and exclude the election of future purchase options unless specifically indicated.

The data may under-report worksite sales because, as noted below under “Market Share,” some worksite sales may not be identified as such in an insurer’s administrative system.

Many LTCI professionals look to the worksite market as an opportunity to resume industry growth. There is a significant opportunity, and sales should increase. There will be a short term artificial boost because a major competitor which sold “true group” LTCI in the small employer market has discontinued selling LTCI. The shift in such business from “true group” to worksite is likely to create an unsustainable near-term growth rate. Furthermore, it is appropriate to be cautious in projecting growth in worksite LTCI sales because young workers have higher priorities for their take-home pay than buying LTCI, and today’s higher LTCI prices dampen penetration rates.

About the Survey

Eight of the 12 insurers whose products are displayed in the 2012 LTCI Survey provide discounts and/or underwriting concessions for worksite  LTCI and all contributed data to this article. The other four insurers might make incidental worksite sales but do not identify worksite as a market. In addition to the displayed companies, LifeSecure, Prudential and Northwestern reported worksite sales, and Northwestern also contributed worksite sales distributions.

Of the insurers which sold worksite business in 2011, only Berkshire (no longer selling LTCI), MetLife (stopped selling in 2010 but issued a few residual policies in 2011) and New York Life did not report their worksite sales to this analysis. We estimate the insurers that reported worksite sales and, thus, were included in this survey, represent 80 percent of the 2011 worksite market in terms of new annualized premium. Those that contributed to the sales distributions below represent two-thirds of the 2011 worksite market.

Key Findings

 • In 2011, these carriers sold 16,000 worksite policies for nearly $30 million of new annualized premium (more than a 50 percent increase over their production the previous year). Part of the increase is due to a shift from MetLife (which sold a lot of worksite business in 2010) to this year’s participants.

 • These carriers’ worksite LTCI sales accounted for 6.0 percent of the new annualized premium sold in 2011. If we were able to include worksite sales from Berkshire, MetLife and NYLIC, worksite annualized new premium would be approximately 7.2 percent of the total industry production.

 • The 7.2 percent of total industry production translates to approximately 8.5 percent of new insured lives that resulted from the worksite market in 2011.

 • The average premium for worksite business rose 5 percent to $1,731 in 2011 and was 74 percent of the average premium for non-worksite sales.

 • Eighteen percent of the in-force annualized worksite premium and lives resulted from new sales. By comparison, for the non-worksite market, only 8 percent of in-force premium and 6.4 percent of in-force lives resulted from 2011 sales.

 • Market share varies significantly in the worksite market compared to the total market.

 • Issue age and maximum daily benefit are considerably lower in the worksite market and more than one-third of the policies do not have a benefit increase feature.

 • Only about 40 percent of the worksite policies meet qualifications for the State Partnerships for Long-Term Care program. Since the worksite market provides an avenue to reach people who are most likely to benefit from partnership programs, the industry would do well to find ways to increase the percentage of policies that qualify.

 • The worksite market is more successful in insuring both members of a couple as well as single people.

 • Preferred health discounts are less common in the worksite market because of simplified underwriting.

 • Limited pay policies are much more common in the worksite market.

Statistical Analysis

Insurers’ worksite markets can differ tremendously:

One insurer might focus on executive carve-out sales and have issue ages weighted to ages 40-65, large maximum monthly benefits and a high percentage of lifetime benefit periods, short elimination periods, robust benefit increase options, limited pay sales, couples both buying, and preferred health discounts.

Another insurer might focus on voluntary programs in the worksite, perhaps with employers buying a small amount of coverage for every employee. Such a company might have a low issue age distribution, low maximum monthly benefits, few lifetime benefit periods, almost entirely 90-day elimination periods, weak benefit increase options, many single people, and few preferred health discounts.

Consequently, sales distributions can vary from year to year partly due to a change in participating insurers.

Market Share. Market share information in the worksite market is less reliable than in the total individual market. There are several reasons why some worksite sales might not be identified. For example:

 • An insurer might sell LTCI to two business partners and their spouses without a discount or underwriting concession. Because such a business did not qualify for a discount or underwriting concession, it would not likely be classified as worksite.

 • At least one insurer classified worksite business as “affinity” business if it qualified for a discount, but not for underwriting concessions.

For the above reasons, the relative market shares in Table 1 may not be accurate, but it is clear that the worksite market is distributed differently than the individual market. Note: Mutual of Omaha and United of Omaha sales are combined below because they are related insurers.

Issue Age. Table 2 shows that nearly the same percentage of worksite sales and non-worksite sales occur in the 50-59 age range. However, the worksite market has more than three times as many sales below age 50 and the non-worksite market has more than twice as many sales at ages 60 and above.

The overall average age of purchase in 2011 was 51 in the worksite market, compared to 58.6 in the non-worksite market.

Rating Classification. As shown in Table 3, the worksite market had a much lower percentage of cases issued in the most favorable rating classification (28.3 percent) than did the non-worksite market (44.9 percent), despite having a much younger age distribution as noted above. That is because the worksite market includes simplified underwriting cases for which the most favorable classification is not available. The less frequent granting of preferred health discounts helps to permit the simplified underwriting.

Surprisingly, 10.4 percent of the worksite cases were assigned a very highly rated underwriting class. Although 94 percent of those cases came from a single insurer and may have been related to an unusual case.

Benefit Period. Table 4 demonstrates that three-year and four-year benefit periods comprise 51.9 percent of the worksite market, but only 43.2 percent of the individual market. Simplified underwriting limits contribute to that effect.

Surprisingly, benefit periods less than three years constitute a bigger percentage of the non-worksite market than the worksite market. That’s likely because the non-worksite market includes some carriers specializing in sales to elderly people.

The worksite market had a smaller percentage of policies with a lifetime benefit period than the non-worksite market (9.8 percent versus 12.9 percent)—even though a lifetime benefit period appears to be most common in the executive carve-out market.

The executive carve-out lifetime benefit period sales were diluted by simplified underwriting sales, which do not permit lifetime benefit period. Furthermore, some lifetime benefit period sales to business owners probably were not classified as worksite sales because the group was not large enough to qualify for a discount.

Of the worksite couples who both bought limited benefit periods, only 20.4 percent purchased shared care, compared to 37.3 percent in the non-worksite market. In the “true group” market, fewer couples both bought, and shared care is less common among those couples who did both buy.

Maximum Daily Benefit. Table 5 illustrates that the biggest difference in maximum daily benefit between the worksite and non-worksite market is that 19.1 percent of worksite sales were below $100 a day (and below the similar $3,000 a month size). The large percentage of small daily maximums is 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. The striking difference shown in Table 6 is that 33.4 percent of worksite policies had no increase option and another 5.9 percent had only a deferred option to add a benefit increase feature later. In the non-worksite market, the corresponding percentages were 7.6 percent and 1.7 percent. Thus, these designs were four times more frequent in the worksite market. Unfortunately, the younger age policyholders with worksite LTCI are likely to find that their policies will cover only a small percentage of their eventual long term care costs.

Only 9.3 percent of worksite policies had a future purchase option (FPO), which guarantees the right—under some circumstances—to purchase additional coverage periodically without having to provide evidence of insurability. FPO is much more common in the true group market.

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 Consumer Price Index 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 7 identifies the percentage of policies which would have qualified for partnership programs if they 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 7 because the distribution of sales would change in those states that don’t currently have partnership programs.

The worksite market provides an opportunity for the industry to serve less-affluent consumers efficiently—those who would most benefit from partnership qualification. However, only about 41 percent of the policies sold in the worksite market meet partnership qualifications.

Elimination Period. Worksite sales are more clustered to 90-day elimination

periods (see Table 8). There is less cus-tomization of this feature in the worksite market than in the non-worksite market.

Sales to Couples and Gender Distribu­tion. Table 9 shows that worksite market sales are more evenly split between the genders (48.2 percent female and 51.2 percent male compared to 57.0 percent/43.0 percent in the individual market). The worksite market is more weighted to males even though a lot more sales are made to single people (29.6 percent) than in the non-worksite market (21.7 percent), running counter to the general expectation that single females are most likely to buy.

The high percentage of male buyers may be partly attributable to employer-paid coverage. No one will refuse employer-paid coverage, and the employers might be paying for more male than female employees. Furthermore, the younger age distribution probably contributes to the gender shift. At older issue ages, there are fewer insurable men than insurable women.

Many people might anticipate that the worksite market would be less efficient in covering spouses (and significant others). Certainly the “true group” market is less efficient in that regard. However, only 27.3 percent of the worksite couples chose to buy for only one spouse, while 30.4 percent of non-worksite couples bought for only one spouse.

Of the seven companies that contributed to the couples’ analysis, five were more successful covering spouses in the worksite market, demonstrating that the phenomenon was not caused by any one carrier having peculiar results.

The greater propensity to buy for both spouses may be caused by:

 1. For younger ages, there are fewer uninsurable spouses.

 2. Simplified underwriting for employees results in fewer uninsurable spouses.

 3. For a younger age distribution, the other spouse is less likely to already have coverage.

 4. In some cases, employers are paying for the spouse.

However, the younger age distribution would lead to an expectation of more one-of-a-couple sales—especially to the degree that there are core/buy-up programs.

Type of Home Care Coverage. Table 10 shows that 98.4 percent of worksite sales had the same home care benefit as facility benefit, compared to only 91.4 percent of the non-worksite market. Stated in reverse, 8.6 percent of non-worksite policies had different daily or monthly maximums for home care than for facility care, whereas only 1.6 percent of worksite policies had that characteristic. That’s because in the non-worksite market, 3.0 percent of the policies were home care only, 1.2 percent were facility only, and 1.3 percent had a home care benefit larger than the facility benefit. No reported worksite policies had such characteristics.

The worksite market has more than four times as high a percentage of indemnity sales as the non-worksite market and 21 times as high a percentage of disability or cash sales. One insurer contributed all the indemnity sales (and no longer offers indemnity) and one insurer contributed all the cash/disability sales and had a much larger market share in worksite than in non-worksite. A second carrier also sold indemnity coverage in the worksite market in 2011, but that carrier is no longer selling LTCI and did not contribute to the worksite survey.

Limited Pay. As illustrated in Table 11, 6.3 percent of worksite sales were limited pay policies (guaranteed that premiums would stop within 20 years or by age 65), whereas only 2.2 percent of non-worksite market policies had such characteristics. Executive carve-out programs contributed to the greater percentage of limited pay policies in the worksite market.

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. 

2012 Long Term Care Insurance Survey

July 2012

2012 Long Term Care Insurance Survey

LTC Survey

Claude Thau

Dawn Helwig

Allen Schmitz

The 2012 Long Term Care Insurance Survey is the 14th consecutive annual review of long term care insurance (LTCI) published by BROKER WORLD magazine. The survey compares products, reports sales distributions and analyzes the changing marketplace.

Unless otherwise indicated, references are solely to the U.S. stand-alone LTCI market and exclude the exercise of future purchase options or other changes to existing coverage. Stand-alone refers to LTCI policies that do not include death, annuity or disability income benefits (other than returning premiums upon death or waiving a surviving spouse’s premiums). The data includes multi-life groups, which are certificates or individual policies sold with discounts and/or underwriting concessions, but not guaranteed issue, to groups of people based on common employment or affinity relationships. Except where true group is specifically mentioned, comments and data do not include sales of certificates to groups on a guaranteed issue basis. Note: Comparisons of worksite sales characteristics to overall sales characteristics will be discussed in the August issue of BROKER WORLD magazine.

Highlights from This Year’s Survey

• Sales

  • The 14 carriers that contributed statistical data to this survey sold 195,288 policies for $453,530,347 of new annualized premium in 2011 (plus $5.5 million from 123 single premium policies), 1.3 percent more policies for 7.1 percent more annualized premium in 2011 than in 2010, not counting single premium cases.

  • We estimate that the entire stand-alone LTCI industry sold 231,100 policies (2.9 percent fewer than in 2010) for $537.3 million of annualized premium (1.4 percent more than in 2010).

  • Genworth, Prudential and Unum collectively sold true group LTCI to 120,920 new* insureds, resulting in $64,979,000 of new annualized premium, not including exercised future purchase options or other additions to in-force certificates. Unum's discontinuation of group LTCI sales to new cases should cause 2012 average premium per certificate to be much higher than 2011 ($537 per certificate). Because of its many core/buy-up programs, Unum sold 3.6 times as many certificates as Genworth and Prudential combined, but only 20 percent more premium.

 *Note: True group sales figures include transfers of cases issued by other insurers in the past. Hence the amount of sales can change markedly from year to year, and reported new sales may greatly exceed the number of new insureds for the industry.

• Market Consolidation

We are aware of only 20 insurers currently selling individual LTCI and only two insurers in the true group guarantee issue market. Among current carriers, market share is shifting tremendously.

• Claims

  • Twelve participant companies reported individual (including multi-life) claims for 2011 and five reported true group claims. Total claim payments by these carriers rose to $2,653,456,000 for 2011, 13 percent over apples-to-apples 2011 figures, whereas their total in-force premium rose only 7 percent, demonstrating the “tip of the iceberg” nature of LTCI claims. Those companies have paid $18,591,242,000 in claims paid since inception, an 18 percent increase over what they had paid through 2010.

  • 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’s report for 2010 (the most recent report available when this was written), the industry incurred more than $6 billion in claims, boosting the industry to more than $55 billion of claims incurred since inception.

About the Survey

This article is arranged in the following sections:

 • Highlights (beginning on page 42) provide a high-level view of results.

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

 • Claims (on page 46) presents industry level claims data.

 • Sales Statistical Analysis (on page 50) presents industry level sales distributions reflecting data from 14 insurers, representing 93.1 percent of 2011 sales of carriers currently selling LTCI. In addition to the 13 participants whose products are displayed, Northwestern contributed data. Only one carrier, that sold at least $4 million in 2011 and is currently selling LTCI, did not contribute to this data. Seven other insurers (some that no longer sell LTCI) contributed to the estimate of total 2011 individual LTCI sales. We estimate that those 21 insurers produced 99.8 percent of the 2011 market. Three true group insurers (Genworth, Prudential and Unum) contributed to our estimate of true group sales in 2011.

 • Multi-Life Programs (on page 58) provides information about sales sponsored by employers and affinity groups. More information about worksite sales will appear in the August issue of Broker World magazine.

 • Partnership  Programs (on page 58) discusses the impact of the state partnerships for LTC.

 • Product Details (on page 64) provides a row-by-row definition of the product exhibit. There are 24 products displayed, including 4 products that were not displayed in 2011. Several others have changed premiums, design options and/or multi-life parameters since 2011.

 • Premium Rate Details (on page 90) explains the basis for the product-specific premium rate exhibit.

Market Perspective

 • When last year’s report was published, the specter of increased government competition hung over the LTCI industry. However, the government has since con­ceded that the CLASS Act was unworkable.

With increased pressure for fiscal solvency, we may eventually see Medicaid reform that could spur LTCI sales by encouraging more people to take personal responsibility for their prospective long term care needs. However, expectations change very slowly and it is unclear what percentage of the population is willing to prepare financially for an undesirable circumstance which may not occur and which, if it does occur, frequently occurs beyond age 80.

 • The market consolidated significantly. CUNA Mutual discontinued sales late in 2010 (which we did not report last year). American Fidelity, Assurity, CNA (group), Berkshire and the Wisconsin Education Association discontinued sales in 2011. In early 2012 sales were discontinued by Prudential (individual only, continuing in group) and Unum (group only, had previously discontinued individual).

What remains is 20 insurers in the individual LTCI market and two in the guarantee issue group market. (Prudential and Berkshire combined generated $50 million of new 2011 sales. Their market share will most likely shift to other carriers).

 • The top 10 insurers wrote 93.6 percent of the business in 2011, up from 88.1 percent in 2010. Genworth wrote 38 percent of the individual LTCI premium sold in 2011. Genworth, Northwestern and John Hancock wrote 61 percent of the premium. Although there have been no new entrants since last year’s report, we know three large carriers are considering entering the LTCI market.

 • In addition to fewer carriers, re-pricing continues to reshape the industry. Premiums have been raised significantly since the beginning of 2011 by five of the carriers leading in sales for 2011 currently selling individual LTCI, and three of those companies have also discontinued previously offered features or have tightened provisions.

 • Multi-life business produced 21.7 percent of new annualized premium (24.5 percent of policies), including Prudential and Northwestern, as well as the displayed participants. Worksite sales should increase in 2012 because cases that would have gone to Unum’s true group plan will now most likely be multi-life sales with other insurers.

In 2011, insurers seemed to specialize more in either the individual, affinity or worksite markets. Look below and in the August issue of Broker World magazine for more analysis of the multi-life market.

 • The quality of underwriting has improved in both the individual and worksite markets. In the individual market, more insurers use drug scripts and the Medical Inspection Bureau (MIB) (which identifies another insurer’s adverse decision relative to an applicant), neither of which delays underwriting decisions. Insurers are also getting attending physician statements more frequently, even though that does delay underwriting.

In the worksite market, the leader in aggressive underwriting concessions dropped out of the market in 2010. Within six months, several major worksite carriers backed off aggressive concessions. In the future, underwriting results could be threatened if genetic testing and at-home cognitive screening increase and insurers are unable to access results known to applicants.

 • Existing policyholders are continuing to see large rate increases. The industry was rocked this year by a 90 percent rate increase assessed on a major block of business. The good news is that the insurer wanted to reduce the risk of a series of rate increases, and sought only 23 percent on the next more recent block of business and 17 percent on the block that followed next. The recent lower increases demonstrate that the industry has substantially reduced the exposure of new purchasers to future rate increases. Indeed, a strong case can be made that insurers will see favorable deviations overall, in the future, relative to today’s pricing assumptions.

 • A problem with investment income assumptions is on the horizon and requires attention. When pricing non-participating LTCI, actuaries are currently required to guarantee their investment income assumptions. If interest rates rise substantially in the future, actuaries won’t feel comfortable guaranteeing those interest rates prospectively, without perhaps expensive hedging strategies. Thus, non-participating LTCI would likely become very unattractive. Competing insurance and investment products do not guarantee the investment yield. To help people protect against long term care needs, regulatory action should be taken to permit non-participating LTCI to compete on a level playing field.

 • Claims regulations are likely to continue to increase. Overall, the industry has done a good job of paying claims, as demonstrated by a 2010 study commissioned by the Federal government. Auditors concluded that insurers paid 3.3 percent more in claims than the auditors felt were justified under the terms of the contract. Naturally, some mistakes occur and some carriers have been severely criticized for claims denials. Slow processing has also been a problem at times. Unfortunately, the industry did not create methods to increase public confidence in claims adjudication, hence regulators felt obligated to mandate independent review (IR). Largely as a result of the interstate compact (which allows a one-stop filing to be approved for 36 jurisdictions), IR is required by 37 jurisdictions. However, few states have implemented the review panels that must be in place to make IR effective. IR will continue to mature in the coming years. Similarly, there will be more regulatory pressure for prompt claims handling.

 • Life/LTCI and annuity/LTCI products (referred to as hybrid, combination,  linked or asset-based products) continue to become a larger factor in long term care planning, accounting for more than $1.5 billion in single premium sales in 2011. These products are attractive because benefits are certain to be received; pricing has been more stable than for past stand-alone LTCI policies; and certificates of deposit have low yields. These products may supplement stand-alone LTCI. If interest rates rise sharply in the future, there may be an avalanche of 1035 tax-free exchanges to hybrid annuities.

Claims

Please note that a tremendous amount of LTCI claims are being paid by insurers that no longer sell LTCI and, hence, are not included in this survey. Their claims might differ significantly from the data reported because their policyholders might be more likely to have facility-only coverage, be older (thus less likely to still be married), have smaller policies, etc.

Twelve participants reported individual (including multi-life) claims for 2011, all of which had also contributed claims info in 2010. Five reported true group claims (only 4 had done so in 2010, so the year-to-year percentage increase removes the new participant’s data).

Table 1 shows the dollar amount of paid LTCI claims. Twelve participants paid $2,653,456,000 in claims in 2011 (13 percent more than they paid in 2010) and have paid $18,591,242,000 since inception. Group claims were 4.1 percent of the 2011 total and 3.3 percent since inception. Although group represented only 4.1 percent of survey participants’ paid claims in 2011, according to the NAIC, group claims accounted for about 10.7 percent of the industry’s total incurred claims in 2010.

Table 1 shows that the portion of claims dollars paid for home care and assisted living facilities (ALFs) is greater recently than it has been since inception. Claims will continue to shift away from nursing homes due to consumer preference for home care and ALFs; the growth of the home care and ALF industries, making such services more available; and new sales that are primarily comprehensive policies, covering home care, adult day care, ALFs and nursing homes (many older policies covered only nursing homes). Claims which could not be categorized by provider were ignored when determining the distribution by provider type.

Table 2 shows the number of LTCI claimants paid and distribution of those claims by venue. Table 3 shows the average claim paid since inception. These tables may be less reliable than Table 1 for the following reasons.

 1. One insurer participant submitted number of claim payments as opposed to number of claims. We removed that insurer, as appropriate, to maintain consistency.

 2. Eight participants counted a person who received payments for claims in more than one venue as two (or conceivably, three) claimants. Four participants avoided such over-counting of claimants. Their data indicated that such identification reduced the number of claimants since inception by 27 percent for individual and group claims combined (24, 26, 34 and 40 percent, respectively, for the four carriers). We have adjusted the number of reported claims to correct (approximately) for double counting.

 3. Participants reported some claim payments that could not be split by venue (undifferentiated); thus such claims were ignored when determining the distribution of claimants by venue. Based on the data, the number of such claims was excluded when determining the average size individual claim but included when determining the average size group claim.

Note: There were more undifferentiated group claims than differentiated group claims, so it would have been foolish to ignore them. They also had an average size of 60 percent of the other group claims. But fewer than 20 percent of the individual claims were undifferentiated and they had an average size of only 6 percent of the other individual claims.

The dollars of claims are more weighted toward nursing homes than are the number of claims. That is because ALFs and home care typically cost less than nursing home care and because some policies (especially the older ones most likely to generate claims) have lower maximums for ALFs and home care than for nursing homes.

The average claims in Table 3 may look low for the following reasons:

 1. A lot of very small claims drive down the average.

 2. Older policies typically have lower maximum benefits and because these policies were sold to older people, they resulted in shorter claims. Thus, the average claim should increase over time. Issued benefit periods are now starting to decrease, but recent issues will not be significantly reflected in claims data for many years and shared care features will offset some of the impact of shorter benefit periods.

 3. Any average which includes open claims understates the eventual average size. Thirty-two percent of the inception-to-date individual claims included 2011 payments as did 28 percent of the corresponding group claims. It appears that a significant percentage of the inception-to-date claims are still open.

 4. Some people have claims in multiple venues. The data has been adjusted in an attempt to make the total average claim reflect the sum of the home care, ALF, plus nursing home claims by the same person. Venue-specific average claims, of course, do not consider this factor.

However, to the degree that policy maximums do not increase automatically and to the degree that people do not exercise future purchase options, claims will generally be low relative to the costs incurred by the client. It is desirable to sell policies with robust benefit increase provisions.

ALF claims have high averages in the individual market. Perhaps these claims are more recent and are from more recent policies, hence have higher costs and limits. Also, on average, ALF claims probably last longer because there were a lot of short nursing home claims. In addition, nursing home claims are less likely to be fully covered.

Statistical Analysis

The carriers whose products are displayed herein (and Northwestern) contributed to this statistical analysis. Some insurers 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.

• Market Share

As described earlier, market share has consolidated. Table 4 lists the top 10 carriers in terms of 2011 new premium. The top carrier had 38 percent market share, compared to 27 percent for the top carrier in 2010. The top ten carriers produced 93.6 percent, up from 88 percent. In 2012, consolidation appears to be increasing. It might not take $10 million in sales to be in the top 10 in 2012.

• Characteristics of Policies Sold

Average Premium. Ignoring single premium sales, participants’ average premium per new policy increased 5.8 percent, from $2,195 in 2010 to $2,322 in 2011. The lowest average size premium among participants was $1,219, while the highest was $3,301. The average premium per new purchasing unit (i.e., one person or a couple) was $3,416. The average in-force policy premium for participants increased 4.2 percent, from $1,854 to $1,932.

Issue Age. The average issue age (58.1 in 2011) has fluctuated between 57.7 and 58.1 since 2006. Table 5 shows that the percentage of policies sold increased in 2011 for people ages 50-64, but decreased in all other age cells. The concentration between ages 55-64 is the highest ever.

Benefit Period. Table 6 shows the continued drop in lifetime benefit period (BP) sales, to 12.7 percent. In 2004, 33.2 percent of the sales were lifetime BP. In 2010, six carriers sold more lifetime benefit period than any other benefit period. In 2011, only 3 insurers did so.

Two-year and shorter benefit periods were less common in 2011, because a major issuer of short benefit periods ceased sales. One-year benefit periods should increase in the future because of the partnership programs.

The average length of fixed-benefit period policies increased from 4.16 to 4.32 years, which undervalues the coverage sold because of the following shared care considerations:

Most shared care policies allow a claimant to dip into their spouse’s policy, after exhausting their 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, added value that is not reflected in our 4.32 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, there is an overstatement when an eight-year joint shared policy is sold; each insured is counted as having an eight-year benefit period, but together they have only eight years. Such sales started to decrease in the latter part of 2011.

Maximum Daily or Monthly Benefit. As indicated in Table 7 the average maximum daily benefit continued to increase slightly, to about $156 per day. Although the table displays maximum daily benefit, 72.8 percent of 2011 policies were sold with a monthly or weekly maximum, which is superior. Because of higher prices, some buyers are beginning to select lower benefits, focusing on covering meaningful home care coverage and co-insuring some of the cost of nursing home care, should that become necessary.

More than 10 percent of the policies each year have had lower than $100 a day (or $3,000 a month) initial maximum benefits. One spouse might not really want coverage or might already have coverage, but buys a minimal policy to obtain a both-buy discount for the other spouse. Sometimes small policies are purchased as core/buy-up multi-life programs or to satisfy minimum number-of-lives requirements.

Benefit Increase Features. Benefit increases were as robust in 2011 as in 2010, which is surprising given some carriers’ slogans that “3 percent is the new 5 percent.” Applying the distribution of benefit increase features (and making some assumptions according to the consumer price index (CPI) and election rates) to project the age 80 maximum benefit for a 58-year-old purchaser, we conclude that 2011 purchasers will have 5 percent more benefit available at age 80 than 2010 purchasers, mainly due to the higher initial maximum daily benefit in 2011. That’s encouraging!

Three percent compound increases enlarged market share by 8.3 percent at the expense of CPI indexed increases, which were minus 6.3 percent, and 5 percent simple for life increases, which were minus 2.5 percent. We consider 3 percent compound increases to be less protective than CPI indexed increases and similar to 5 percent simple for life increases. Partly countering the greater sales of 3 percent compound increases, the percentage of 5    percent compound for life, 5 percent level for 20 years, 4 percent compound, other compound, and age adjusted increases grew from 39.2 percent of sales to 40.7 percent of sales. Future purchase options lost market share to sales with no increases and sales with deferred options.

The line in Table 8 (on page 52) labeled “Other Increases” consists primarily of benefit features which compound at 5 percent until age 65, then 5 percent simple until age 76, at which point they stop increasing. The deferred compound option allows purchasers to add a level premium compound benefit increase feature (based on its price at the age when they add the rider) within five years of issue if they have not been on claim. If clients exercise those options, benefits will approach those of level premium permanent fixed increase policies. If clients do not exercise those options, these policies will be in the no benefit increase category.

Based on data from five participants, 24.4 percent of 69,344 insureds exercised future purchase options that were available in 2011, down from 27 percent in 2010. The percentages varied from 8 to 39 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). Thus, buyers gravitate toward a flat benefit.

Elimination Period. As Table 9 indicates, policies are increasingly being sold with 90-day elimination periods (EP) for facility care, but the shift from 2010 to 2011 is misleading. In 2009, a new carrier started contributing data, and their 84-day EP boosted the previous 31-89 day cell. We concluded it would be better to include the 84-day EP with the 90-day EP. On the other hand, 31.0 percent of the policies included a zero-day home care EP coupled with a longer facility EP, up from 26.6 percent in 2010.

Sales to Couples and Gender Distribution. Sixty-four percent of buyers were part of couples who both bought in 2011—13.9 percent were reported as one-of-a-couple purchasers, and 22.1 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, 30.2 percent of couples in 2011 were reported to insure only one person.

A few insurers were able to share data which showed that when one partner is declined, approximately 73 percent of the well spouses accept their policies.

Overall, our analysis (shown in Table 10) suggests that 56.5 percent of buyers are women, but 70.1 percent of single people who buy are female.

Shared Care and Other Couples’ Features. In 2011, only 36.2 percent of couples who both bought limited benefit period policies (eligible couples) purchased shared care, a surprisingly low percentage compared to previous years (see Table 11). Of the 10 participant companies that offered shared care, eight sold it to a higher percentage of eligible couples in 2012 than in 2011, but a major carrier reported less shared care, some companies with above-average shared care dropped out of the survey, and a change in the distribution of sales among insurers all combined to overwhelm the increases for those eight insurers.

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 2011, 25.1 percent of policies sold to couples-both-buying included joint waiver of premium and 35.3 percent included survivorship.

Existence and Type of Home Care Cover­age. Three participants reported home care only policies, which accounted for 2.8 percent of sales. Six participants reported sales of facility only policies, which accounted for only 1.1 percent of total sales.

More than 96.8 percent of the comprehensive policies included home care benefits at least equal to the facility benefit.

Most (72.8 percent) policies use a weekly or monthly reimbursement design, while 24.6 percent use a daily reimbursement home care benefit, a dramatic reversal of earlier characteristics. Thus, 97.4 percent use a reimbursement method. Two percent (2.1) use a disability or cash definition, paying benefits fully regardless of whether qualified care is purchased. Indemnity (0.5 percent) is nearly extinct.

In addition to the 2.1 percent of cash policies, 13.3 percent included a partial cash alternative, up from 9.6 percent in 2011. Such features allow people, in lieu of any other benefit, to use a percentage of their benefits (between 33 and 40 percent) for whatever purpose they wish.

Other Characteristics. Two (2.3) 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 five-sixths of those provisions were elected options requiring additional premium.

Twelve percent of the policies with limited benefit periods included a restoration of benefits (ROB) provision. ROB provisions restore used benefits when the insured does not need services for at least six months. Approximately 62 percent of the ROB features required additional premium.

Only 1 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.

The percentage of non-tax-qualified (NTQ) policies remained below 1 percent (0.9). Only 4.3 percent of participant companies’ in-force policies are NTQ.

Limited Pay. Single premium sales increased from 72 policies to 123 policies, while the premium rose from $3.5 million to $5.25 million. Only one insurer offers such policies.

In 2011, 1.9 percent of policies were issued on a 10-year-pay basis and 0.6 percent were issued on other limited pay bases. Only 0.1 percent used all other non-level premium patterns combined. The other 97.4 percent of the policies use lifetime premium payment.

 Multi-Life  Programs

Affinity business produced 17.6 percent of the 2011 new insureds and 16.3 percent of the premium. Worksite business produced 6.9 percent of new insureds, but only 5.5 percent of new premium.

Worksite is understated because some of these cases were reported in affinity sales and because small cases that do not qualify for a multi-life discount are not considered to be multi-life. Although most of our statistics are based upon displayed participants, Northwestern and Prudential provided multi-life sales as well as aggregate sales and, thus, were included in this calculation.

Six participating insurers are not active in either the affinity market or the worksite market. One carrier reported that 52.5 percent of its new insureds came from the employer market, another reported that 37.2 percent of its new insureds came from the affinity market, and a third reported that 75.4 percent of its sales were either affinity or worksite.

Look for the August issue of Broker World magazine for more analysis.

 Partnership Programs

As of January 1, 2012, the participant companies sold partnership products in an average of 26 states. One participant did not sell these policies anywhere. At the other extreme, one participant reported offering these policies in 36 states.

The 12 participating companies that reported partnership sales by state had sales in a total of 38 states in 2011. Forty states now permit partnerships.

In those jurisdictions participating in the Deficit Reduction Act (DRA) LTC Partnership program, two-thirds (66.6%) of the policies issued were partnership policies. We estimate that if partnership regulations had applied in all states, 69.3 percent of the policies issued in the United States would have qualified. If all carriers had implemented DRA-Partnership policies by January 1, 2011 in all of the states that sanctioned the program, the actual percentage might have exceeded our estimates. There was a three-year span between the first insurers to adopt the DRA-Partnership program and the most recent insurers.

Maine led with 88.2 percent of participant policies being partnership-qualified; followed by Minnesota with 87.1 percent; North Dakota, 86.0 percent; Wisconsin, 85.7 percent; Virginia, 84.9 percent; and Nebraska, 82.8 percent.

The original partnership states mostly lagged in this regard, largely because their laws inhibit participation: California, 36.8 percent; Connecticut, 39.5 percent; Indiana, 56.8 percent; and New York, 31.5 percent.

Of the 15 insurers that participated in this year’s survey, only 4 sell partnership policies in California, 4 in New York, 6 in Indiana, and 7 in Connecticut.

One carrier had 66.5 percent of all of its policies qualify for partnership. Looking only at DRA-Partnership states, one company had 88.7 percent of its policies qualify. In the origin

2011 Overview Of Multi-Life Long Term Care Insurance

In 2010, Milliman began collecting demographic information about buyers in the multi-life (ML) market as well as policy configuration. This market consists of sales made with discounts and/or underwriting concessions to groups of people based on common employment or affinity relationships.

Multi-life sales are generally made to employers with fewer than 500 employees (worksite sales) or to groups of people who share something in common (such as membership in an association) other than a common employer (affinity sales). They do not offer guaranteed issue. Multi-life sales can use either group policies with certificates or individual policies (individual policies and group certificates are collectively referred to as “policies” herein).

The July 2011 issue of Broker World magazine reported on the overall individual long term care insurance (LTCI) market. Its policy exhibit displayed products available in the ML market, some of which are sold only in the ML market.

This article compares the ML sales to the total sales (other than single premium) reported in the July 2011 survey. There is also a comparison of multi-life policy distribution to both individual LTCI policies that are not multi-life (NML) and the total individual market. The survey excludes large group cases (those likely to offer guaranteed issue) and combo (linked) products that pay life insurance, annuity or disability income benefits in addition to LTCI.

The multi-life market has been a growing portion of LTCI sales. Many LTCI professionals look to the ML market—particularly the worksite market—as an opportunity to resume industry growth. There is a significant opportunity, but it is important to remember that new markets can grow at fast percentages because prior-year sales are low. It may be difficult for the worksite market to sustain the growth rate some people expect, because of (1) the economy; (2) young workers who have higher priorities for their take-home pay than buying LTCI; and (3) today’s higher LTCI prices, which dampen penetration rates.

The government intends to spend $93 million to promote the Community Living Assistance Services and Support (CLASS) Act, a government-run LTCI program intended to be unfurled in 2013 and implemented through the worksite. Almost everyone agrees that CLASS will increase private LTCI sales in the short run; however, long-range prognostications vary from a permanent boost of private LTCI sales to total elimination of the industry.

Some people believe the private LTCI industry will gravitate to selling policies which supplement CLASS, but there are many significant hurdles which would have to be overcome. Because CLASS would be available to employees only, it would have a greater initial impact on the ML market than the NML market.

About the Survey
Twelve insurers contributed data to this analysis of the multi-life market. Three of the other six insurers that congributed data to the 2011 Individual LTCI Survey do not serve this market, and the other three have very low ML sales.

In the individual LTCI survey published in 2010, 14 of 20 participants reported ML sales. The number of ML carriers decreased from 14 to 12 because one ML carrier discontinued its LTCI business and because another carrier that reported 4 ML policies sold in 2009 reported no such policies in 2010. Depending on your definition of multi-life, our data may under-report sales. For example, if an insurer has a five-life requirement to grant a discount or underwriting concession and two business partners and their spouses buy coverage, the case will typically not be recognized as a ML case. Fraternal business (i.e., business sold by an organization created to serve people with a common religion, occupation or ethnicity) is not included as multi-life. Ironically, if that same group were served by a typical insurance company which granted members a discount, it would be recorded as ML business.

Key Findings
• In 2010, the 12 carriers sold 60,239 multi-life policies (a 20.5 percent increase over 2009) for $117,438,518 of new annualized premium (18.7 percent increase).
The same carriers sold 50,005 ML policies for $98,945,942 of new annualized premium in 2009. These premium figures include exercise of future purchase options and upgrades on existing policies.

• These 12 carriers’ multi-life LTCI sales accounted for 27.5 percent of new policies issued in 2010 by all 18 companies that contributed to the overall survey, up from 26.3 percent for the same 18 participants in 2009. However, the percentage of new annualized premium that was ML was almost unchanged, 24.2 percent in 2010 versus 24.3 percent in 2009.

• Ignoring insurers that did not report multi-life sales, the 12 companies reported that 31 percent of their total sales were ML. Three insurers reported more than half of their policies being sold with ML discounts (72.4 percent, 60.1 percent and 53.2 percent respectively). Eight carriers ranged from 19.6 to 44.1 percent, with only one carrier reporting less than 19.6 percent of sales in the ML market.

• The average premium for multi-life business dropped from $1,979 in 2009 to $1,950 in 2010. The 2010 ML average size premium was 83 percent of the average size premium for NML sales ($2,341).

• Total reported in-force multi-life business consisted of 382,342 policies and $727,281,848 of annualized premium—11.5 percent of total in-force policies and 12.0 percent of total in-force premium. So the percentage of ML sales the past two years has been twice the current in-force percentage of ML, an indication of a growing market.

• Most of the multi-life sales were reported to be affinity policies (73.7 percent) and affinity premium (77.8 percent), as opposed to worksite. However, some insurers report worksite cases as affinity cases if they don’t involve underwriting concessions.

Statistical Analysis
Insurers’ multi-life markets can differ tremendously.
• One insurer might focus on executive carve-out sales and have issue ages weighted to those 40-65 years of age with a high percentage of large maximum monthly benefits, lifetime benefit period, short elimination periods, robust benefit increase options, a lot of limited pay sales, many couples both buying, and preferred health discounts.

• Another might focus on voluntary programs in the worksite, perhaps with employers buying small coverage for every employee. Such a company might have a low issue age, low percentage of large maximum monthly benefits, few lifetime benefit periods, almost entirely 90-day elimination periods, weak benefit increase options, many single people, and few preferred health discounts.

• A third might be dominated by an association of older-age individuals. Such a company would have a high issue age distribution, few lifetime benefit periods, many single people, and few preferred health discounts.

Issue Age. Table 1 shows that multi-life sales are more weighted toward ages below age 55 than are other sales. The reverse is true for ages 55 and over. The overall average age of purchase in 2010 was 57.9, but it was 55.7 in the ML market and 58.8 in the NML market.

The ML market includes segments with various characteristics: The worksite market has a young age distribution (35.5 percent of ML sales are below age 55 and that percentage would be higher for worksite business). The AARP market is entirely above age 50. The balance is other affinity business which may have a distribution similar to NML business (11.7 percent below age 50).

Rating Classification. The multi-life market had a lower percentage of cases issued in the most favorable rating classification (41.4 percent) than did the NML market (49.5 percent). But that is primarily because the ML market includes simplified underwriting cases for which the most favorable classification is not available (see Table 2).

The simplified underwriting business also causes the ML percentage of second-best classification to be higher than for the NML market.

Looking at only the ML cases that involve full underwriting, the percentage assigned the most favorable rating increases to 48.4 percent.

Benefit Period. Table 3 demonstrates that shorter benefit periods are more common in the multi-life market. Five-year benefit periods are about as common in each market, while longer benefit periods are more common in the NML market.

For the five-year and 10-plus (but less than lifetime) benefit periods, the total market percentage is not within the bounds of the ML and NML markets. That is because the total column includes sales from carriers that do not sell multi-life.

Only 8 percent of ML sales have a lifetime benefit period, whereas 15.2 percent of NML sales have a lifetime benefit period. That is partly because programs with simplified underwriting (fewer health questions) do not permit lifetime benefit period (although lifetime benefit period is available with additional underwriting sometimes) and because some small carve-out programs are not being picked up as ML.

Among limited benefit period ML policies sold to couples, 43.5 percent include shared care, whereas only 40 percent of such policies in the NML market include shared care. The companies that don’t participate in the ML market also happen to be companies that sell less shared care in the NML market. The ML market is very different from the true group market in this respect because few true group programs offer shared care.

Maximum Daily Benefit. More than half of the multi-life sales (50.3 percent) have an initial maximum benefit lower than $150/day, whereas only 42.4 percent of NML policies start with a maximum benefit lower than $150/day (see Table 4).

Benefit Increase Features and Partnership Qualification Rates. Table 5 shows a lower percentage of multi-life policies are sold without a benefit increase feature than is the case for NML policies. Multi-life policies were twice as likely as NML policies to have a CPI increase feature.

This is another striking difference compared to the group market, which sells a lot of future purchase options.

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 to 75, 5 percent simple increases also qualify and for issue ages 76 or older, policies qualify without regard to the benefit increase feature.

Table 6 identifies the percentage of policies that would have qualified for the partnership program if it had existed with those rules in all states. However, if partnerships were available in all states (with the rules cited in the previous paragraph), the percentage of partnership policies would exceed the percentages shown in Table 6, because the distribution of sales would change in those states that don’t currently have partnership programs.

The multi-life market is weighted more toward partnerships despite having a lower percentage of sales in the age 76-plus age range and despite having some core programs (where the employer pays for a small amount of coverage for all employees) that are not partnership-eligible.

Elimination Period. Multi-Life sales are more clustered to 90-day elimination periods. There is less customization of this feature in the ML market than in the NML market (see Table 7).

Sales to Couples and Gender Distribu­tion. The multi-life market had a lower percentage of female buyers in 2010 than the NML market, which might be explained by a different age distribution (many buyers above age 65 are single women). The overall market had a higher percentage of female sales than either the ML market or the NML market for the 12 insurers that contributed ML data. That’s because the carriers that did not contribute ML data had a high percentage of female purchasers, at least partly due to an older age distribution (see Table 8).

The multi-life market also has fewer sales to couples who both buy and to single people, but has more sales to one-of-a-couple.

Type of Home Care Coverage. Table 9 shows that multi-life had a similar distribution to NML sales for home care coverage except that nearly four times as high a percentage of ML policies (4.1 percent) as NML policies (1.1 percent) had a cash/disability design. A company that sells a lot of disability benefits had a larger share of the ML market than it did of the NML market.

Limited Pay. Ten-year pay and paid-up at age 65 are more prevalent in multi-life sales situations than in the NML market, yet account for only 3 percent of the ML market. As noted earlier, some executive carve-out cases have not been coded as “ML.”

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.

Data has been reviewed 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.

2011 Individual Long Term Care Insurance Survey

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

2010 Individual Long Term Care Insurance Survey

July 2010 LTCI survey

This 2010 Individual Long Term Care Insurance Survey is the twelfth consecutive annual review of individual long term care insurance (LTCI) published by BROKER WORLD magazine. This year’s survey was conducted by Milliman, Inc.
 The survey’s objectives are to provide a consolidated comparison of available products, report data regarding sales and analyze the changing LTCI marketplace.

Highlights From This Year’s Survey
 • LTCI annual premium for individual policy sales decreased in 2009. Twenty participating carriers sold 196,370 policies for $428,506,015 of new paid annualized stand-alone LTCI in 2009—20 percent fewer policies and 21 percent less annualized premium than the same 20 carriers sold in 2008. These sales figures do not include sales from future purchase options or upgrades on existing policies.
 • The industry sold 21 single premium policies for a total of $432,766, most of which was sold by carriers participating in this survey. Single premium sales more than doubled compared to 2008.
 • We estimate that the entire LTCI industry sold 225,000 annual premium individual policies for $480 million of annualized premium, down 24 percent from 2008. Carriers participating in this survey represent 90 percent of 2009 sales. Approximately 7 percent of 2009 sales were made by companies which have discontinued selling LTCI. The balance was sold by insurers that still sell LTCI but chose not to participate in this survey.
 • Survey participants covered 3,303,339 lives on in-force individual policies, up 1.7 percent. In-force annualized premium increased to a greater degree (4.2 percent) because of (1) older policies with lower premiums terminating, (2) future purchase options and other increases in coverage being added, and (3) premium increases on new and in-force business.
 • Fifteen participants reported having paid over $2.3 billion ($2,310,659,767) in 2009 and over $15 billion ($15,040,407,735) since they’ve been in the LTCI business. Clearly the LTCI industry has made a big difference for many families.
 • Claims distributions for 2009 were as follows: nursing homes—44.4 percent; assisted living facilities—14.1 percent; and home care and adult day care—41.5 percent. The dollar amount of 2009 claims was distributed as follows: nursing homes—45.5 percent; assisted living facilities—24.9 percent; and home care and adult day care—29.6 percent. Of course, industry-wide, the percentage of nursing home claims is significantly higher because carriers that are out of the business have a higher percentage of older facility-only coverages than our participants.
 • The original four partnership states (CA, CT, IN and NY), which produced 100 percent of partnership sales as recently as 2006, produced only 26 percent of partnership policies in 2009. However, the four original states produced 31 percent of partnership premium, presumably because the cost of facility care tends to be higher in those states. For more partnership data, see the “Market Perspective” section on page 38.

About the Survey
 The survey displays information on 35 products from 19 carriers. American General is new to the industry and survey in 2010. On the other hand, Allianz, Equitable L&C, and Minnesota Life, which contributed to the 2009 survey, have discontinued sales, hence did not participate this year. Other companies which discontinued sales in 2009 include the Great American family (Great American, Loyal American, and United Teachers Associates) and UnitedHealth Care. UNUM, a long term contributor to these surveys, discontinued individual LTCI sales in 2009, but continues to be a major player in the group LTCI market. Northwestern’s product is not displayed, but it has contributed to the industry statistical analysis herein.
 Only three carriers (American General, Bankers Life and Casualty, and State Farm) are displaying new products this year; however, several carriers modified their programs (most commonly, the design of their multi-life programs), while continuing to sell the same policy forms.
 This article is arranged in the following sections:
 • Market Perspective provides insights into the individual LTCI market.
 • Statistical Analysis presents industry-level sales characteristics.
 • Product Details provides a row-by-row definition and analysis of the product exhibit.
 • Premium Exhibit Details explains the basis for the product-specific premium rate exhibit.
 Unless otherwise noted, the data does not include group LTCI, combination products or sales outside the United States.

Market Perspective
 • With the exception of 2007, sales of individual LTCI have been in a slump for several years. LTCI is viewed as an expensive buying decision, one that can be delayed amid economic instability and uncertainty regarding the country’s health care financing.
 • The economic crisis has encouraged a greater amount of saving and a greater awareness of the need for protection against future economic uncertainty. As the economy rebounds and people become more confident of being able to commit to an ongoing LTCI premium, a rebound in LTCI sales could occur.
 • Health care reform legislation in 2010 included the CLASS Act, which establishes a government-run LTCI program beginning in 2013. Many younger prospects might be inclined to “wait and see” what happens in 2013. Other people may view such a program as the first step of increasing government commitment. They may justify ignoring their potential LTC needs on the theory that, by the time they need care, the government will provide their care for free or on a subsidized basis.
 • As of January 1, 2010, the participants sold partnership products in an average of 18 states (up from 11 states a year ago). The range increased from zero to 20 last year to zero to 28 states as of January 1, 2010.
 • Sixty-three percent of the policies in the new partnership states were partnership policies, whereas only 41 percent of the policies in the original partnership states were partnership policies. Some participants reported 100 percent partnership sales in some jurisdictions. The partnership percentage in the new states will increase for at least one reason—in portions of 2009, these policies were not yet available in some of the new participating states. (In states in which the new partnerships were effective prior to July 2008, 67 percent of the 2009 policies sold were partnership, whereas in the states where the partnership became effective between July 2008 and June 2009, only 59 percent of the sales were partnership policies.) In the new states, the average premium was 25 percent higher than the average non-partnership premium, whereas this differential was only 4 percent in the original states. The differences mentioned in this paragraph are attributable to the fact that many policies with level premium compound benefit increases do not count as partnership policies in the original participating states.
 • Despite the advent of the new state partnerships, the 2009 data shows some signs of benefit increase provisions shifting toward fixed future purchase options and the no increase option. More information about this aspect of LTCI is described in the “Statistical Analysis” section.
 • Multi-life sales (individual policies sold through employers or other groups) accounted for 25.7 percent of new policies sold in 2009—more than twice the 2007 percentage. The average premium for association business is $2,053 and for employer business is $1,813, compared to an average premium of $2,182 for all sales included in this survey.
 • Business tax incentives should become even more attractive as most people expect income tax and payroll tax rates to increase. However, individual tax incentives will reduce with the threshold for deductibility of medical and dental expenses increasing to 10 percent in 2013 (later for seniors).
 • The Pension Protection Act of 2006 ushered in some potentially key changes as of January 1, 2010. The expansion of 1035 exchanges should spur the sales of single premium life/LTCI combinations, annuity/LTCI combinations and single premium stand-alone LTCI. It may also spur the funding of inforce and new LTCI policies with payouts from existing or new immediate and deferred annuities.

Statistical Analysis
 In reviewing the statistical trends revealed below, it is important to recognize that characteristics of sales 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 an underlying change in the industry’s sales patterns.

• Market Share
 This trend toward market share consolidation among the largest carriers stalled somewhat in 2009 (perhaps temporarily). The top two carriers’ market share (in terms of premium) increased from 46 to 47 percent, but the top three carriers produced 55 percent of first-year premium, compared to 57 percent in 2008. The top 10 carriers (shown in Table 1) constituted 84 percent of the market individual LTCI.
 Table 1 lists participants that sold more than $10 million of new paid annualized individual premium in 2009. John Hancock passed Genworth in 2009, and Northwestern passed MetLife for third position. Mutual of Omaha and Berkshire also moved up.

• Characteristics of Policies Sold
 Average Premium and Persistency. Ignoring single premium sales, the average premium per new policy dropped 1.3 percent from $2,210 in 2008 to $2,182 in 2009, reversing a long term trend of increasing average premium. The range narrowed, the lowest average premium/policy for a participant being $1,074, while the highest was $3,843. The average premium per new purchasing unit (i.e., one person or a couple) also decreased from $3,174 to $3,078.
 The year-end in-force premium represents 97 percent of the sum of participants’ prior year in-force premium plus their 2009 sales. The same calculation for number of lives insured was 95.7 percent. Our calculation understates persistency of the previous year’s in force because we presume that no 2009 sales terminated by year end. The average in-force policy premium for participants increased from $1,803 to $1,840. These premium figures reflect premium increases on in-force policies and the exercise of future purchase options.
 Issue Age. Average issue age increased back to the 2006-2007 range, indicating that last year’s number apparently was an aberration (see Table 2). Approximately 75 percent of the insurers who participated both last year and this year reported an older age distribution in 2009, with an overall age increase of 0.7 years among those carriers. The increase in issue age is particularly noteworthy given the increase in multi-life sales.
 As shown in Table 3, the percentage of sales at ages under 35 and from 60 through 69 were greater than in either 2007 or 2008.
 For in-force policies, the average issue age was 60.7, down 0.1 from 2008.
 Benefit Period. Despite the data in Table 4, lifetime benefit period (BP) continued to be less common. The increase in lifetime BP from 12.4 to 15.2 percent of sales is attributable to a change in carriers contributing to the survey. For companies that participated in both the 2009 and 2010 surveys, lifetime BP sales dropped from 11.5 percent of sales to 10.4 percent of sales.
 Similarly, the change in carriers muted the increase in short BPs. Among carriers that contributed in both years, the percentage of policies issued with a three-year or shorter BP increased from 38.2 to 41.1 percent.
 The average BP of fixed-benefit period policies dropped slightly to 4.2 years.
 Most policies issued with a shared care feature cause the average BP to understate the amount of protection that has been issued. If two four-year BP policies are shared, each is counted as a “four-year” BP policy. While the combined benefit period is limited to eight years, either insured could use more than four years, so the value of the coverage is understated.
 When a couple purchases four-year BP policies and a third pool with an additional BP of four years, they are also counted as “four-year” policies, but either person has access to as much as eight years of benefit, and the total maximum is 12 years. However, there is an overstatement in protection when an eight-year joint shared policy is sold; each insured is counted as having an eight-year benefit period, but together they have only eight years.
 Three participating insurers offer BPs of less than two years, other than as may be required in original partnership states. At the other extreme, 74 percent of the displayed products offer a lifetime BP. In 2004, 97.5 percent of the displayed policies offered a lifetime BP.
 Nonetheless, seven carriers reported that lifetime benefit period sales were more frequent than any other benefit period.
 Maximum Daily Benefit. As shown in Table 5, the percentage of sales with $200 or more maximum daily benefit continues to increase. Next year, we’ll subdivide the “$200 and above” sales. The apparent increase in sales between $50 and $99 is attributable to a change in the participating insurers this year. The average maximum daily benefit continues to be about $150 a day.
 Benefit Increase Features. Despite the increasing availability of partnership policies, sales in 2009 showed some weakening in the quality of inflation protection, but to a much lesser degree than Table 6 suggests. Despite the economy, increasing prices (particularly for benefit increase features) and new products promoting less robust benefit increases, the distribution of sales remained surprisingly weighted to robust benefit increase features in 2007 and 2008.
 In 2009, sales from carriers that participated in both the 2009 and 2010 surveys shifted toward “fixed future purchase options” and “no increase option” (combined, those categories increased from 18.2 percent to 20.1 percent of sales) and away from lifetime level premium increases (5 percent compound, 5 percent simple and CPI sales, which, on a combined basis, dropped from 75 percent to 72 percent of sales).
 This year’s “other” category consists of deferred benefit increase features sold by three carriers. These features allow purchasers to add a level premium compound benefit increase within five years of issue as long as they have not been on claim. To the degree that clients do not exercise those options, these policies essentially belong in the “no increase” category. On the other hand, to the degree that clients exercise those options, the policies will approach level premium permanent fixed increase policies in terms of performance.
 A shift in statistical contributors this year caused a large increase in FPOs and a decrease in sales of step-rated products (premiums increase when benefits increase in the future, but much less steeply than with attained age pricing).
 Elimination Period. The average facility elimination period (EP) for new policies dropped from 84 days in 2008 to 82.3 days in 2009, due to a change in distribution of carriers, which caused the large increase in policies issued with a 31-89 day EP shown in Table 7. The percent of policies that were issued with a zero-day home care EP coupled with  longer facility EP dropped from 25 to 19.2 percent, partly due to a change in carriers participating this year.
 Sales to Couples and Gender Distribution. Fifty-seven percent of buyers were couples both buying in 2009 compared to 60.7 percent in 2008. Another 17.6 percent were reported as a one-of-a-couple purchase, compared to 16.5 percent in 2008. The remaining 25 percent (22.8 percent in 2008) were reported to be single.
 One important point is that most companies that do not offer one-of-a-couple discounts cannot separate such sales from sales to single people. Carriers that offer one-of-a-couple discounts reported that 56.6 percent (versus 58.1 percent in 2008) of buyers were part of a couple both of whom bought, while 18.7 percent (21.0 percent in 2008) were one-of-a-couple sales and 24.7 percent (20.8 percent in 2008) were single people. Those couples where only one buys probably gravitate toward insurers with a one-of-a-couple discount. The one-of-a-couple discount may help salvage cases in which one spouse is declined.
 Overall, our analysis suggests that 58 percent of buyers are women. The percentage ranged from 54 to 61 percent by carrier.
 Shared Care and Other Couples Features. Nine companies each reported more than 100 couples buying shared care. Four carriers sold shared care to more than 50 percent of the couples who both bought limited benefit period policies (eligible couples). Overall, 42.4 percent of eligible couples purchased shared care; 46.2 percent when shared care was offered by the insurer.
 Some products include joint waiver of premium (premium waived for both insureds if either qualifies). Others offer survivorship features that waive premiums for a survivor after the first death if specified policy conditions are met.
 In 2009, 26.8 percent of the policies sold to couples-both-buying included joint waiver of premium and 21.2 percent included survivorship. Joint waiver of premium was a little less popular than in 2008, but survivorship dropped off sharply, probably because of a change in distribution of sales among insurers.
 Existence and Type of Home Care Coverage. Although 10 participants reported 2009 sales of facility only policies (compared to 13 last year), these policies accounted for only 1.1 percent of total policies sold.
 Only four participants reported home care only policies, which accounted for 5.4 percent of sales. Ninety percent of the comprehensive policies sold had a home care benefit at least equal to the facility benefit. Most of the other comprehensive policies had a 50 percent home care benefit.
 Overall, only 1.8 percent of the sales were non-tax-qualified (NTQ). Six contributors sold NTQ policies in 2009, two of which increased the portion of their sales which were NTQ. One carrier sold more than 75 percent of its policies on an NTQ basis and two others sold close to 10 percent as NTQ. Participants reported that 4.6 percent of the in-force policies are NTQ.
 Thirty-six percent (up from 31 percent in 2008) of the policies with home care benefits use a daily reimbursement home care benefit and 58 percent (down from 62 percent) use a weekly or monthly home care reimbursement benefit, reversing a trend away from daily reimbursement. Three and one-half percent (compared to 4.4 percent in 2008) use an indemnity home care benefit and 2.1 percent (down from 3 percent) use a cash home care benefit.
 Limited Pay. In 2009, 10-year-pay accounted for 2.1 percent of the policies, continuing the decreased popularity of 10-year-pay. Pay-to-age-65 accounted for 0.33 percent, half-pay-after-65 accounted for 0.05 percent, 20-year-pay accounted for 0.02 percent, single pay accounted for 0.01 percent, and another 0.06 percent represented other unique premium patterns. The other 97.4 percent of the policies use lifetime premium payment. The proportion of premium that comes from limited pay policies is much larger than the proportion of policies.
 Distributors. Carriers reported that 38.4 percent of the new policies in 2009 were sold by brokers (down from 42.3 percent in 2008), 47.2 percent were sold by captive agents (up from 40.4 percent), 13.4 percent were sold through their broker/dealer channels (down from 16.2 percent), 0.5 percent were sold on a direct response basis (down from 0.8 percent), and 0.4 percent were sold through banks and credit unions (up from 0.3 percent). By comparison, 69.2 percent of the in-force policies were sold by captive agents. Much of the differences from last year are attributable to a different group of participants this year.
 Caution: Carriers are not necessarily able to classify distribution in the fashion a reader might expect. If a financial planner sells a policy through a brokerage general agent, such a policy is likely coded as a sale by a broker.

• Underwriting Data
 Case Disposition. In reviewing this section, please note:
 • Many applicants apply to multiple carriers, but they end up buying coverage from one insurer. The placed percentage quoted below reflects the quoting insurers’ perspective; the percentage of applicants who are offered coverage is significantly more favorable.
 • If a carrier accepts 70 percent of applicants without modification, but issues joint policies, it likely would issue only 49 percent of its couples’ applications without modification since either applicant might not be acceptable in the applied-for class.
 In 2009, 64.7 percent of applications were issued and placed, a dip from 66.9 percent last year. The declination rate rose from 18.3 to 19.9 percent. Another 15.3 percent of applications (compared to 14.8 percent) were either withdrawn during the underwriting process, not taken at delivery, or surrendered within the 30-day free look period.
 Of the issued cases, 3.9 percent were reported as modified, rather than being issued as applied-for. However, several companies were unable to identify such cases; hence this figure is understated.
 The 17 participants that reported decline percentages ranged from 13.8 to 33.9 percent declined, with seven carriers between 15 and 20 percent, and 5 between 20 and 25 percent.
 The participants placed between 39.4 and 75.7 percent of their applications. Four carriers placed between 55 and 60 percent and eight placed between 65 and 70 percent.
 Underwriting Time. As shown in Table 8, the reported time from receipt of application to mailing of a policy increased significantly, even though  more carriers reported faster processing in 2009 than reported slower processing. Nearly two-thirds of the insurers reported an average processing time of 23 to 30 days.
 Underwriting Tools. Table 9 shows the percentage of companies which used each underwriting tool and the reported percentage of applications that were underwritten using that tool. Changes in contributing carriers produced changes in underwriting tool usage compared to last year.
 Rating Classification. The percentage of issued cases assigned to each rating classification is shown in Table 10. The increase in cases in the best underwriting class (increasing from 40.0 percent in 2008 to 44.4 percent in 2009) is almost entirely due to change in the carriers that contributed to the statistical survey. The percentage of substandard issues increased compared to 2008 but is still lower than in previous years.
 Rating class distributions vary greatly among carriers. The percentage rated in the best rating classification varies from 8 to 100 percent. On the other hand, the percentage rated in the third best rating classification or lower varies from 0 to 66 percent. More than two-thirds of the insurers place between 26 and 55 percent of applicants in their most favorable rating classification. All but one carrier placed at least 75 percent of applicants in its top two rating classifications.

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 are shown in Table 11.
 • Company Name (rows 1 and 56) lists the participating carriers in alphabetical order at the top of each page. Each company may 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), we identify nine carriers that offer facility only coverage and three carriers that offer home care only.
 We identify a product as “Indemnity” or “Disability” if it is always sold that way for all levels of care. We have no indemnity products and one disability product this year. Some reimbursement products provide some indemnity or disability benefits or options which are indicated in rows 38-41.
 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; it 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. This row is new in 2010.
 • 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, 2010 and specifically identifies any of the original four partnerships (CA, CT, IN and NY) in which the insurer participates.
 • Financial Ratings & 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, 2009.
 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 2009, and the percentage changes from year-end 2008. These figures do not include assets and surplus of related companies, nor do they reflect assets under management.
 • LTCI Premiums (rows 19-22) lists the annualized premiums (in millions) of policies sold in 2009 and, separately, of policies in-force on December 31, 2009 and 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 covered by new policies and by year-end in-force policies, as well as the year-to-year percentage changes, is shown.
 • Policy Ranges and EP Terms (rows 27-34) shows the product’s issue age, daily benefit, benefit period (BP) and elimination period (EP) ranges. It also explains how the EP works.
 Issue Age Range. Only two participants issue LTCI to people older than age 85.
 Daily, Weekly or Monthly Benefit Range shows the minimum and maximum policy size that will be issued. The range is shown on a weekly or monthly basis only if home care, ALF care and facility care are always sold on a weekly or monthly basis. Most policies showing a daily benefit range offer an option to determine the benefit on a monthly basis, and some issue a daily benefit for one level of care and a monthly benefit for another level of care. The cost of monthly determination of benefits can be reflected in an additional premium and also a reduction in the annual maximum benefit from 365 x the daily benefit to 360 x the daily benefit.
 Benefit Period. Most products still offer a lifetime benefit period, but three participants do not offer lifetime benefit periods. Three participants offer LTCI policies with BPs as short as one year. The partnerships may eventually make one-year BP more common.
 Elimination Period. A cumulative EP means that someone could satisfy the EP in stages. For example, if they have a 180 day EP and need qualified care for 100 days and then recover, their remaining EP would be 80 days. A vanishing EP means that once the EP is satisfied, it never has to be satisfied again. One carrier offers products with non-vanishing EPs and another offers a non-cumulative EP.
 Calendar Day EP is becoming more common. Nine insurers have products that include a calendar day EP automatically. Calendar day EP costs more than service day EP, but it has the following advantages:
 • Clarity. Unfortunately, even if clients understand service day EP today, they may forget by the time they go on claim. A calendar day EP may reduce the potential for disputes.
 • Flexibility. It is hard to predict finances, family status and preferences at the time of a future claim. Calendar-day EP allows the family to satisfy the EP with family care or perhaps informal care that would not satisfy a service day EP.
 • Policy Benefits (rows 35-47). Row 36 shows whether home care and adult day care have a different benefit pool (and EP) from facility care. The first number represents the number of benefit pools; the second represents the number of EPs. A product can have two different benefit periods but a single pool. That is, a shorter home care BP could deplete part of a longer facility BP.
 Row 37 shows how home and community based care (HCBC) benefits are determined. For policies that limit benefits to incurred expenses (reimbursement policies), monthly determination of benefit payments allows more benefit flexibility than does daily determination. With monthly determination, if less than any daily maximum is used one day, the unused amount for that day can fund additional reimbursement for a day in that month on which more than the daily maximum is spent. One policy has neither a daily nor a monthly maximum, but rather a lifetime maximum with a 20 percent co-pay.
 An indemnity provision pays the full daily benefit on days when a qualified service is incurred, even if that full benefit exceeds the qualified expense. On days when there is no qualified expense, no benefit is paid. However, the term “indemnity” has been used in a variety of ways in the LTCI industry.
 A disability provision (often called a cash benefit) pays the full benefit if the person satisfies the policy triggers, even if no qualified expense is incurred.
 Row 38 indicates whether the facility benefit is an indemnity benefit and, separately, whether the home care benefit is indemnity-based, each either automatically or optionally at additional cost.
 Row 39 shows whether a product is

Health Care Reform’s CLASS Act

So what exactly is the Community Living Assistance Services and Supports Act (known as CLASS)?
The idea behind this legislation is to make long term care type services available to all Americans in need. The specific wording is as follows:

Stated Purpose of the Bill (Section 3201)
“The purpose of this title is to establish a national voluntary insurance program for purchasing community living assistance services and supports in order to—

“(1) provide individuals with functional limitations with tools that will allow them to maintain their personal and financial independence and live in the community through a new financing strategy for community living assistance services and supports;
“(2) establish an infrastructure that will help address the nation’s community living assistance services and supports needs;
“(3) alleviate burdens on family caregivers;
“(4) address institutional bias by providing a financing mechanism that supports personal choice and independence to live in the community.”

If passed, CLASS will most likely be a program that will be offered to working people ages 18 and over who will have to choose to opt out if they do not want it.
BROKER WORLD invited several individuals who specialize in the long term care insurance business to say a few words about CLASS.

Al Schmitz,FSA, MAAA
Principal, Consulting Actuary
Milliman, Inc.

Steve Schoonveld,FSA, MAAA
Chief Financial Officer, Actuary
LifePlans, Inc.

In many respects, the Community Living Assistance Services and Supports (CLASS) Act has something for everyone—at least in the short term. It will increase overall awareness of the need for long term care (LTC) planning, provide an insurance solution for individuals not able to obtain insurance, and create opportunities for LTC insurers and LTC agents and brokers. However, the short term gains must be weighed with potential long term pain for the CLASS Act program, the industry and those we seek to assist.

The CLASS Act has the noble intention of addressing some of the difficult problems with the funding of long term care services. Perhaps one of its most important merits is the mere fact of its existence as a way of illuminating the need for financing solutions for the risk. The resulting increased awareness may cause individuals to give consideration to their own personal long term care situations.

A sneak preview of the potential increased awareness that may be created by the CLASS Act can already be seen by the attention given to this Act as part of health care reform. If the CLASS Act is indeed passed, it will increase individual and consumer awareness and encourage a greater number of Americans to take personal responsibility for planning for the LTC risk. This could ultimately create a better prepared and fiscally responsible country.

While there is significant and well-founded concern over the long term impact of potential adverse selection within the CLASS Act, the program provides an opportunity for individuals who cannot obtain LTC insurance for health or financial reasons to be covered under the program. The program is guaranteed issue with only a minimal actively-at-work requirement, such that coverage can be obtained regardless of health status. In addition, the Senate version of the CLASS Act provides a significant subsidy for students and those with income below poverty level.

An implemented CLASS Act, whether sustainable or not, presents an opportunity for agents and brokers selling both group and individual LTC insurance. First, with employers who do participate there will be that annual opportunity for individuals to be reminded of the need to address this risk. Second, there is likely to be a greater necessity than currently expected to promote the CLASS Act program so that the self-employed, spouses of employees, and employers themselves will be encouraged to participate. This may very well be the national “Got Milk?” campaign that the LTC insurance industry craves. To fulfill the potential of this advantageous environment, the industry must provide competitive products that will appeal to the middle class—the target audience that this program intends to reach.

The arrival of 2010 brings the industry an increased variety of opportunities beyond standalone LTC insurance options to assist consumers to manage their LTC risk. The Pension Protection Act has enabled life and annuity combination products to become all or a part of the solution for consumers. Furthermore, the growth in critical illness products either purchased at the workplace or individually has given flexibility to consumers. A properly designed CLASS Act may add a fourth leg to the table, but the key question is: how sturdy will such a table be? If the CLASS Act leg is wobbly, consumers may indeed fall.

Whether at the kitchen table or an employee meeting, agents who sell LTC insurance will receive a higher level of attention. There will be a comparative sale either openly discussed or in the minds of consumers. Historically, the product provisions, the financial stability of the insurer, the intensity of underwriting, and the history of rate increases have all been comparative points that require examination in either the individual or group markets. The same will take place with a CLASS Act program that, if implemented as currently designed, will provide countless comparisons in favor of private insurance. Potential policyholders of either private insurance or the public plan will compare not only the premiums but the risk pools that they are joining when purchasing a policy.

Critics who have examined the structure of the CLASS Act point out that there is a potential that individuals covered by it will falsely believe that they are covered for all of their LTC risks. While it is true that the benefit levels do provide meaningful assistance for some LTC services and support, the program structure may not be sufficient to cover all long term care needs.

Additionally, there will likely be many who use the CLASS Act program to further delay a decision. These individuals will plan to take advantage of the opt-in provisions, despite the penalties, and do so once their needs become greatly apparent. Such individuals, when diagnosed with conditions that are likely to require long term services and support, will take advantage of this ability to adversely select against the program because of the weak underwriting, despite the five-year wait period.

Proponents of the CLASS Act argue that the program will enable a public and private partnership in much the same way as programs in other countries. They also mention that the CLASS Act will enable supplemental insurance policies to be developed. What would these products look like and what difficulties would carriers face in designing and administering such products?

A supplemental or wraparound product could be developed and provide coverage for a CLASS Act program participant for the first five years of issue when the program does not pay benefits. In addition, a supplemental private insurance plan could pay benefits over and above the coverage levels provided by the CLASS Act program, with indemnity, reimbursement, or cash provisions similar to what the industry currently provides. As a supplemental payer, the premiums for private insurance may be reduced, although the expenses to administer such an insurance product would not likely decrease proportionally.

Private insurance carriers will have significant concerns while designing and pricing a program that supplements CLASS Act benefits. First, because of the lack of sufficient underwriting even at a proxy level, carriers will not be able to rely upon purchase of the CLASS Act as entry into a supplemental plan. Lack of sufficient direct or proxy underwriting to prohibit adverse selection on a voluntary program invites adverse selection.

Second, the presumptive claim eligibility provision within the CLASS Act differs from the private industry such that adjudication approaches may require private insurance programs to approve claims that differ from the underlying pricing.

Finally, the uncertain sustainability of the CLASS Act program where premiums are required to be raised and benefits decreased to maintain solvency provides uncertainty for the private market. These issues will differ in a matter of degree between the group and individual private insurance markets, but each is significant enough to cause concern for pricing actuaries.

Therefore, the CLASS Act program is likely to increase the pricing volatility within a supplemental approach because of the inconsistencies of the program with private insurance and the greater expense ratios than current LTC insurance products for underwriting, administration and claim adjudication activities. LTC insurance carriers will likely compete directly with the CLASS Act program and be cautious in their development of supplemental products.

Beyond the final provisions of a sound CLASS Act, there remain many uncertainties. Will the LTC shoppers guide require a disclosure of the availability of the CLASS Act program? Will the suitability forms required by many states do likewise? How will state partnership plans be affected? These are but a few concerns for producers that immediately come to mind.

• In the short term, the provisions of the CLASS Act are positive for many people.

• In the long run, there is significant risk of potentially harmful scenarios. It is instructive to contemplate what those might be and how those scenarios might impact clients and individuals.

If the CLASS Act does not control adverse selection and insure a reasonable spread of risk, the potential long term pain is extreme. This and specific design restrictions are the main reasons for the conclusion of many industry and government actuaries that the program is not actuarially sound and is therefore unsustainable. This should also concern consumers who are seeking to become policyholders in a risk pool that will provide benefits when needed and that is realistically designed to be sustainable.

As is required in the bill, the program must implement rate increases and/or benefit reductions if it is determined to not be financially solvent. If significant rate increases or benefit reductions are necessary, it may be determined that additional action will be necessary. The government may look to the private insurance industry and their ability to write premiums for more healthy risks at a potentially lower premium as “causing” financial instability of the CLASS Act program. Another risk to the insurance industry under this scenario is legislation that limits the underwriting, risk selection, or rating approaches that are important tools for managing the LTC risk. This would dramatically change the insurance landscape and has the potential to significantly reduce the private market. Also, given the size of the liability and dollars in the CLASS Act, there is significant risk to taxpayers that the program will ultimately need to be bailed out if rate increases, benefit reductions, and other market changes are not sufficient to offset the adverse selection that could potentially occur.

While the program is admirable for its intentions, the specific requirements contained in the legislation are not likely to provide for those it intends to assist. However, without passage of the CLASS Act, the status quo will persist and the needs of consumers will continue to grow. If the CLASS Act does not make the final cut as part of health care reform, the question will remain: Can the industry provide the answers and reach this market before the next version of the CLASS Act emerges? [AS] [SS]

Both Schmitz and Schoonveld have served on the Society of Actuaries Long Term Care Insurance Section Council and were members of the SOA/AAA team of actuaries who produced the paper titled “Actuarial Issues and Policy Implications of a Federal Long Term Care Insurance Program.” The paper can be accessed at www.actuary.org/pdf/health/class_july09.pdf.


Julie Gelbwaks Gewirtz, CLTC
Vice President, Marketing
Gelbwaks Insurance Services, Inc.

It seems that many times during the past two decades we have followed possible legislation that could have an effect in some way on the long term care insurance industry. Some of the legislation that has actually passed has had a huge impact on the way we do business. To name a few, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) gave us tax-qualified long term care insurance, and the Deficit Reduction Act of 2005 (DRA) gave us partnership policies. In both cases, there were plenty of varied opinions coming from all over the marketplace on how these new guidelines would change what we all do on a day-to-day basis. Although there are always hurdles to leap and lessons to be learned, we emerge strong and continue to sell this critically important type of insurance—long term care.

Sometimes we surface even stronger than before. I wholeheartedly believe that this is what will occur if CLASS becomes part of health care reform.

At first glance, the CLASS Act looks like it would put the long term care insurance industry out of business. A government program, with no underwriting, that offers unlimited cash benefit LTC?! I can see why most of the major carriers have spent a lot of time and money fighting against it.

However, we should also “think outside the box” for a moment: Our industry severely needs a wake-up call, and I believe that the CLASS Act will give us one. We have had a terrible time getting growth out of this marketplace in recent years. Why have we not reached the more than 90 percent of the population that has not purchased this product? Well, I think what CLASS will do is get hundreds of thousands more people in America discussing the issue of long term care.

Thus, awareness is one big reason why CLASS will be a good thing for us—especially since this is an opt-out program, which means that every person who is offered the program will have to say “no” if they don’t want it. Generally, when people are required to opt out of a program, they do a bit of research first. They might check to find out exactly what it is or how much they would have to pay for a comparable benefit in the open market. This could give us a huge boost as an industry! People everywhere will be talking about LTC—what more could we want? Awareness is the key to showing sales growth.

The next positive is that most sources seem to be saying that premiums for CLASS will be much higher than premiums for a similar product in the individual LTC insurance arena. Therefore, as soon as people research it, they will realize that they can do much better on their own. Hopefully they will reach out to their independent insurance agent and get a proposal to verify this. Of course, they will not have a five-year waiting period before a benefit kicks in for a traditional LTC insurance policy as they would with the CLASS Act. This is another very big difference.

As mentioned earlier, the mainstream industry thinkers that I have heard from are against the CLASS Act. I have been told that the main reason is that they feel this benefit would confuse Americans into thinking that they had legitimate LTC coverage when the truth of the matter is that this coverage would be extremely inefficient. In addition, people are obviously already confused. That is why most haven’t bought LTC insurance! Confusion is not necessarily bad. It is what drives some people to seek advice and counsel.

I absolutely agree that a $50 to $100 per day benefit is just not adequate when it comes to covering the actual cost of a long term care situation. But don’t forget that we really do need that wake-up call. And, anyone who researches this even the slightest bit will find that the coverage they are being offered is way below the actual cost of care and most likely higher priced than anything they can find in the general industry. This, in my opinion, will cause many of those prospects to search out an agent and purchase LTC insurance outside of CLASS.

Another big plus to have the CLASS Act is the simple fact that we would be able to help uninsurable prospects that we come across. So many people are without coverage because they just cannot qualify medically. It would be terrific to have an answer for them. We also lose many sales due to an uninsurable spouse situation. With CLASS, we will be able to move forward with insurance for the healthy spouse and still have an available option for the unhealthy one.

Many people believe that doing a good deed will come back to you tenfold. Well, when your unhealthy client gets coverage (something is better than nothing) from CLASS and you in no way benefited from that—you better believe that referrals will be coming your way.

Last but certainly not least, if it turns out that the CLASS Act premiums are lower than expected and healthy people actually choose to buy into the program—once again, there is a large opportunity for the LTC insurance industry. The opportunity to sell a supplement! Yes, this dramatically shifts all that we know and how we sell product currently, but it is a wide-open marketplace for us to explore with the possibility of selling quadruple the amount of coverage that we do today. And don’t forget, the biggest benefit of all will be that more of America will have this vital insurance coverage in place for when the time comes. [JGG]

 

D. Corey Rieck, MBA, CLTC
President
LTCcompass

CLASS (Community Living Assistance Services and Support) I, introduced by the late Senator Edward Kennedy, would essentially establish a national long term care program that would, in theory, payroll deduct the premiums for its participants.

The version that has largely been discussed would pay roughly $50-$75 a day in cash benefits. The folks utilizing these services under this plan would largely be able to use the benefits in the same continuum of care, services and housing that are available with current plans sold by insurance carriers.

We are in the business of education. That said, how will this affect us? What it may do is afford us the opportunity to educate clients further on what is involved with purchasing a financial instrument such as long term care insurance from the government versus purchasing it from one of the major long term care players in the market today.

If the ceiling of the benefit is $75 a day, will that help secure the kind of care your clients desire? Certainly there is a great opportunity to talk about the cost of living as it relates to geography by utilizing one of the carrier surveys that discusses costs as they pertain to assisted living, nursing homes, adult day care, etc. Your clients will want to understand if the CLASS program will fully fund their care needs.

This is yet another in a succession of examples that further demonstrate the government’s position on funding custodial care; and that is—we have a better chance of seeing Elvis than we have for the government to pay for our custodial care.

Over the years we’ve all seen the reform that has taken place with Medicare and Medicaid. We’ve seen the impact of implementing the Partnership programs as a result of the Deficit Reduction Act. CLASS may prove to be a great opportunity to educate clients on yet another government message on the long term care issue.

It could be a significant step in the right direction. After all, there are numerous messages that have been sent by the Federal Government that basically tell us we are responsible for our own custodial care, and our choice is to pay for it with our principal, or with interest from our principal, i.e., a well-planned-out long term care plan.

We may be in a position to really help clients further once we educate them on whether the CLASS plan will secure the kind of care they wish to have when they need it—if and when it becomes available. [CR]

Stephen Moses,President
Center for Long-Term Care Reform

Has Congress got a deal for you?! It’s a new government LTC insurance plan included in both the House and Senate health reform bills. Here’s what CLASS (Community Living Assistance Services and Supports Act) proposes.

If you (1) don’t opt out of the one-size-fits-all program (you’re in automatically otherwise—no choices, take it or leave it) and (2) if you pay your $100 (or more) extra monthly payroll tax for five years (to “vest”) and (3) you remain employed (at least marginally) and (4) you need help with two, three or four out of six activities of daily living, such as dressing, bathing, eating, toileting (depending on what the U.S. Department of Health and Human Services [USDHHS] decides CLASS can afford), then (5) you may receive a benefit of $50 or more per day (again depending on what the USDHHS thinks the system can bear) for as long as you need it (no limits on the benefit which pays forever once you quality).

Now, you’re a savvy consumer. So you ask some questions just as a client might interrogate you if you were trying to sell a private insurance product.

Question 1: “I’m healthy,” you say, “I eat well, I work out. I have no more than an average risk of needing expensive long term care someday. How do I know I’m not paying higher premiums so others can pay less? How do you price my risk? How do you underwrite?”

Answer: CLASS has no underwriting—anyone, no matter how frail or infirm, can participate. Everyone pays the same premium, but only people who need services will receive benefits. Insurance professionals call this “adverse selection.”

Question 2: “I usually buy (life, health, auto, fire) insurance to replace the small risk of a sudden catastrophic loss with the certainty of an affordable premium. What will this coverage do for me if I have a stroke or get hit by a truck tomorrow and need full-time skilled nursing care?”

Answer: CLASS pays nothing until you’ve contributed premiums for at least five years and then about a quarter of the average cost of a private nursing home bed ($219 per day) if, and only if, the USDHHS decides it can afford even that.

Question 3: “I’ve heard there is nothing but IOUs in the Social Security and Medicare trust funds and their unfunded liabilities top $106 trillion. How would the CLASS Act’s trust fund protect my investment?”

Answer: Money is fungible—as long as the federal budget runs a deficit, your premiums will go to make fiscal ends meet. In fact, half the deficit reduction alleged for “health reform” comes from counting the CLASS Act’s claims reserves as available surplus revenue! The CLASS Act’s promise to pay you benefits someday is tantamount to: “Trust me, I’m from the government, I’m here to help you.”

Question 5: “This CLASS plan sounds awfully top-heavy. Is it actuarially sound?”

Answer: CLASS advocates—LTC providers who need the revenue and people who are uninsurable without it—say CLASS is sound actuarially. The American Academy of Actuaries, the actuary for Medicare and Medicaid, and the Congressional Budget Office say it isn’t. Who ya gonna trust?

Question 6: “What are my options if I opt out of CLASS?”

Answer: Private long term care insurance is available in many forms. It is priced for actuarial solvency; it is underwritten so you pay only for the level of risk you bring into the risk pool; it invests your hard-dollar premiums in solid, protected reserves; it’s regulated to ensure a guaranteed benefit; and it is a contract enforceable in a court of law. CLASS has none of these characteristics.

Question 7: “CLASS sounds like a sucker deal, just another way to transfer wealth from me to others the government thinks need my money more than I do. Right?”

Answer: Bingo! The Medicare and Medi­caid actuary estimates that only two percent will use CLASS. The people who participate will be those who know for sure they’ll need LTC someday and sooner rather than later.

The Big Question: If CLASS passes, how will consumers react?

The Big Answer: Since 1965, when Medi­caid and Medicare passed, the government has paid (inadequately) for most expensive long term care (in nursing homes). CLASS will lead careless consumers to believe a risk they didn’t think they faced anyway has been further reduced by yet another government program, one that pays for home care (they want), not just for nursing home care (they’d rather avoid).

But smart consumers will see through the CLASS Act’s smoke and mirrors. They’ll realize private long term care insurance is their last best hope to ensure access to quality long term care when they need it and in the best, most appropriate setting. [SAM]