Claude Thau

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

The CLASS Act was originally recommended by Senator Ted Kennedy about seven years ago. Some advocates envisioned a new social insurance program with mandatory enrollment and a cost funded by a payroll tax split 50/50 between the employer and the employee, like Social Security.

However, for a number of reasons, a mandatory program was not politically feasible. CLASS was structured as a voluntary program during the health care reform debate.

During the health care reform debate, many people considered passage of CLASS to be desirable as a tribute to Senator Kennedy, who had recently passed away. However, the major reason CLASS was heavily promoted seems to have been that it helped make the Patient Protection and Affordable Care Act (PPACA, the administration’s health care reform proposal) appear not to increase the budget deficit.

The Congressional Budget Office (CBO) is required to “score” bills based on projected results over a 10-year horizon. This 10-year limit was imposed many years ago, to avoid the risk that overly optimistic long term projections would result in the passage of bills that would produce long term deficits. While well-intended, this rule, like others, can have unintended consequences.

CBO-required accounting for CLASS contributed to misleading short term analysis of the cost of health care reform. The CBO tried to sound the alarm; however, its report was quoted selectively and its warning was ignored.

Regardless of whether you support or oppose health care reform, the version in PPACA was priced with what former CBO director Douglas Holtz-Eakin kindly referred to as “gimmicks” in his article, “The Real Arithmetic of Health Care Reform” (The New York Times, March 21, 2010). The cost of the program was distorted by:

1. Benefits deferred for four years resulted in comparing 10 years of revenue enhancements to only six years of outgo in the official scoring of the bill. In subsequent decades, 10 years of benefits as well as 10 years of revenue will be included, resulting in a significantly different picture. (Furthermore, the subsidy of the elderly in PPACA will become more expensive after the 10-year window.)

2. Medicare savings of $500 billion were allocated to acute health care costs. Naturally, the next actuarial report on Medicare indicated that Medicare’s deficit had reduced as a result of these same savings, which had already been allocated to acute health care costs. That is, the savings were counted twice! The actuarial report had it right—the pricing of PPACA was flawed.

3. Administrative costs associated with health care reform were ignored. Holtz-Eakin estimated that in the future, Congress would have to authorize $114 billion to cover administrative costs. As he specifically referred to Congress, it seems that he did include the cost of unfunded state mandates. (Of course the cost to be incurred by businesses to implement the acute health care changes and CLASS would not be included in any scoring of the bill because the scoring relates to government accounts only.)

4. The CLASS Act (an LTC insurance program) was created. According to a letter from the CBO to Senator Tom Harkin, it “would add to budget deficits in the third decade (and in succeeding decades) by amounts on the order of tens of billions of dollars for each 10-year period.” The CBO projected $72 billion in “savings” attributable to the CLASS Act over 10 years because it assumed that not a single penny would have to be set aside to cover future claims. By contrast, the private LTC insurance industry is required by law to set aside huge reserves to pay future claims.

5. The Social Security tax was increased. However, the resulting funds were diverted from Social Security and spent on acute health care (as was done with the Medicare savings mentioned in number two, above). Thus the PPACA worsened the plight of both Medicare and Social Security by removing potential funding methods that would have put both programs on sounder footing.

6. The student loan program was nationalized. Yet the $19 billion of projected savings had no relevance to health care reform and should have been allocated to reducing the budget deficit.

Alice Rivlin, CBO director under President Clinton, also criticized at least some of the above accounting.

In fairness, PPACA could lead to some enhanced revenues that were not projected. If it improves the health of just some of the U.S. citizens, the result could be that these citizens are able to be more gainfully employed, generating taxes paid by them and their employers.

The CLASS Act wording required that it be self-supporting for 75 years. Keep in mind that if the intended premiums are charged throughout the 75-year period, the fund would run out of money after today’s newborns have paid premiums but before most of them would receive benefits.

In other words, the CLASS program was to be priced so that future increases were expected. Yet this pricing and the lack of reserves are two of at least 20 aspects of CLASS that the private LTC insurance industry is not permitted to address.

During the course of the health care reform debate, many experts, including people within the administration, expressed the opinion that the CLASS program could not satisfy the law’s requirement of being self-supporting. Claims would overwhelm premiums, and the 3 percent of premiums that were allocated to cover administrative expenses was insufficient.

The advocates, including the administration, insisted that CLASS could (and would) be self-supporting, that premiums would be sufficient, and that 3 percent of premiums would cover expenses.

In September 2011, Republicans issued a paper calling it a “scandal” and that the administration did not heed the warnings of its own staff.

From my perspective, it is management’s job to assemble a team that will have differing opinions and will speak up. In such a healthy environment, management has the responsibility of making the final decision, thereby overriding the opinions of some staff. If management demonstrates integrity while overriding some staff recommendations, they have acted properly. Criticizing them for overriding staff is counter-productive to our society’s needs.

The United States needs a government that is comfortable fostering internal debate, rather than one that hires only “yes-people,” in order to avoid criticism.

As it turns out, immediately upon the passage of PPACA, advocates sounded a different theme: (1) They pointed out that, although the bill said that only 3 percent of premiums could be used for expenses, it did not preclude covering expenses from general revenues and that it was their intention to rely on general revenues (i.e., more PPACA administrative costs were ignored in “scoring” the bill). (2) More importantly, Secretary Sebelius of Health and Human Services (HHS) publicly stated that CLASS was untenable as designed.

The timing of these statements—right on the heels of passage—suggested that the advocates and administration might have known the critics were right but vociferously disagreed to foster the impression that PPACA would not increase the deficit.

HHS hired an actuary to design a program that could be self-sufficient. HHS staff expressed intent to design a program that was inconsistent with the requirements of PPACA. They acknowledged that HHS efforts might be blocked. Secretary Sebelius talked about such modifications.

After the actuary filed his report to Secretary Sebelius, HHS concluded that it no longer needed his services and they transferred CLASS staff to other projects. When reporters indicated that CLASS had been “dismissed” (abandoned), HHS demurred at first.

Then, on October 14, 2011, CLASS Administrator Kathy Greenlee, who reports to Secretary Sebelius, submitted a report that concluded, “I do not see a path to move forward with CLASS at this time.”

Clearly, she and Secretary Sebelius had agreed upon this conclusion in advance, as Secretary Sebelius wrote to Congress the same day, stating, “But despite our best analytical efforts, I do not see a viable path forward for CLASS implementation at this time.”

HHS decided, perhaps due to the political climate, to abandon its previously stated intent to implement a plan that differed from the provisions of the CLASS Act.

In her report to Secretary Sebelius, Ms. Greenlee stated, “These analyses indicate that the premium for the basic CLASS benefit plan, which is the benefit design that follows from the most natural reading of the statute, produces a benefit costing between $235 and $391 a month, and may cost as much as $3,000 per month, if adverse selection is particularly serious…We have identified potential benefit plans that could be actuarially sound and avoid the risk of adverse selection.

“…All of these design options rely on the following strategies: They significantly increase the minimum earnings requirement specified in the statute, modifying it from $1,120 to at least $12,000 per year; they alter the benefit package so that it more closely resembles the typical package in the private market; and they phase enrollment in the plan, initially limiting eligibility to groups with better-than-average health risk profiles. While these benefit plan options show some promise in achieving actuarial solvency, they may be inconsistent with other provisions of the statute…In other words, as we take necessary steps to mitigate solvency risks, we concomitantly raise the legal risk that the plan could be found impermissible under the statute.”

After Ms. Sebelius submitted her letter to Congress, the administration seemed to have clearly stated that CLASS could not be implemented in sound fashion. However, on October 18, White House spokesman Nick Papas said, “We do not support repeal. Repealing the CLASS Act isn’t necessary or productive. What we should be doing is working together to address the long term care challenges we face in this country.”

Many people thought that the White House was resisting repeal of CLASS because the planned on $72 billion of budget savings would not materialize. From my perspective, the failure of CLASS is a blessing for the administration because they can now say that the $72 billion disappeared because CLASS could not be implemented, skirting the issue that the $72 billion was fictitious in the first place. The CBO eliminated this issue by removing the CLASS Act “savings” from the budget the same day that Mr. Papas spoke.

Now, many people are seeking another “solution.” The left continues to believe that LTC is too expensive for people, therefore the government needs to pick it up somehow. The right essentially wants to rely on personal responsibility.

There are a number of small things that can be done, but there are two big opportunities:

1. Proper Medicaid LTC reform can reduce Medicaid costs substantially while making desirable home care more affordable to many people. (An article I wrote on this topic was published on October 24, 2002, by the Center for Long Term Care Financing.)

2. Death with dignity can resolve a lot of acute health care costs in our country as well as LTC costs. A very large part of the cost to the U.S. health care system is incurred during the six months prior to death. Providing such care is humane, but requiring people to receive such care is inhumane and violates individual freedom, in my opinion. Some healthy seniors commit suicide due to fear that they will eventually lose control of their lives.

The smaller steps include, but probably are not limited to:

1. Senator John Thune’s suggestion to allow tax-favored withdrawals from 401(k) and 403(b) plans to pay for LTC insurance. Withdrawals from IRAs to pay for LTC insurance could also be tax-favored. Other potential tax changes include:

• Tax break limits by age are so steep that they cover a very small part of the premium at the younger ages. The unexpected result is that the tax breaks below 50 do not accomplish the intention; thus increasing them would make sense.

• There are strong arguments that  HSA withdrawals to pay LTC insurance premiums should be uncapped.

• If tax deductions were changed to a lower figure that was a tax credit, it could be more beneficial to the middle class. (That would be a controversial change, compared to the others.)

2. The Partnership programs need to be “cleaned up,” but doing so is not likely to increase sales meaningfully.

• More spotlight on the Partnership might help a bit.

• Some believe that replacing the “dollar-for-dollar” Partnership model with 100 percent asset disregard with the purchase of a three-year benefit period or perhaps even a lower benefit period. I do not support this idea.

3. Insurers need encouragement to enter or stay in the market and to lower pricing. At this time, the low interest rate environment is extremely troublesome for the insurance industry because most benefits are paid by investment income rather than premiums. Interest rates have continued to drop and our government intends to keep them low for the next few years. (I am not criticizing that plan, just acknowledging it.) The low interest rates are hard to deal with.

• If the insurers assume that interest rates will increase in the future, they end up with lower premiums, which help the market. However, if interest rates stay low, the insurers have huge losses and states don’t allow them to recoup investment income shortfall through rate increases. Perhaps the industry could be allowed to market a policy that has a lower premium scheduled to increase to a higher level if interest rates don’t rebound. Or maybe carriers could start with a higher premium that drops if interest rates rise. Obviously, there would be a lot of issues that I have not even tried to address yet.

• I understand that Canadian valuation laws require insurers to presume that future interest rates will be no higher than current interest rates (some of our insurers are Canadian-owned). I’ve heard that there are discussions which could conceivably lead to the same interpretation in the United States. I am not involved in such discussions; maybe I’ve misunderstood. To the degree this is true, it seems that reserves could swing wildly from year to year. We should consider ways to avoid such an undesirable result and to avoid requiring a reserve level which may be too likely to be redundant.

4. Could the cost of LTC (as opposed to LTC insurance) be lowered by the government and/or the insurance industry?

• Connecticut requires care-giving businesses to give a 5 percent discount to Partnership policyholders. I’m not sure that makes sense.

• Perhaps the government could negotiate discounts for Partnership policyholders. Lower care prices would help LTC insurance stretch further. Encouraging LTC insurance would produce more private-pay clients for LTC providers, which is important for the providers.

• Maybe the industry could band together to negotiate such price discounts.

• Could proven cognitive enhancement tools (or other approaches that would limit future LTC costs) be treated favorably as health care costs?

Note: The government has been increasing the cost of private LTC by underpaying for Medicaid recipients. Thus, providers have to raise private pay rates to make up for their inability to cover overhead with Medicaid patients.

I wouldn’t be surprised if there are other ideas that might help insurers serve the market.

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.

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

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