Dawn Helwig, FSA, MAAA

The Milliman Long Term Care Insurance Survey has been published in Broker World magazine annually since 2005 and has covered worksite long term care insurance (LTCI) in detail since 2011.  The Worksite multi-life market (“WS”) consists of individual policies sold with discounts and/or underwriting concessions to groups of people based on common employment. “Core” programs involve the employer paying for a small amount of coverage for generally a large number of employees; the employees can buy more coverage.  “Carve-out” programs involve the employer paying for more substantial coverage for generally a small number of executives and usually their spouses. The analysis herein excludes “true group” and “combo” products. (Also called “linked” benefits, combo products pay meaningful life insurance, annuity or disability income benefits in addition to LTCI.)

The July 2016 issue of Broker World magazine reported on the overall LTCI market. Its policy exhibit displayed two WS products (LifeSecure and Transamerica).  Four other participating companies (John Hancock, MassMutual, New York Life and National Guardian) showed worksite discounts in their display of their “street” products.  Mutual of Omaha’s common-employer discount is expressly not a worksite program. 

Here we compare the survey’s WS sales to its individual LTCI policies that are not worksite policies (“NWS”) and to its total individual sales (“Total”).  References are solely to the U.S. market and exclude exercised future purchase options unless specifically indicated.

Some business owners buy individual policies and pay for them through their business.  Such policies may not be reported as “worksite” policies by our participants.  In other circumstances, businesses might sponsor general LTC/LTCI educational meetings, with employees pursuing any interest in LTCI off-site.  Such sales are not included here.

About the Survey

Six (identified above) of the 13 insurers whose products are displayed in the 2016 Milliman LTCI Survey offer discounts for WS LTCI.  All, except National Guardian who did not start sales until 2016, contributed data.  In addition, Genworth, Northwestern and MedAmerica contributed data.  Genworth and MedAmerica did not sell new worksite cases in 2015, but new policies were issued on cases sold in previous years.  Other than true group sales, our data may represent the entire worksite LTCI industry.

Highlights from this year’s survey

• In 2015, participants reported sales of 12,690 worksite policies for $22.1 million of new annualized premium, an 10.2 percent increase in new annualized premium compared to 2014, despite a 6.0 percent drop in policies.  The average worksite premium rose from $1,496 to $1,740.  2014’s average premium had been low compared to $1,684 in 2013.  (The amount of core business drags the average worksite premium down a lot and the amount of carve-out business pulls it up.  It appears that core business was a lower percentage of worksite sales this year.)  

• Worksite market share (See Table 1) continued to concentrate.  The top 3 carriers jockeyed positions, but sold 81.7 percent of our new reported premium (78.1 percent in 2014).

• Reported worksite LTCI sales accounted for 12.5 percent of the policies sold in the industry (up from 10.2 percent in 2014) and 7.2 percent of the annualized premium (up from 6.1 percent).  For two carriers, about 40 percent of their new annualized premium was from worksite sales and for another two, about 12 percent of their new premium was from worksite.

• One insurer reported an average size of 56 policies per worksite case; another reported 14 and two carriers averaged only three policies per case.

• For the first time, a higher percentage of worksite policies were sold to females (58.0 percent) than of non-worksite sales (55.9 percent).  While we initially attributed this statistical change to anti-selection by females eligible for unisex worksite premiums, further analysis suggested that such anti-selection was not primarily responsible.

• The benefit increase features for 2015 WS sales were similar to the benefit increase features for NWS sales, a major difference compared to the past when NWS policies had much more robust benefit increase features.  Hence, worksite policies were as likely to qualify for Partnership as non-worksite policies.

• Shared Care became tremendously more popular for employees whose spouse also bought coverage.  In 2014, only 27.9 percent of such couples bought Shared Care.  In 2015, 49.2 percent did. 

Market Perspective

In previous survey reports, we’ve signaled that the impact of the industry’s shift to gender-distinct pricing outside the worksite would impact worksite sales too.  Insurers worry that worksite sales weight more toward females when females receive a large price discount from “street” prices and males pay more than “on the street.”  In previous years, the percentage of female sales in the worksite was 1.4 percent to 8.8 percent lower than the percentage of females in overall LTCI sales, but in 2015 the percentage of female sales in the worksite exceeded the “street” percentage by 2.1 percent.  Surprisingly, much of this dramatic change may be a fluke, as explained later in this article.

However, as we anticipated, insurers have responded to their concern by moving worksite unisex prices closer to female “street” prices.  As a result, some insurers charge same-age couples in the worksite a higher price than their standard-class “street” price.  As the male spouse is generally older and as one or both spouses might qualify for a “preferred health” discount on the “street,” the possibility of a couple paying (perhaps significantly) more through the worksite increases 

After the remaining street product with unisex rates is re-priced, it seems likely that single males will pay at least 25 percent to 50 percent more through the worksite than their standard price “on the street.”  With one carrier, even single women pay a higher price through the worksite than they pay “on the street.”

As a second precaution, some insurers have based worksite case approval on gender distribution.

Insurers have also raised their minimum age to avoid anti-selection (few people buy below age 40 and many don’t go to the doctor regularly, hence the applicant may know something the insurer does not know) and to reduce exposure to very long claims.  Three of the six insurers showing worksite discounts in our July display won’t issue worksite below age 40.

With low participation rates, the risk of a skewed distribution is exacerbated, as is the risk of anti-selection if health concessions are granted.  It is not surprising that insurers feel a need to tighten up price and health concessions, particularly for voluntary cases.

For several years, worksite LTCI has been negatively impacted because employee benefit brokers and employee benefit managers have been absorbed with the Affordable Care Act.  As those pressures abate, worksite LTCI sales may not rebound significantly, because of the above issues and the higher price of LTCI in general.  Voluntary worksite “LTCI” sales may gravitate toward combo products, which have the added advantage of providing valuable life insurance coverage that is viewed as a more immediate potential benefit.

A shift away from worksite voluntary LTCI would be unfortunate because the worksite is a great avenue to reach the middle class which could benefit from LTCI and the State Partnership programs.  Historically, however, the industry has not been effective in providing Partnership coverage to the Partnership’s target market through worksite sales.  Fewer than 40 percent of worksite sales have Partnership-qualifying designs and worksite policies sold to members of the middle class are less likely to qualify for the Partnerships than worksite policies covering executives.  (The July issue of Broker World demonstrated the value of the Partnership and outlined a number of ways to increase Partnership success.)

Employer-paid LTCI is still very attractive because of unique tax advantages.  However, Title VII of the 1964 Civil Rights Act requires that employer-involved sales use unisex pricing if the employer has at least 15 employees.  When all insurers used unisex pricing (until 2013), an executive carve-out for two partners of a company with more than 15 employees could have been serviced by any LTCI company.  Prospectively, it may be hard to find a unisex product for such clients because fewer insurers offer unisex pricing, because insurers often require minimum participation when they offer unisex pricing and because several insurers don’t offer unisex pricing below issue age 40.

Statistical Analysis

In reviewing the following data, remember that insurers’ sales distributions can vary greatly based on the sub-market they serve and how they serve it.  Furthermore, our results may vary from year to year due to a change in participating insurers or in market share among insurers.  For example, it seems that there were fewer employer-paid core sales in 2015, resulting in higher age distribution, average premium, average benefit period, female percentage and percentage of policies that included compound benefit increases.

Market Share
WS market share is distributed very differently than the NWS market.  The top three worksite carriers in 2015 were the same as in 2014.  They sold 81.7 percent of reported 2015 worksite premium, compared to 78.1 percent in 2014.  Their combined market share for non-worksite sales was less than half as much, 33.3 percent.   .

We expect worksite market shares to change more dramatically in 2017 than in 2016.

Issue Age
Table 2 shows that the WS buyer was older in 2015 vs. 2014 (consistent with our belief that there were fewer core programs), while the NWS buyer trended younger. The average age of purchase in 2015 was 5.9 years younger in the WS market than in the NWS market (50.7 vs. 56.6), compared to 7.5 years in 2014 (49.5 vs. 57.0).

Rating Classification
Not surprisingly, despite its younger age distribution, the worksite market has a much lower percentage of policies issued in the best underwriting classification because many worksite programs do not offer “preferred health” discounts. 

Benefit Period  
Table 4 demonstrates that the WS market had a lot more 2-year benefit periods than the NWS market.  It also has more 8-year benefit periods due to different carrier market shares.  The average benefit period for worksite sales dropped from 4.28 in 2014 to 3.89 in 2015, reverting, after two contrary years, to the traditional pattern of being shorter than the 4.02 average benefit period for NWS sales.  

Maximum Monthly Benefit
With a lot fewer sales under $100/day, the average WS initial maximum benefit rose from $124/day to $136/day, compared to $163/day for the NWS market (down from $171/day).

Benefit Increase Features
In 2015, the WS market had a higher percentage of sales with level premiums and three percent and five percent compounding than did the NWS market.  It had a lot of step-rated increases (premiums and benefits increase in lock-step each year).  In the WS market, 45.8 percent (down from 57.5 percent in 2014) of policies had either no increases, a deferred option or future purchase options (FPO), compared to 44.7 percent of NWS policies (up from 38.3 percent).  Historically, the NWS market had much more robust benefit increase features.  Please note that the total distribution has a correction (more 3.5 percent compound; less three percent compound) than was published in our July issue.

Future Protection
Based on a $20/hour cost for non-professional home care (which is the median cost according to Genworth’s 2016 study), the typical worksite sale’s average maximum daily benefit of $136 would cover 6.8 hours of care per day at issue, whereas the typical “on the street” average daily benefit of $163 would cover 8.2 hours of care per day at issue.

According to the American Association for Long-Term Care Insurance’s Sourcebook, about two-thirds of individual LTCI claims start at age 80 or later.  To determine the coverage at age 80, we projected, based on the distribution of benefit increase provisions, the daily maximums from the average issue age (which was different for WS and NWS) to age 80, using methodology reported in the July article.

We projected the cost of care at age 80 using a variety of inflation rates as shown in Table 7.

Table 7 shows that the average worksite policy gains purchasing power if inflation is only two or three percent, but it does not compound enough to keep up with inflation rates of four percent or more. Using the average worksite issue age, the typical 2015 “street” product provided more hours of home care coverage at issue, but that advantage disappears by age 80 because of the richer compounding that was typical of WS policies in 2015.  Based on the average “street” design, the bottom two rows of Table 7 compare age 80 purchasing power using the worksite average issue age (50.7) to the “street” average issue age (56.6).  With two percent inflation, the younger issue age generates more purchasing power because the average street product had more than two percent compounding.  However, at higher inflation rates, the younger age performed less well over time because its average compounding was insufficient. Overall, worksite market sales in 2015 provided close to the same future purchasing power as did “street” sales.  That’s partly because the WS sales were more robust than in the past (fewer core programs, we believe) and partly because the “street” sales were less robust.

Even with six percent inflation, the average policies would cover three or more hours of daily home care at age 80.  Table 7 suggests strongly that “something is better than nothing” because three hours of commercial home care can be a huge help to someone who is in need of care! However, it is important to remember that:

1. Results vary significantly based on an insured’s issue age, initial maximum daily benefit and benefit increase feature, as well as the inflation rate and the age at which the need for care occurs.  A lot of buyers would have lower purchasing power than the averages shown above.

2. Buyers might not understand that their purchasing power at age 80 might be less than it was at issue.  It is important to educate purchasers so they have reasonable expectations.  

3. The above does not reflect the cost of professional home care or a facility.  If work-site buyers expect their purchase to cover a large part of the cost of a nursing home, most buyers who enter a nursing home might be very disappointed at claim time.

4. Table 7 could be distorted by some simplifications in our calculations.  For example, we assumed that each size policy is as likely to exercise benefit increase options and that everyone buys a home care benefit equal to their facility benefit.

Partnership Qualification Rates
The benefit increase requirement to qualify under the state Partnership programs varies by age.  Generally a level premium with a permanent annual three percent or higher compound increase or an otherwise similar CPI increase is required for ages 60 or less.  For ages 61-75, five percent simple increases also qualify and for ages 76 or older, policies qualify without regard to the benefit increase feature.  We also presumed that age-adjusted compound policies would qualify.  Table 8 identifies the percentage of policies which would have qualified for Partnership if Partnership programs had existed with those rules in all states.  However, if Partnerships were available in all states (with the rules cited in this paragraph), the percentage of Partnership policies would exceed the percentages shown in Table 8, because Partnership programs would cause the distribution of sales to change in those states that don’t currently have Partnership programs.

The WS market provides an opportunity to serve less-affluent people efficiently, people who would most benefit from Partnership qualification.  Unfortunately, the percentage of policies sold in the WS market that would meet Partnership qualifications fell from 56.6 percent in 2012 to 41.7 percent in 2014.  The NWS dropped off more in 2015 than the WS market.  In 2015, approximately 39 percent of the policies would have qualified in either market.  Our July survey article identified several ways to improve these percentages.  

Elimination Period
Nearly 90 percent of the “street” market buys 90-day elimination periods (EP).  For that reason, most worksite programs offer only a 90-day EP and 97.1 percent of 2015 worksite sales had a 90-day EP.

Zero-day home care elimination period (in conjunction with a longer facility EP) was almost twice as common in the WS market than in the NWS market in 2015 because a carrier that always provides zero-day home care had a large market share.  Calendar-day EP was less common in the WS market than in the NWS market, but that is misleading because a carrier with a 90-day EP that applies only when the client enters a facility identifies its EP as a “service-day” EP.  If that carrier’s EP was classified as “calendar-day," over 75 percent of WS sales would show up as “calendar-day” EP.

Sales to Couples and Gender Distribution
As mentioned earlier, for the first time, the WS market had a higher percentage of sales to females (58.0 percent) than the NWS market (55.9 percent).  Table 10a shows that data and other related data and Table 10b shows historical female percentages in the WS and NWS market.

Although insurers fear that WS sales might tilt toward females to a degree that would jeopardize profitability, our detailed analysis causes us to believe that the change was primarily attributable to a change in distribution among carriers selling in the WS and to a reduced amount of core policies being sold in 2015.  

The WS market continues to be more likely to insure only one partner and more likely to insure single people, but these differences between the WS and NWS market are smaller in 2015 than in the past (we believe there were fewer core programs).  Surprisingly, couples who both purchased coverage were more likely to include Shared Care in the worksite market than in the NWS market. The increase in Shared Care was primarily due to one carrier reporting a big change. 

Type of Home Care Coverage 
Historically, the worksite market sold fewer policies with a home care maximum equal to the facility maximum.  But with increasing emphasis on home care and simplicity, such policies are now almost always sold and are more common in the WS market than the NWS market.  WS policies were less likely to include monthly determination in 2015 than in 2014 because of a shift in distribution among carriers.

Other Features
Return of Premium (ROP) was much more common in the WS market (54.7 percent) than in the past (29.3 percent) and more common than in the NWS market (20.6 percent).  In both the WS and NWS market, about 95 percent of the ROP sales were embedded provisions that are limited (such as expiring at age 67).  Such ROP is an inexpensive way to encourage more young people to buy coverage.  

Partial Cash Alternative was also more common in the WS market (49.8 percent) than in the NWS market (23.1 percent).  One major WS carrier has a provision similar to partial cash alternative but it is limited to purposes listed in the plan of care.  If that feature is included here, such alternatives were included in 75.1 percent of WS sales and 26.0 percent of NWS sales.

For the second straight year, Shortened Benefit Period was less common in 2015 in the WS market (0.3 percent) than in the NWS market (1.4 percent).

On the other hand, Restoration of Benefits was more common in the WS market (12.5 percent) as in the NWS market (10.8 percent) and was more likely to be purchased for an extra premium in the WS market (unlike the past).

Limited Pay
Limited pay policies account for less than one percent of the market in 2015.  We should see some single premium policies in the 2017 survey.

Closing

We thank insurance company staff for submitting the data and responding to questions promptly. We also thank Nicole Gaspar and Taylor Schmidt of Milliman for managing the data expertly.

We reviewed data for reasonableness. Nonetheless, we cannot assure that all data is accurate.

If you have suggestions for improving this survey, please contact one of the authors. 

The 2016 Milliman Long Term Care Insurance Survey is the eighteenth consecutive annual review of long-term care insurance (LTCI) published by Broker World magazine. It analyzes the marketplace, reports sales distributions, and details available products. 

The data includes certificates or individual policies sold to multi-life groups (primarily small groups) with discounts and/or underwriting concessions, but excludes group policies aimed only at the large group market except where “true group” is specifically mentioned. 

Analysis of worksite sales will appear in the August issue of Broker World.

Unless otherwise indicated, references are solely to U.S. stand-alone LTCI sales, excluding exercised future purchase options or other changes to existing coverage. “Stand-alone” refers to LTCI policies which do not include death benefits (other than returning premiums upon death or waiving a surviving spouse’s premiums) or annuity or disability income benefits. 

In the September issue of Broker World we intend to publish a brief survey regarding combo life and LTCI policies which offer extension of benefits features (LTCI benefits can continue after the death benefit is exhausted).

Highlights from This Year’s Survey

Participants

As in 2015, fifteen carriers participated broadly in this survey. 

We are pleased to welcome an anticipated new carrier in the industry –National Guardian Life Insurance Company (NGL), which is not affiliated with the Guardian Life Insurance Company of America, a.k.a The Guardian or Guardian Life.  Last year, we included LifeCare Assurance, which was planning to issue a product on its own paper.  LifeCare subsequently reached an agreement to support NGL’s intended entry into the market. The NGL LTCI product was pending approval when we finalized this article, but we expect it to be very similar to last year’s LifeCare product.

Although not displaying product, MedAmerica and Northwestern LTC provided background statistical information. MedAmerica stopped selling LTCI effective February 15, 2015. United Security contributed to the sales total, and Genworth and Unum provided sales of new true group certificates.

Sales Summary (more detail in other parts of the article).

• The 16 carriers reported sales of 102,970 policies ($257,097,874 of new annualized premium) in 2015. We estimate that these carriers sold well over 99 percent of the stand-alone LTCI industry’s 2015 sales.

• Although six insurers increased sales, 22.2 percent fewer stand-alone LTCI policies were sold for 18.3 percent less annualized premium than in 2014.

• The average issue age dipped to 55.9, the lowest ever reported in this survey, fueled by a record 3.2 percent of buyers under age 30 even though many insurers no longer accept people below age 30. Most insurers no longer accept people age 80 or over.

• The average premium per new sale increased slightly from $2,368 to $2,497, despite the lower issue age, shorter benefit periods and less-robust benefit increase features.

• The placement rate dropped to an all-time low 58.6 percent, despite a significant drop in sales above age 70. 

• Reported worksite business produced 12.5 percent of new insureds (up from 10.2 percent in 2014 and 8.0 percent in 2013), but only 8.7 percent of premium (up from about 6 percent in 2013-14). Worksite sales are understated because small cases that do not qualify for a multi-life discount are often not considered to be multi-life. More information about worksite sales will appear in the August issue of Broker World.

• Reported affinity business amounted to 6.8 percent of the 2015 new insureds (7.8 percent in 2013-2014) but only 5.8 percent of the premium (vs. ~6.3 percent in 2013-2014).  

• Thrivent cracked into the top 10 insurers, in terms of premium sold, ranking 8th. Bankers Life dropped out of the top 10. The top five carriers have been the same since 2013, but their market share has dropped from 76.5 percent to 70.2 percent, essentially the same as last year but very different insurer-by-insurer.

• Genworth and Unum collectively sold true group LTCI to 80,961 new insureds, demonstrating that group cases can generate a lot of renewal applications ($20.9 million of new annualized premium, not including additions to inforce certificates). That’s a drop of 7-8 percent compared to 2014. 

• Deaths and lapses totaled 3.1 percent of previous year-end inforce policies, for the second consecutive year. Weak sales were unable to overcome those terminations, so the number of inforce policies dropped (0.2 percent), for the first time in our survey. 

• Nonetheless year-end inforce premium increased 2.4 percent from 2014. Inforce premium is impacted by sales, terminations, partial terminations, shifts to paid-up status for various reasons, and price increases.  

• Claims: Twelve insurers reported $4 billion in claims in 2015 (an 8 percent increase over 2014) and $33.3 billion since inception. Overall, the LTCI industry incurred $8.7 billion in claims in 2014 (the most recent year reported in NAIC reports), much paid by insurers which no longer sell LTCI.

About the Survey

This article is arranged in the following sections:

• Highlights (see page 36) provides a high-level view of results. 

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

• Claims (see page 42) presents industry-level claims data.

• Sales Statistical Analysis (see page 43)presents industry-level sales distributions reflecting data from 14 insurers (National Guardian had no sales last year), representing 98 percent of 2015 sales. 

• Partnership Programs (see page 48) discusses the impact of the State Partnerships for LTC.

• Premium Rate Details (see page 49) explains the basis for the product-specific premium rate exhibit.

• Product Details (see page 50) provides a row-by-row definition of the product exhibit. We have 18 products displayed, including 4 products that were not displayed in 2015. 

Market Perspective (More detail in subsequent parts of the article). 

• Shift to gender-distinct pricing. Claims data clearly indicates that women incur more long term care costs, but insurers historically were reluctant to charge females more than males. Insurers believed women stimulate LTCI purchases and feared women would be less likely to do so if they were charged higher prices. In 2013, four insurers started charging gender-distinct prices (other than in worksite sales). During 2015, five insurers still sold individual-market LTCI policies with “unisex” prices for single people. Only one insurer displays such a product this year. We expect unisex pricing to disappear, other than in the worksite. (Note: two carriers offer unisex pricing to couples.)  

• Impact of gender-distinct pricing. It is unclear to what degree gender-distinct pricing has contributed to the continuing sales decline. In the worksite market, insurers now fear gender anti-selection, as unisex worksite prices offer women large discounts compared to gender-distinct “street” pricing, while men generally pay more at work than “on the street.”  Overall, worksite price discounts are becoming less attractive. At the beginning of 2013, more than half of the insurers offered small group worksite LTCI, whereas now fewer than half do so. Depending on size of the group, expected participation, gender distribution and other factors, it can be hard for some employers to find an insurer. Several insurers won’t issue coverage to employees below age 40. Business associations are also difficult to serve well. Insurers market gender-distinct pricing to business associations, but business association members generally want to pay through their business to earn tax breaks. Paying through their business is more risky with gender-distinct pricing.

• Stable pricing. Only one displayed product was priced before 2013 (down from four a year ago). Recently-priced policies use more conservative assumptions, hence are more stable. In analysis published by the Society of Actuaries, 95 percent of scenarios resulted in policies priced in 2014 having only a 10 percent chance of a future rate increase and such an increase would likely be about 10 percent. (For more information, see https://www.soa.org/research/research-projects/ltc/research-2014-understanding-volatility.aspx.) Assumptions in 2014 (compared to assumptions in 2000) were based on 16 times as much data, with 70 times as much data for policy years 10 or later at attained ages 80 or higher. With today’s low investment assumptions, many people believe insurers will benefit from favorable investment deviations. With ultimate voluntary termination (“lapse”) assumptions below one percent, the lapse risk has shrunk tremendously. Better underwriting and tighter policy form wording also reduce risk of rate increases.

• With more conservative pricing, the chance of a favorable future deviation becomes more likely. So we show in the display (row 82), for products which have dividends or other mechanisms to feed favorable deviations back to policyholders, when such credits are first expected to appear.

• Potential impact of regulation. The detrimental impact of the Affordable Care Act on worksite LTCI sales should wane, as the ACA is likely to demand less attention from employers and employee benefit brokers going forward. The new Department of Labor fiduciary rules do not appear to impact LTCI directly, but increased need for detailed documentation may leave financial advisors less time for ancillary services such as LTCI sales. Furthermore, some advisors may become more reluctant to discuss LTCI with their clients, concerned that they lack the expertise to meet fiduciary standards.

• Sales of alternative approaches to cover long term care risk continue to grow. Accelerated death benefits allow insureds to access their beneficiaries’ death benefit to pay for long term care expenses. Policies with “extension of benefits” continue paying for long term care after the death benefit has been exhausted by long term care expenses and increasingly offer features that, in the past, were more common in the stand-alone LTCI market. Some critical illness policies also cover some long term care expenses. Overall, an increasing number of people have protection against long term care risks.

• Various government and non-government think tanks (such as Scan Foundation, AARP, Leading Age, the LTC Financing Collaborative, the BiPartisan Policy Center, the Society of Actuaries’ Think Tank, American Society of Aging) are exploring how the U.S. can address its looming long term care tsunami. As opposed to the ill-fated “first dollar” Class Act coverage that was originally part of the Affordable Care Act, the Bipartisan Policy Center and others are now recommending a catastrophic government LTCI program, leaving the less catastrophic costs to private insurance. Only one insurer now offers an “endless” (“unlimited benefit period”) stand-alone LTCI policy (one offers an endless combo policy). The substantial disappearance of “endless” options is one of many factors causing increased support for Federal catastrophic coverage. However, many questions remain with respect to such a program.

• The value of future benefits from current sales continues to drop. The average 56-year-old buyer in 2015 would have a maximum daily benefit of $291 at age 80 in 2039, 23 percent less than if he had purchased an average policy in 2012.

• The drop in sales with compound increases continues to negatively impact Partnership sales, particularly in the original Partnership states.  (See the Partnership section.)

• Underwriting continues to evolve. 

Several insurers decline marijuana use. For medicinal use (whether legal or not), many other insurers classify the insured based on the underlying condition, ignoring marijuana use. Several insurers are tougher on recreational use than medicinal use. Some insurers may decline or restrict the underwriting class, sometimes depending on degree of usage. 

Most insurers do not determine rate classification based on family history (they may seek more health information however). For other insurers, family history can block a preferred rating or cause a decline. It can also limit design (to five-year benefit period, for example). Relevant family history includes biological parents’ and siblings’ ages at onset of conditions such as dementia, coronary conditions, stroke, Huntington’s or Parkinson’s.

• To reduce wastage, most insurers require cash with the application (CWA), except when multiple insureds will be listed on a single bill. Submitting cash is good for applicants because some insurers grant conditional receipt coverage. Based on seven insurers, those which require CWA lost 21.1 percent of their non-declined applications to suspension, withdrawal, NTO (refusal upon delivery) or free-look-period cancellation, while those which do not require CWA lost 25.2 percent. Ironically, the insurer with the highest rate of such losses requires CWA (but only on about two thirds of its business). Based on 12 insurers, those which are mostly brokerage lost 24.4 percent, whereas those which are mostly not brokerage lost 18.1 percent.  Requiring CWA and having a more-controlled distribution system both reduce wastage, with the distribution system being more significant.

• Discounts for unmarried partners. When both partners buy, all but three carriers offer the same discount to married and unmarried couples. However, in most jurisdictions, five insurers require that unmarried couples live together for three years in order to qualify for such a discount. One insurer requires two years, one requires one year, and three insurers treat unmarried partners the same as married couples (no cohabitation period required).  One insurer requires 5 years of cohabitation and two insurers do not offer any discount to unmarried couples.

• Only five participants offer coverage in all U.S. jurisdictions; no worksite insurer sells in all those jurisdictions. When a jurisdiction is slow to approve a new product, restricts rate increases or has unfavorable legislation or regulations, insurers increasingly opt to stop sales in that jurisdiction.

• If an insurer concludes that a claimant is not chronically ill, the claimant can appeal the decision to binding independent review (IR). Sixty percent  of our participants have extended IR beyond statutory requirements, most commonly to policies issued prior to the effective date of IR. We are aware of only 46 times claimants have resorted to IR, and the insurers’ denials were upheld 87 percent of the time. The existence and voluntary expansion of IR and the insurer success rate should all increase distributors’ and consumers’ confidence in the industry.

Claims

• Twelve participants reported individual claims for 2015 and three reported true group claims (the same number as last year). Their total claim payments rose to $4.0 billion in 2015, eight percent over 2014, whereas the total number of inforce policies decreased, demonstrating the delayed nature of LTCI claims. Claims increase from year to year as insureds get older, maximums increase according to benefit increase features including future purchase options, long term care costs rise, and claims shift to more recently issued policies which have larger maximum benefits, etc. These 12 insurers have paid $33.3 billion in LTCI claims from inception through 2015.

• The LTCI industry has had a much bigger impact than indicated above because a lot of claims are paid by insurers which no longer sell LTCI. According to the NAIC’s report for 2014 (the most recent report available when this was written), the industry incurred $8.7 billion in claims in 2014, boosting the industry to $98.1 billion of claims incurred since 1991. 

LTCI claims paid by insurers which no longer sell LTCI might differ significantly from data reported herein because their claimants might be more likely to have facility-only coverage, be older, have smaller policies, etc. 

Table 1 shows claims distribution based on dollars of payments whereas Table 2 shows distribution based on number of claims. In the distribution based on number of claims, if someone received care in more than one venue, they are counted more than once. Table 1 shows a shift in cost from nursing home claims to assisted living facility (ALF) claims; Table 2 shows the number of claims shifted from nursing homes to home care. Claims will continue to shift away from nursing homes because of preference for home care and ALFs and because newer sales are overwhelmingly “comprehensive” policies (covering home care and adult day care, as well as facilities), whereas many older policies covered only nursing homes. Claims which could not be categorized as to venue were ignored in determining the distribution by provider-type. 

Table 3 shows the average size individual and group claim since inception. The average total claim, all venues combined, is large compared to the averages by venue because 38.3 percent of individual policy claimants and 32.4 percent of group claimants receive benefits in more than one venue (assuming none are in more than two venues). The percentage with claims in multiple venues will increase as comprehensive policies increasingly dominate future claims.

Average claim size may be misleadingly low because:

1. The many small claims drive down the average. The purpose of insurance is to protect against a non-average result. The potential claim is more relevant than the average claim.

2. People who have multiple claims are counted as though they are multiple insureds.  We are not able to add their various claims together.

3. Older policies had lower average maximum benefits and were sold to older people, resulting in smaller claims for shorter periods of time than might result from today’s sales. 

4. Twenty-six percent (25.7) of inception-to-date individual claims included 2015 payments as did 22.5 percent of the corresponding group claims. Some of those closed in 2015, but a meaningful percentage of inception-to-date claims are still open. Our data does not include reserve estimates for future payments on open claims.

The average group claim is 73 percent of the average individual claim, probably because of shorter benefit periods, lower maximum daily benefits and fewer benefit increase features. Core programs are particularly likely to insure only a small portion of the eventual need, but may not affect claims data much because they are less likely to exist when long term care is needed. 

Individual ALF claims are more recent and from more recently-issued policies, hence have higher costs and limits. Also, ALF claims probably last longer, on average, because there are a lot of short nursing home claims and because ALFs have a higher percentage of cognitively-impaired residents. Nursing home claims are least likely to reflect the full cost of care, because nursing home charges often exceed policy maximums.

Statistical Analysis

Market Share

Table 4 lists the top 10 carriers in 2015 new premium.  For the first time, Northwestern is number one.  Mutual of Omaha moved from number four to number two, as Genworth slid. Transamerica had a 60 percent gain over 2014.

Fourteen insurers contributed to the following statistical analysis, but some 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.

Characteristics of Policies Sold

Average Premium

The average premium per new sale increased 5.5 percent from $2,368 to $2,497. The average premium among participants ranged from $1,373 to $3,117. Five insurers had a lower average premium than in 2014 but only one dropped more than four percent. The average premium per new purchasing unit (i.e., one person or a couple) increased similarly, from $3,325 to $3,525. The average inforce premium rose three percent to $2,100.

Issue Age

The average issue age dropped from 56.3 to 55.9, a record low. Table 5 shows an astounding 3.2 percent of buyers were under age 30. Even removing worksite sales, 3.0 percent of buyers were below 30. The increasing percentage of sales below age 40 may reverse, as four participants have a minimum issue age of 40, two won’t issue below 30 and two won’t issue below 25. Only five issue to age 18. However, for the second straight year, a large insurer sold more than 10 percent of its policies to people under age 30.

Benefit Period 

Three-year benefit period continues to grab market-share, up to 41.5 percent of sales. Six-year benefit solidified its hold on second place (18.0 percent) as frequently the longest benefit period available. The average length of fixed-benefit periods dipped slightly from 4.07 years to 4.01 years (see Table 6). Coverage was better than the 4.01 average suggests because of shared care. It will be interesting to see what happens with a new “endless” (“lifetime”) benefit period available from one company in most states beginning in July 2016.

Maximum Monthly Benefit

Seventy-nine percent (78.6) of 2015 policies were sold with a monthly or weekly maximum, which is superior to a daily maximum. That percentage had been increasing but was one percent lower in 2015 than in 2014. 

The average maximum benefit decreased very slightly, to about $4,800 per month.

The percentage of policies sold with a $6000 or higher initial maximum monthly benefit was the lowest it has been since 2012 (see Table 7).  Each additional $3000 of initial monthly maximum costs as much as the first $3000 but the portion that is paid as claims drops significantly as initial size increases because most people will not use a large policy’s maximum.

Benefit Increase Features

Sales of five percent compound increases, 47.6 percent of sales in 2009, now account for only four percent of sales. The growing three percent compound sales tapered off in 2015 as one insurer stopped selling this design because it is hard to invest its reserves adequately (see Table 8).

Future purchase options (insureds buy more coverage in the future at attained age prices) and step-rated designs (insureds buy more coverage in the future at issue age prices) gained the most.

We added the 3.5 percent compound line because 3.5 percent compounding qualifies for both the Connecticut and New York Partnership programs.

We project the age-80 maximum daily benefit by applying the distribution of benefit increase features (and making assumptions as to CPI and election rates) to the average daily benefit purchased. The maximum benefit at age 80 (in 2039) for our 2015 average 56-year-old purchaser projects to $292/day. Had our average buyer bought an average 2014 policy at age 55, his age 80 benefit would be $312.  The corresponding figures for 2013 or 2012 purchase are $356 and $378. This projected maximum daily value at age 80 has dropped 23 percent in 3 years, from $378/day to $291/day. The drop in coverage is really greater because the average claim payment (as opposed to start) age is greater than 80.

The “Deferred Compound” option allows purchasers to add level premium compound benefit increases within five years of issue if they have not been on claim.

The “Age-Adjusted” benefit increase features typically increase benefits by five percent through age 60, by three percent compound or five percent simple from 61 to 75, and by zero percent after age 75.

“Indexed Level Premium” policies are priced to have a level premium, but the benefit increase is tied to an index such as the Consumer Price Index (CPI).

Five insurers provided both the number of available future purchase options (at attained age rates) in 2015 and the number exercised. Based on their data, 33.9 percent of insureds exercised future purchase options that were available in 2015. As shown in Table 9, this percentage is unusually high. By insurer, election rates varied from 14 percent to 75 percent (the latter with a negative election approach; i.e., the increase applies unless rejected). 

Elimination Period

As Table 10 indicates, facility elimination period selections were even more overwhelmingly 90 days than in the past.  Only 4.6 percent of policies had an EP shorter than 84 days.

The percentage of policies with zero-day home care elimination period (but a longer facility EP) has dropped from 38.9 percent in 2013 to 27.5 percent in 2015, largely due to change in sales distribution among carriers. In 2015, 31.6 percent of the policies had a calendar-day EP definition, slightly fewer than in the recent past (32.2 percent). When a calendar-day EP was available, 51.2 percent of policies had the feature; in some cases, it was automatic.

Sales to Couples and Gender Distribution

Table 11 shows the percentages of buyers who are female has been steady and the percentage of single buyers who are female has been dropping slightly. Offsetting factors affect this distribution. For example, sales at older ages are predominantly to single women, so the reduction in sales at those ages skews sales less to women. On the other hand, insurers which had gender-distinct pricing all year had 59.7 percent females among their single non-worksite insureds. Insurers which had gender-distinct pricing part of the year had 65.2 percent females among their single non-worksite insureds and insurers which had unisex pricing essentially all year had 73.1 percent females among those insureds.

In 2011 and 2012, years with all unisex pricing, 70 percent to 71.5 percent of single insureds were female (including worksite sales). Now, insurers with established gender-distinct pricing are finding only 59.9 percent females among their single insureds (including worksite sales). That’s partly because single females are being diverted to insurers with unisex pricing and partly because the higher gender-distinct pricing discourages single females from buying.

For the last two years, one-of-a-couple sales have exceeded sales to single people. Compressed issue age ranges may contribute to this shift.

Shared Care and Other Couples’ Features

Table 12 shows that fewer couples who purchase limited benefit period opted for shared care (39.3 percent in total; 52.8 percent for insurers which offer shared care), despite the fact that three-year benefit period has a larger market share and has a high percentage of shared care sales.

Some products offer or imbed “joint waiver” (both insureds’ premiums are waived if either qualifies) and/or “survivorship”, which waives a survivor’s premium after the first death if specified conditions are met. When both partners bought coverage in 2015, only 20.9 percent of policies included joint waiver of premium (33.6 percent if the insurer offers joint waiver). 

Only 5.3 percent of policies included survivorship if both partners bought (8.0 percent if the insurer offers survivorship). 

The seeming reduced popularity of joint waiver and survivorship with carriers that make it available is misleading. A major insurer offers these features only on one of its policy offerings. We included all of its sales in the denominator.

For the past two years, the 3-year benefit period has been the benefit period most likely to add shared care (combining the traditional and third-pool designs).  Now 52.4 perccent of 3-year benefit period policies have shared care (see Table 13). Above, we stated shared care is selected by 39.3 percent of couples who both buy limited benefit period. Table 13 shows shared care comprised no more than 35.5 percent of any benefit period; that’s because Table 13 denominators include benefit periods for single buyers.

Existence and Type of Home Care Coverage

One participant reported home-care-only policies, which accounted for 1.2 percent of industry sales. Five participants reported sales of facility-only policies, which accounted for one percent of total sales, compared to two percent in 2014. 

Ninety-seven percent (96.8) of the comprehensive policies included home care benefits at least equal to the facility benefit, down slightly from 97.2 percent in 2014.

Partial cash alternative features (which allow claimants, in lieu of any other benefit that month, to use between 30 percent and 40 percent of their benefits for whatever purpose they wish) were included in 26.4 percent of sales, nearly double the 14.2 percent in 2014, because the two insurers which dominate such sales include these features automatically and increased their sales collectively by 36 percent in an industry in which total sales declined. 

One carrier reported eight indemnity policies.  Indemnity policies pay the full daily maximum if at least one dollar is spent on a qualified long term care service. 

Other Characteristics

 “Return of Premium” features (“ROP”) were included in 24.8 percent of all policies (up from 10.5 percent). They return some or all premiums (usually reduced by paid LTCI benefits) when a policyholder dies. Approximately 95 percent were embedded automatically. Embedded features are designed to cost little, decreasing the benefit to zero by age 75 except for an ROP which pays only for death after age 100 (or 25 years if later). 

Eleven percent of policies with limited benefit periods included a restoration of benefits (ROB) provision, up from 9.8 percent in 2104. ROB provisions typically restore used benefits when the insured does not need services for at least six months. Approximately 70 percent of the ROB features were embedded, compared to 63 percent last year, so optional ROB reduced.

Shortened benefit period (SBP) nonforfeiture option was included in 1.2 percent of policies. SBP makes limited future LTCI benefits available to people who stop paying premiums after three or more years.

Only 0.2 percent of policies were non-tax-qualified (NTQ), all coming from Bankers Life & Casualty. NTQ was 5 percent of their business.

“Captive” (dedicated to one insurer) agents produced 46.6 percent of the policies, up from 44.4 percent.

Sales distribution by jurisdiction is available at www.brokerworldmag.com.

Limited Pay

Only three insurers sold 10-year-pay, 20-year-pay, paid-to-65 or paid-to-75 policies and one of those insurers no longer sells LTCI. Limited-pay policies were 0.8 percent of sales (down from 1.25 percent). As LTCI is more conservatively priced, limited-pay is less attractive t

The Long Term Care Insurance Survey has been published in Broker World magazine annually since 2005 and has covered worksite long term care insurance (LTCI) in detail since 2011. The worksite multi-life market (WS) consists of sales made with discounts and/or underwriting concessions to groups of people based on common employment, using individual policies. The analysis herein excludes “true group” and “combo” products. (Also called “linked” benefits, combo products pay meaningful life insurance, annuity or disability income benefits in addition to LTCI.)

The July 2015 issue of Broker World reported on the overall LTCI market. Its policy exhibit displayed three WS products (John Hancock, LifeSecure and Transamerica). Three other participating companies (Life­Care, MassMutual and New York Life) showed worksite discounts in their display of their “street” products. Mutual of Omaha displayed a common-employer discount, but that discount is expressly not a worksite program.

This article compares the survey’s WS sales to its individual LTCI policies that are not worksite policies (NWS) and to its total individual sales (Total). References are solely to the U.S. market and exclude exercised future purchase options unless specifically indicated.

Our data may under-report WS sales because, as explained under “Market Share,” some WS sales may not be identified as such in the insurers’ administrative systems.

About the Survey

As this article is written, six (identified above) of the 13 insurers whose products are displayed in the 2015 LTCI Survey provide discounts and/or underwriting concessions for WS LTCI. All, except LifeCare which had no sales, contributed data to this article. In addition, Northwestern and MedAmerica contributed data (MedAmerica discontinued worksite sales in 2014). Only two companies provided information about simplified underwriting. To the best of our knowledge, our reported sales figures represent the entire worksite LTCI industry except for Genworth true group sales. 

Comparisons to 2013 are not consistent with last year’s article because we added New York Life data to both years, and one carrier restated its 2013 worksite sales significantly.

Highlights from This Year’s Survey

 • In 2014, participants reported sales of 13,460 worksite policies for $20.1 million of new annualized premium, a 3.9 percent drop in policies sold, and a 14.6 percent drop in new annualized premium compared to 2013. The worksite sales decrease (especially in policy count) does not look bad compared to the total sales decrease of 23.8 percent in terms of policies and 21.8 percent in terms of annualized premium. While the average premium for sales “on the street” increased, the average worksite premium per policy dropped 11 percent, from $1,684 in 2013 to $1,496 in 2014.

 • Worksite market shares (See Table 1) changed markedly, as three carriers reported an increase in WS premium and six reported a decrease. Three carriers (one with an increase) reported sales but discontinued worksite sales in 2014.

 • Reported WS LTCI sales accounted for 10.2 percent of the policies sold in the industry (up from 8.0 percent in 2013) and 6.1 percent of the annualized premium (up from 5.8 percent). One carrier got more than half of its new annualized premium from WS sales and another got more than one-third. No other carrier got as much as one-seventh of its sales from WS sales.

 • The number of policies per case was particularly interesting. Two carriers reported an average of 34 to 35 policies per case. Two others reported an average of two policies per case. Selling executive carve-out LTCI to just one or two owner-employees and their spouses may become more difficult because of the shift to gender-distinct pricing.

 • As occurred last year, the WS market had a higher average benefit period (4.28) than the NWS market (4.04).

 • Only 41.7 percent of WS policies met partnership qualifications (down from 51.6 percent in 2013 and 57 percent in 2012), compared to 50.2 percent in the NWS market. The executive carve-out WS market insures people who are unlikely to benefit from the partnership, but those policies probably all were partnership-qualified. The WS market provides an avenue to reach people more likely to benefit from partnership programs, but most of them do not get partnership coverage (many may be provided a non-partnership core, i.e., no benefit increases, and choose not to buy such increases at their own expense). The July issue of Broker World demonstrated the value of the partnership concept and outlined a number of ways to increase partnership success.

Market Perspective

Higher prices continue to erode voluntary WS sales, and the impact of the industry’s shift to gender-distinct pricing has not yet been fully reflected. Voluntary WS LTCI sales may gravitate toward combo products more quickly than the NWS market.

An insurer’s sales distributions can vary greatly from industry averages because the insurer focuses on a different sub-market. Furthermore, our survey distributions may vary significantly from year-to-year, partly due to a change in participating insurers  that provide sales distributions.

Statistical Analysis

Market Share. WS market share is less reliable than total individual market share because, as noted above, some carriers might not identify some sales as being WS sales. Nonetheless, it is clear that WS market share is distributed very differently than the NWS market. (Note: One carrier restated 2013 WS sales.)

Issue Age. Table 2 shows that the WS market has nearly four times as much concentration below age 40 as the NWS market.

The average age of purchase in 2014 was 7.5 years younger in the WS market (49.5) than in the NWS market (57.0).

Rating Classification. Not surprisingly, despite its younger age distribution, the WS market has a much lower percentage of policies issued in the best underwriting classification because simplified underwriting precludes the most favorable classification.

Benefit Period. Table 4 demonstrates that the WS market had a lot more four-year and eight-year benefit periods than the NWS market. That’s because the largest WS sales company sells 33.3-month, 50-month and 100-month benefit periods that get mapped into three, four and eight years. The WS market also had a lot less lifetime benefit period. Because benefit periods have shrunk so much in the NWS market, the past huge difference between NWS and WS benefit period distribution has evaporated.

Maximum Monthly Benefit. Table 5 shows that nearly two-thirds of the WS market consists of sales below $150/day compared to 39.0 percent for the NWS market. Thus, the average initial maximum benefit for WS sales is approximately $124/day compared to $171/day for the NWS market.

Benefit Increase Features. Table 6 shows a lot of differences between the WS and NWS markets. In 2014, the WS market dropped back to the level of the NWS market, as regards level premium 3 percent compound increases, and in other types of compound increase features it stayed much below the NWS market. The WS market had 57.5 percent of its policies sold with either no increases, a deferred option or future purchase options (FPOs), compared to 38.3 percent of NWS policies, an even larger disparity than in 2013, which in turn was much larger than in 2012.

Future Protection. The lower initial benefit and younger age distribution in the WS market increase the possibility that people with WS LTCI may find that their policies cover a smaller portion of their eventual long term care costs than they might have anticipated.

Based on a $20/hour cost for non-professional home care (which is the median cost according to Genworth’s 2015 study), the typical worksite sale’s average maximum daily benefit of $124 would cover 6.21 hours of care per day at issue, whereas the typical “on the street” average daily benefit of $171 would cover 8.54 hours of care per day at issue.
According to the American Association for Long-Term Care Insurance’s annual Sourcebook, approximately two-thirds of individual LTCI claims start at age 80 or later. To determine the coverage at age 80, we projected, based on the distribution of benefit increase provisions, the daily maximums from the average issue age to age 80, using methodology reported in the July article.

We projected the cost of care at age 80 using a variety of inflation rates. The results are shown in Table 7 (on page 26).

Table 7 shows that the average WS policy would reimburse 73 percent as much care as would the average “street” product on day one. Although the disparity grows over time if the inflation rate is 3 percent or more, even with 6 percent inflation, the average WS policy would cover more than two hours of home care at age 80.

Table 7 suggests strongly that “something is better than nothing” because even two hours of commercial home care can be a huge blessing! However, it is important to remember that:

 1. Results vary significantly based on an insured’s issue age, initial maximum daily benefit and benefit increase feature, as well as the inflation rate and the age at which the need for care occurs. Many buyers would have lower purchasing power than the averages shown above.

 2. Buyers might not expect that, on average, the group’s purchasing power at age 80 would be less than half of what it was at issue, if the inflation rate is 5 percent. It is important to educate purchasers so they have reasonable expectations.

 3. The above does not reflect the cost of professional home care or a facility. If worksite buyers expect their purchase to cover a large part of the cost of a nursing home, most buyers who enter a nursing home might be very disappointed at claim time.

 4. Table 7 could be distorted by some simplifications in our calculations. For example, we assumed that each benefit increase option was issued with the same average maximum daily benefit and that everyone has a home care benefit equal to their facility benefit.

Partnership Qualification Rates. The benefit increase requirement to qualify under the state partnership programs varies by age. Generally a level premium, permanent annual 3 percent or higher compound increase or an otherwise similar CPI increase is required for ages 60 or less. For ages 61-75, 5 percent simple increases also qualify, and for ages 76 or older, policies qualify without regard to the benefit increase feature. Table 8 identifies the percentage of policies that would have qualified for partnership if partnership programs had existed with those rules in all states. However, if partnerships were available in all states (with the rules cited in this paragraph), the percentage of partnership policies would exceed the percentages shown in Table 8, because partnership programs would cause the distribution of sales to change in those states that don’t currently have partnership programs.

The WS market provides an opportunity for the industry to serve less-affluent people efficiently. These are the people who would most benefit from partnership qualification. Unfortunately, the percentage of policies sold in the WS market that would meet partnership qualifications fell from 56.6 percent in 2012 to 51.6 percent in 2013 and to 41.7 percent in 2014. Both the WS and NWS percentages dropped by 10 percent arithmetically between 2013 and 2014, but the overall total market percentage dropped 12 percent because the WS market was a larger percentage of the total market in 2014 than in 2013. Our July survey article identified several ways to improve these percentages. In the WS market, core programs might lower the initial monthly maximum benefit in return for adding 3 percent compound increases.

Elimination Period. The total market clusters to 90-day elimination periods (EPs). For that reason, most advisors think it is not a good use of time to offer multiple EPs in the WS market. Hence the WS market is 95 percent weighted toward 90-day EP.

The zero-day home care elimination period (in conjunction with a longer facility EP) was more common in the WS market than in the NWS market in 2013 because the carriers that sell such features were more active in the WS market. That switched in 2014. In 2014 the calendar-day EP was more common in the WS market than in the NWS market. The WS market was even more weighted toward calendar-day than the statistics suggest, because a carrier with a 90-day EP that applies only when the client enters a facility identifies its EP as a “service-day” EP. The EP definition is practically identical to a calendar-day EP.

Sales to Couples and Gender Distribu­tion. Relative to gender sales, the most striking difference between the WS market and the NWS market continues to be that the WS market is much more likely to insure only one partner (WS couples insure only one spouse 60.4 percent of the time, whereas only 40.7 percent of NWS couples insure only one spouse), a slightly bigger discrepancy than in 2013, continuing a trend. Particularly in core/buy-up programs, employers are likely to pay for the employee but not the spouse.

The percentage of single people among WS insureds is 23.9 percent compared to 20.2 percent in the NWS market, probably because the WS market is younger and because of core programs.

The above factors cause the percentage of both-buy couples to be much lower in the WS market.

The percentage of female sales in the WS market was 4.4 percent lower than in the NWS market. In 2013, the differential was 3.5 percent, and in 2012 it was only 1.4 percent. What is causing a lower percentage of females in the WS market?

 • Perhaps employers are paying for coverage more frequently for males than for females.

 • Perhaps education at the WS encourages more males to buy than is the case outside the WS.

 • Perhaps the male employees are more able to afford LTCI than female employees. For example, single males may be less likely to have dependent children than single females.

 • Perhaps female employees are more likely to bring the offer home and get their spouses insured.

 • Perhaps the NWS market has had an artificial boost in the percentages of female buyers to get unisex pricing while they can.

Shared care is sold less in the WS market because, as noted above, fewer couples buy together in the WS market. Furthermore, shared care is not typically included in executive carve-out programs that include single executives. Of the WS couples who both bought limited benefit periods, only 33.6 percent purchased shared care compared to 40.4 percent in the NWS market.

Type of Home Care Coverage. An insurer that uses a monthly determination for all venues increased its WS market share substantially in 2014. Table 11 reflects the impact, as the percentage of WS cases with weekly or monthly determination has grown much closer to the NWS market (76.2 percent vs. 80.0 percent) than was the case in 2013.

Other Features. Return of premium (ROP) was much more common in the WS market (29.3 percent) than in the NWS market (4.2 percent), probably because an embedded limited (e.g., for death occurring before age 67) ROP benefit is an inexpensive way to encourage more young people to buy coverage. Voluntary purchase of ROP is rare in the WS.

Partial cash alternative was also more common in the WS market (26.6 percent) than in the NWS market (13.4 percent) because one of the two carriers offering this feature has a strong WS market share.

Shortened benefit period was less common in 2014 in the WS market (0.5 percent) than in the NWS market (1.2 percent), reversing last year’s result.

On the other hand, restoration of benefits was less common in the WS market (6.0 percent) than in the NWS market (10.1 percent) and was more likely to be embedded in the WS market than in the NWS market.

Limited Pay. In 2014, the percentage of limited pay policies in the WS dropped to less than twice the percentage in the NWS market, whereas it was nearly three times as much in 2013. (See Table 12.) Only 2.0 percent of WS sales were limited pay, compared to 9.4 percent in 2012.

Closing

We thank insurance company staff for submitting the data and responding to questions promptly. We also thank Nicole Gaspar and Taylor Schmidt of Milliman for managing the data expertly.

We reviewed data for reasonableness. Nonetheless, we cannot assure that all data is accurate. If you have suggestions for improving this survey, please contact one of the authors.

July 2015

Claude Thau

Dawn Helwig

Allen Schmitz

2015 Long Term Care Insurance Survey

The 2015 Long Term Care Insurance Survey is the seventeenth consecutive annual review of long term care insurance (LTCI) published by Broker World magazine. It analyzes the marketplace, reports sales distributions and details available products.

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

Note: Comparisons of worksite sales characteristics to overall sales characteristics will appear in the August issue of Broker World magazine.

Highlights from This Year’s Survey

• Participants

Fifteen carriers participated broadly in this survey, including all of last year’s participants except United Security Assurance, which intends to resume participation in 2016.

We are pleased that New York Life has resumed contributing product and sales distribution data and that a new entrant in the market, LifeCare Assurance, is participating.

Although not displaying product, Country and Northwestern LTC provided background statistical information. United Security contributed to the sales total, and Genworth and Unum provided sales of new certificates.

• Sales Summary (more details in other parts of this article)

 • The 15 carriers that reported individual sales to this survey sold 133,660 policies ($316,522,515 of new annualized premium) in 2014. We estimate that these carriers sold more than 99 percent of the stand-alone LTCI industry’s 2014 sales.

 • Five insurers increased sales, three of them by 50 percent or more. However, continuing past trends, stand-alone LTCI sales dropped 23.8 percent from 2013 in terms of lives insured and 21.8 percent in terms of annualized premium.

 • The average premium per new sale increased slightly from $2,311 to $2,368. Unit prices generally increased, but the trend continued of policies having shorter benefit periods and less-robust future increases.

 • Worksite sales dropped less than total sales, even though two carriers discontinued worksite sales. Our 2013 base for comparison has been adjusted to include New York Life and to correct overstated sales by one of the carriers last year. The number of new worksite policies dropped 3.9 percent, and new annualized worksite premium dropped 14.6 percent. Worksite business produced 10.2 percent of new policies, but only 6.1 percent of new annualized premium. The average worksite premium dropped from $1,664 in 2013 to $1,496 in 2014.

 • Affinity annualized premium sales dropped 25 percent, and the number of policies dropped 24.7 percent.

 • Because of the strong persistency of LTCI business and in-force policy price increases, in-force premium increased 2.6 percent from year-end 2013 to year-end 2014 , and the number of insureds increased 0.8 percent, despite low sales. Average in-force premium was $2,038, $34 more than last year. Strikingly, six carriers had decreases in their number of in-force policies at year-end 2014 compared to year-end 2013, and two others saw their number of in-force policies grow less than 1 percent.

 • Deaths, normal lapses and lapses in response to rate increases totaled about 3.1 percent of year-end 2013 in-force policies compared to 2.7 percent a year ago.

 • Genworth and Unum collectively sold true group LTCI to 87,108 new insureds ($22.7 million of new annualized premium, not including additions to in-force certificates). That’s a drop of 13 percent, compared to 2013, in new certificates sold but 42 percent in new premium sold. The big drop in premium compared to sales seems to reflect a lot of core program additions. CNA also accepted new policies on existing cases, but did not report sales to us.

• Claims

Participating insurers reported $3.7 billion in claims in 2014 and nearly $30 billion since inception. Carriers that participated this year and last year reported a 13 percent increase in claims since inception. Overall, the LTCI industry incurred $8.2 billion in claims in 2013 (the most recent year reported in NAIC reports), much paid by insurers that no longer sell LTCI.

About the Survey

This article is arranged in the following sections:

 • Highlights (on page 34) provides a high-level view of results.

 • Market Perspective (on page 36) provides insights into the LTCI market.

 • Claims (on page 40) presents industry-level claims data.

 • Sales Statistical Analysis (on page 42) presents industry-level sales distributions reflecting data from 14 insurers, representing 99 percent of the policies sold in 2014.

 • Multi-Life Programs (see page 50) 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 (see page 50) discusses the impact of the state partnerships for long term care.

 • Product Details (see page 53) provides a row-by-row definition of the product exhibit. We have 20 products displayed, including 8 products that were not displayed in 2014. Several others have changed premiums, design options and/or multi-life parameters since 2014.

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

Market Perspective (more details in other parts of this article)

 • LTCI sales have surged temporarily on the eve of price increases (including shifts to gender-distinct pricing) and benefit discontinuations. Absent those surges, sales would have been lower.

 • Furthermore, as only one insurer offers a true group LTCI program, group business should have gravitated to multi-life policies, thereby increasing sales included in this survey. Part of the problem in worksite sales seems to have been that implementation of the Affordable Care Act has distracted the market from considering LTCI.

 • Sales of 5 percent compound increases dropped from 32.7 percent of 2012 sales to 22.0 percent in 2013 and plunged to 9.3 percent in 2014. Consequently, 2014 sales to a 57-year-old project an average maximum benefit of $295/day in 2037. For the same person (age 56) in 2013, the 2037 benefit was $333 and the corresponding 2012 figure was $352. The value of coverage has dropped 16 percent over the past two years.

 • The drop in sales with compound increases negatively impacted partnership sales, particularly in the original partnership states where only 18.2 percent qualified. In jurisdictions participating in the Deficit Reduction Act LTC Partnership program, 55.4 percent of policies qualified. Partnerships seem to encourage stronger benefit increase features to be purchased. But no state had more than 78.5 percent of its sales qualify under the partnership, compared to 2013 when six states topped 80 percent.

 • Nonetheless, there are hopeful signs for stand-alone LTCI. A major insurer that has been relatively inactive in LTCI the past couple of years is aggressively marketing an innovative new product. Another insurer will enter the market later this year with lifetime benefit period, a single premium alternative and term life insurance riders.

 • Beyond the stand-alone LTCI market, an increasing number of insurers offer alternative approaches to help address long term care. For example, many life insurance policies include the right to accelerate the death benefit if long term care is needed. These accelerated death benefit (ADB) designs have typically been limited to using 2 percent of the face amount per month for long term care, which may cover relatively little cost by the time long term care becomes necessary. However, more policies now seem to allow up to 4 percent of the face amount per month and more allow the greater flexibility of indemnity or “cash” benefits.

 • An increasing percentage of such ADB provisions are chronic illness (CI) provisions under Section 1.01(g), rather than LTCI under Section 7702. Benefits under Section 1.01(g) are supposed to be de ­minimus, so CI provisions have typically covered only permanent need for long term care. However, the Interstate Compact now approves CI riders covering temporary as well as permanent long term care needs, which should stimulate more attractive CI features. Forty-four states require brokers to have LTCI certification to sell a Section 7702 policy, but none require certification for CI. Unfortunately, regulators have put financial advisors in a tough position if the advisor thinks a CI provision will help his client address long term care needs. While making CI a more meaningful tool for long term care planning, regulators forbid financial advisors from referring to it as LTCI.

 • Combo policies with extension of benefit (EOB) provisions provide significantly superior long term care coverage compared to ADB provisions. These policies are a “better way to self-insure,” as the first two or three years of long term care are funded by the heir’s death benefit (hence the recipient’s care comes at the expense of the beneficiaries), but then the insurer provides a type of stop-loss coverage. Today’s combo products are not limited to single premiums and are sold more often with compound benefit increases than in the past.

 • ADB provisions are expanding in the worksite as well, including 4 percent benefits per month and EOB.

 • Some critical illness policies also provide long term care benefits. There are also some short term long term care policies and policies that cover some types of care but not custodial care.

 • The shift to gender-distinct pricing has continued, as expected. Last year, seven insurers still had unisex stand-alone LTCI pricing for single people “on the street” in most states. By the beginning of 2016, we may have only one insurer with such unisex LTCI pricing. Gender-distinct pricing exists in every jurisdiction except Montana.

While the dust is settling, gender-distinct pricing has begun to adversely affect the worksite, business association and small (non-multi-life) executive carve-out markets. In the past, in many multi-life programs, no one paid more than they would “on the street.” We’re now seeing more programs in which all males and many couples pay more in the worksite than on the street. In the business association market, business people are offered gender-distinct pricing which may preclude their ability to get an attractive tax break by paying for the coverage through their business. Small executive carve-outs may be unable to use gender-distinct pricing, yet not include enough buyers to qualify for insurers’ unisex pricing.

Civil rights complaints, lawsuits and/or legislation could impact gender-distinct pricing. In January 2014, The National Women’s Law Center filed a civil rights complaint against four insurers, three state Medicaid departments and the Center for Medicare and Medicaid Services, alleging that gender-distinct LTCI policies violate the Affordable Care Act and that state and federal governments are complicit because their partnership programs promote policies with gender-distinct pricing. We have heard no news about the status of that civil rights complaint since.

 • Underwriting continues to evolve, using more stringent requirements. Insurers have started making underwriting decisions based on family history. Standards are also tougher, with more than 25 percent of issued policies placed in the third-most-favorable risk classification, or worse. Most insurers no longer accept people age 80 or above, and a growing number don’t accept people below age 30 or 40.

 • The placement rate dropped to an all-time low (60.9 percent, including work-site cases which sometimes permit easier qualification), despite a significant drop in cases above age 70. Thirty-three percent (32.9 percent) of such applications were declined, withdrawn or suspended. Many observers feel that higher prices result in a less healthy pool of applicants and that insurers have tightened underwriting.

 • As we have discussed in the past, when interest rates increase, actuaries will be appropriately reluctant to project such higher interest rates into the future, after experiencing our recent unprecedented period of extremely low investment returns. Mutual companies will be able to share favorable experience through dividends. Combo products can do so through current (as opposed to guaranteed) factors. People who consider self-insuring will assume higher yields. Stock companies issuing non-participating products are at risk of being unable to compete. A new product tries an innovative way to solve this dilemma, by determining annual credits based upon experience. It will be interesting to see whether the market responds favorably to the product.

 • Nine of the top 10 insurers, in terms of sales, were the same in 2014 as in 2013, with LifeSecure cracking the top 10, ranking eighth. State Farm dropped out of the top 10. The top five carriers were the same as in 2013, but their market share dropped from 76.5 percent to 71.3 percent.

 • Existing policyholders continue to see large rate increases. However, insurers should experience favorable deviations on new sales if interest rates rise in the future. Adverse persistency seems unlikely with today’s low lapse assumptions, and improved underwriting should favorably impact claims.

 • If a jurisdiction is slow to approve a new product, restricts rate increases or has unfavorable legislation or regulations, insurers are increasingly opting to discontinue sales in that jurisdiction.

 • If an insurer concludes that a claimant is not chronically ill, the claimant can appeal the decision to binding independent review (IR). More than 70 percent of our participants have extended IR beyond statutory requirements, most commonly to policies issued prior to the effective date of IR. We are aware of only 43 cases which insureds have appealed to IR, and the insurers’ denials have been upheld 86 percent of the time. The existence and voluntary expansion of IR and the insurer success rate should all increase distributors’ and consumers’ confidence in the industry.

 • Wellness programs are increasing in the insurance industry in general. They may have an incidental side effect on LTCI claims, which could be increased if the LTCI industry promotes wellness.

Claims

 • Twelve participants reported individual claims for 2014, and three reported true group claims (one more insurer in each category than last year). Their total claim payments rose to $3.7 billion in 2014, 9 percent over 2013, whereas in-force premium rose only 2.6 percent, demonstrating the “tip of the iceberg” nature of LTCI claims. Claims rise from year-to-year mostly because existing insureds get older. In addition, monthly maximums increase due to benefit increase features, long term care costs are going up, claims are shifting to more-recently-issued policies which have larger maximum benefits, etc.

 • These 12 insurers have paid nearly $30 billion in LTCI claims from inception through 2014.

 • The LTCI industry has had a much bigger impact than indicated above, because a lot of claims are paid by insurers that no longer sell LTCI. According to the NAIC’s report for 2013 (the most recent report available when this was written), the industry incurred $8.2 billion in claims in 2013, boosting the industry to $89.4 billion of claims incurred since 1991.

LTCI claims paid by insurers that no longer sell LTCI might differ significantly from data reported below because their claimants might be more likely to have facility-only coverage, be older, have smaller policies, etc.

Table 1 shows claims distribution based on dollars of payments, whereas Table 2 shows the distribution based on number of claims. In the distribution of the number of claims, if someone received care in more than one venue, they are listed more than once. Claims will continue to shift away from nursing homes because of preference for home care and assisted living facilities (ALFs) and because new sales are nearly entirely comprehensive policies (covering home care and adult daycare, as well as facilities), whereas many older policies covered only nursing homes. Claims which could not be categorized as to venue were ignored in determining the distribution by provider type.

Table 3 (on page 42) shows the average size individual and group claim since inception. The average total claim, all venues combined, is large compared to the averages by venue because 34.2 percent of individual policy claimants and 24.7 percent of group claimants receive benefits in more than one venue. The percentage with claims in multiple venues will increase as comprehensive policies increasingly dominate future claims.

Average claim size may be misleadingly low because:

 1. The many small claims drive down the average. The purpose of insurance is to protect against a non-average result. The potential claim is more relevant than the average claim.

 2. It appears that more than 30 percent of claimants recover. Their claims were presumably quite short on average. Furthermore, their second claims are treated as though they were a different insured, instead of being added to the original claim.

 3. Older policies had lower average maximum benefits and were sold to older people, resulting in smaller claims for shorter periods of time than might result from today’s new policies.

 4. Twenty-seven percent (26.9 percent) of the inception-to-date individual claims included 2014 payments, as did 21.1 percent of the corresponding group claims. Some of those closed in 2014, but a meaningful percentage of inception-to-date claims are still open. Our data does not include reserve estimates for future payments on open claims.

The average group claim is 71 percent as high as the average individual claim, probably because of shorter benefit periods, lower maximum daily (monthly) benefits and fewer benefit increase features. Core programs are particularly likely to insure only a small portion of the eventual need, but may not affect claims data much because they are less likely to be in place when long term care is needed.

Individual ALF claims have high averages partly because ALF claims are more recent and from more recently-issued policies, hence have higher costs and limits. Also, ALF claims probably last longer, on average, because there are a lot of short nursing home claims and because ALFs have a higher percentage of cognitively-impaired residents. Nursing home claims are least likely to reflect the full cost of care, because nursing home charges often exceed policy maximums.

Statistical Analysis

• Market Share

Table 4 lists the top 10 carriers in terms of 2014 new premium.

Fourteen insurers contributed to the following statistical analysis, but some 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.

• Characteristics of Policies Sold

Average Premium. Participants’ average premium per new sale increased 2.5 percent from $2,311 to $2,368. The lowest average size premium among participants was $1,263, while the highest was $2,995. Only three insurers had a lower average premium than in 2013, and one was only 1 percent lower while another was only 2 percent lower. The average premium per new purchasing unit (i.e., one person or a couple) dropped 1.5 percent, from $3,378 to $3,328, even though the average premium per sale went up. The average in-force premium increased 1.7 percent, from $2,003 to $2,038.

Issue Age. The average issue age dropped to 56.3, matching 2012’s record low. Part of the change is due to changes in survey participants. Table 5 shows that 4.7 percent of buyers were under age 35. Two carriers with a lot of worksite sales both reported 14 percent of buyers below 35. The trend toward an increasing percentage of sales below age 40 may reverse, as three of our products limit sales to ages 40 or older and three limit sales to ages 30 and older.

Benefit Period. The average length of fixed-benefit periods increased slightly from 4.05 years to 4.07 years because the lack of lifetime benefit periods shifted sales to 6-year benefit periods (see Table 6 on page 44). All lifetime benefit period sales were by two small insurers that discontinued lifetime benefit periods, causing a fire sale. One carrier sold more policies of less than 2-year benefit period than any other benefit period, and another sold nearly 20 percent of its business with less than a 2-year benefit period. Coverage was better than the 4.07 average suggests because of shared care and lifetime sales.

Maximum Monthly Benefit. Seventy-nine percent (79.6 percent) of 2014 policies were sold with a monthly or weekly maximum, which is superior to a daily maximum.

The percentage of policies with a maximum benefit equivalent to $7,500 or more has increased from 7.0 percent in 2011, to 9.6 percent in 2012, to 10.4 percent in 2013 and to 11.6 percent in 2014. (See Table 7.)

 The average maximum benefit increased slightly from $4,830 per month to about $4,853 per month.

Benefit Increase Features. Sales of 5 percent compound held strong through 2012, then dropped from 32.7 percent of sales to 22.0 percent in 2013 and plunged to 9.25 percent in 2014. Many 2014 sales shifted to no increases or increases of less than 5 percent, sometimes for a limited period. Surprisingly few shifted to 3 percent or 4 percent compound.

The no benefit increase and future purchase option features were both the highest for the seven years shown in Table 8 on page 46.

We project the age-80 maximum benefit by applying the distribution of benefit increase features (and making assumptions as to CPI and election rates) to the average daily benefit purchased. The maximum benefit at age 80 (in 2037) for our average 57-year-old purchaser in 2014 will be $295/day. Also looking at buyers who would be age 80 in 2037, we found the corresponding figures for buyers in 2013 (issue age 56, $333) and 2012 (issue age 55, $352). Thus, the average maximum daily value at age 80 dropped more than 5 percent in 2013 and more than 11 percent in 2014, for a cumulative 16 percent drop in two years. The drop in coverage is significantly greater because data suggests that the average claim payment (as opposed to start) year is greater than age 80.

The deferred compound option allows purchasers to add a level premium compound benefit increase feature within five years of issue if they have not been on claim.

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

Indexed level premium policies are priced to have a level premium, but the benefit increase is tied to an index such as the Consumer Price Index (CPI).

Seven insurers provided both the number of available future purchase options in 2014 and the number exercised. Based on their data, 27.8 percent of insureds exercised future purchase options that were available in 2014. As shown in Table 9 on page 46, this percentage has held fairly steady since we started reporting it. However, election rates may decrease as people age, because the cost of each election increases dramatically (both the amount to purchase and the price per unit increase) and the buyer gravitates toward fixed income.

Elimination Period. As Table 10 on page 46 indicates, facility elimination period (EP) selections were similar to recent years. The percentage of policies with zero-day home care EP (but a longer facility EP) dropped from 38.9 percent in 2013 to 30.5 percent in 2014, partly due to change in sales distribution among carriers. As in 2013, 32.2 percent of the policies had a calendar-day EP definition. Each of these features is offered by six insurers.

Sales to Couples and Gender Distribution. As shown in Table 11 on page 48, the percentages of buyers and single buyers who were female dropped in 2014, further indicating that, to a small degree, women opted to buy in 2013 to secure unisex pricing while able to do so.

Five participants shifted to gender-distinct pricing in 2013; they showed fairly typical percentages of single female buyers in 2014. Four carriers shifted to gender-distinct pricing during 2014; they have had a surprisingly low percentage of female buyers. Four participants had unisex pricing throughout the year; they had four of the five highest female concentrations, with three of these companies having more than 60 percent sales to females in 2014. One carrier using gender-distinct pricing showed more than 60 percent female sales because the insurer sells to the senior market which has a higher percentage of females. The other carriers ranged from 48 percent to 58 percent female buyers.

With one-third of applications declined, suspended or withdrawn, it is not surprising that one-of-a-couple sales hit a new high, 21.7 percent. However, the extremely high statistic that 77.5 percent of applicants buy their policy if their spouse was declined jumped this year because only three carriers contributed such data.

Shared Care and Other Couples’ Features. The percentage of couples who purchase limited benefit period and opt for shared care hit new highs (43.0 percent in total; 54.6 percent for insurers that offer shared care). It would not be surprising for these percentages to continue to grow.

Some products offer or embed joint waiver (both insureds’ premiums are waived if either qualifies) and/or survivorship, which waives a survivor’s premium after the first death if specified conditions are met. In 2014, 32.5 percent of policies included joint waiver of premium if both partners bought coverage (50.4 percent for those buying from companies which offer the feature). But only 5.3 percent of policies included survivorship if both partners bought (10.3 percent for those buying from companies which offer the feature). The major seller of survivorship discontinued such sales during 2013. (See Table 12)

Table 13 (on page 50) shows that the most common shared care benefit period (combining the traditional and third-pool designs) is three years. It also shows that three years is the benefit period that is most likely to add shared care. Above, we stated that shared care is selected by 43.0 percent of couples who both buy limited benefit period. Table 13 shows that shared care does not comprise 40 percent of any benefit period; that’s because the Table 13 denominators include benefit periods for single buyers.

Existence and Type of Home Care Coverage. One participant reported home-care-only policies, which accounted for 1.4 percent of industry sales. Six participants reported sales of facility only policies, which accounted for 2.0 percent of total sales.

Ninety-seven percent (97.2 percent) of the comprehensive policies included home care benefits at least equal to the facility benefit.

Most policies (79.6 percent) use a weekly or monthly reimbursement design, while 20.4 percent use a daily reimbursement home care benefit. Only one company sold indemnity, which comprised 0.02 percent of all policies. The only company that sold a full cash benefit did not report the breakdown of its sales this year and is discontinuing that feature.

Partial cash alternative features (which allow claimants, in lieu of any other benefit that month, to use between 30 percent and 40 percent of their benefits for whatever purpose they wish) were included in 14.2 percent of sales, down from 17.7 percent in 2013.

Other Characteristics. Return of premium features were included in 10.5 percent of all policies (up from 6.4 percent). They return some or all premiums (usually reduced by paid LTCI benefits) when a policyholder dies. Approximately 87 percent were embedded automatically. Embedded features are designed to cost little, so the benefit is more likely to decrease to $0, generally by age 75 or after a defined number of years.

Almost 10 percent (9.8 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 63 percent of the ROB features were embedded.

A bit more than 1 percent (1.1 percent) included a shortened benefit period (SBP) nonforfeiture option. SBP makes limited future LTCI benefits available to people who stop paying premiums after three or more years.

The percentage of non-tax-qualified (NTQ) policies was 1.3 percent.

Captive (dedicated to one insurer) agents accounted for 44.4 percent of the policies sold.

Sales distribution by jurisdiction is posted on the Broker World website.

Limited Pay. Only 4 insurers reported sales of 10-year-pay, 20-year-pay, paid-to-65 or paid-to-75 policies. Those limited pay policies combined to account for 1.25 percent of the policies sold.

Multi-Life Programs

Reported worksite business produced 10.2 percent of new insureds (up from 8.0 percent in 2013), but only 6.1 percent of premium (up from 5.8 percent). Worksite sales are understated because small cases that do not qualify for a multi-life discount are not considered to be multi-life. The shift to gender-distinct pricing “on the street” may reduce worksite sales in the future. Reported affinity business amounted to 7.8 percent of the 2014 new insureds (same as 2013) but only 6.2 percent of the premium (versus 6.4 percent in 2013).

Partnership Programs

When someone applies to Medicaid for long term care services, states with partnership programs disregard assets up to the amount of benefits received from a qualified LTCI policy. Partnership sales were reported in 42 jurisdictions in 2014, all but Alaska, District of Columbia, Hawaii, Illinois, Massachusetts, Michigan, Mississippi, New Mexico, Utah and Vermont.

One participant sold partnership policies in 41 states, and two sold partnership in 38 states. Few currently sell partnership in the original partnership states—California (2), Connecticut (6), Indiana (7) and New York (4)—because those programs require separate products and fees. One participant has never filed for partnership approval, and another files only in states that do not require a retroactive offer of exchange.

Less robust benefit increase selections reduce the percentage of policies that qualify for partnerships. This is particularly problematic in the original partnership states, wher

The Analysis of Long Term Care Insur­ance has been published in Broker World magazine annually since 2005 and has covered worksite long term care insurance (LTCI) in detail since 2011. The worksite multi-life market (WS) consists of sales made with discounts and/or underwriting concessions to groups of people based on common employment. Unlike “true group” sales, the WS market does not offer guaranteed issue. The analysis herein excludes “true group” and “combo” products. (Also called “linked” benefits, combo products pay meaningful life insurance, annuity or disability income benefits in addition to LTCI.) However, WS sales can use either group policies with certificates or individual policies, collectively referred to as policies herein.

The July 2014 issue of Broker World magazine reported on the overall LTCI market. Its policy exhibit displayed two WS products (LifeSecure and Transamerica). Three other participating companies (MassMutual, MedAmerica and United Security) showed worksite discounts in the display of their “street” products. John Hancock applies its affinity discount to worksite sales. Mutual of Omaha displayed a common-employer discount, but that discount is expressly not a worksite program.

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

Our data may under-report WS sales because, as explained under “Market Share,” some WS sales may not be identified as such in the insurers’ administrative systems.

About the Survey

As this article is written, six (identified above) of the 13 insurers whose products are displayed in the 2014 LTCI Survey provide discounts and/or underwriting concessions for WS LTCI. All but United Security contributed data to this article. In addition, Genworth (which suspended accepting new WS cases in March 2013 but still accepts new entrants), Mutual of Omaha (which discontinued accepting new cases in 2012 but continued to accept new entrants into its worksite programs until September 2013) and Northwestern contributed data. MedAmerica and New York Life provided aggregate WS sales data, but no sales distributions.

To the best of our knowledge, our reported sales figures represent almost the entire worksite LTCI industry, and the sales distributions below represent more than 80 percent of the 2013 worksite market.

Highlights from This Year’s Survey

 • In 2013, participants reported sales of 17,810 worksite policies for $27.6 million of new annualized premium, a 6.4 percent drop in policies sold, and a 28.6 percent drop in new annualized premium compared to 2012, resulting in a 24 percent drop in the average worksite premium from $2,033 in 2012 to $1,551 in 2013. The sales decrease was partly attributable to insurers abandoning the worksite market or making their worksite offering less attractive. Half of the reduction in average premium was due to a shift of sales among insurers and the balance was primarily attributable to reduced limited pay and less robust benefit increase features.

 • Of the nine carriers that contributed WS sales for both 2012 and 2013, two had large increases (43 percent and 141 percent), two were almost unchanged (+4 percent and -0.1 percent) and five dropped 39 percent or more. (Note: Genworth restated its 2012 sales upward by $3.1 million because it had not captured all blocks of WS sales when it reported a year ago. Although comparing last year’s article to this year’s article would suggest that Genworth had an increase in sales, it actually had a reduction between 2012 and 2013, as would be expected for an insurer that discontinued new WS sales.)

 • Reported WS LTCI sales accounted for 6.8 percent of the LTCI industry’s new annualized premium sold in 2013 and 10.2 percent of the number of policies sold. For three insurers, WS was a major part of their new policy sales (from 47 percent to 65 percent). For another three insurers, WS contributed 7 percent to 18 percent of new policies. For the remaining three insurers, WS contributed 1 percent to 3 percent of new policies.

 • 2013 WS market share by carrier varied significantly from market shares in the total market and to WS market shares in 2012. (See Table 1.)

 • Four insurers reported the average number of policies per employer case, with a wide range from 6 to 139. Obviously, some insurers focus on small cases while others focus on large cases. Furthermore, if two business partners and their spouses buy LTCI paid through their business, many insurers would not grant a discount, hence would not classify them as WS sales.

 • In a reversal of past experience, the WS market had a higher average benefit period (4.26 years) than the individual sales (NWS) market (4.04 years). Lifetime benefit periods were excluded from the calculation.

 • Only 51.6 percent of the WS policies met partnership qualifications (down from 57 percent in 2012), compared to 60.9 percent in the NWS market. The executive carve-out WS market insures people who are unlikely to benefit from the partnership, but those policies probably all were partnership-qualified. The WS market provides an avenue to reach people more likely to benefit from partnership programs, but most of them do not get partnership coverage (many may be provided a non-partnership core and choose not to buy up).

Market Perspective

Last year we explained why we cautioned against projecting WS LTCI market growth. Our warning was well-justified and continues. Worksite sales might drop less in 2014 than in 2013, but could also drop significantly in 2015. Higher prices continue to erode voluntary WS sales in particular and the impact of the industry’s shift to gender-distinct pricing has not yet been fully reflected.

We also caution that an insurer’s sales distributions can vary greatly from industry averages because the insurer focuses on a different sub-market. Furthermore, industry distributions may vary significantly from year-to-year partly due to a change in participating insurers that provide sales distributions.

Statistical Analysis

Market Share. WS market share is less reliable than total individual market share because, as noted above, some carriers might not identify some sales as being WS sales. Nonetheless, it is clear that WS market share is distributed very differently than the individual market.

Issue Age. Table 2 shows that the WS market has three times as many sales below age 40 and the NWS market has more than twice as many sales at ages 60 and above.

The average age of purchase in 2013 was seven years younger in the WS market (50.4, compared to 49.9 last year) than in the NWS market (57.4).

Rating Classification. In 2013 the WS market had about two-thirds as many sales issued in the most favorable rating classification (23.5 percent) as did the NWS market (34.7 percent), compared to only one-third as many in 2012. The change is attributable to having more carriers reflected in this data set for 2013 than for 2012. Despite its younger age distribution, the WS market has a lower percentage of policies issued in the best underwriting classification because simplified underwriting precludes the most favorable classification. (See Table 3.)

Benefit Period. Table 4 demonstrates that the distribution of benefit period (BP) was much more similar between the WS market and the NWS market than in the past. In fact, the WS market actually had a longer average BP for limited BP policies than did the NWS market. This change occurred because:

 1. In the past, long BPs were less common in the WS market, but that distinction largely disappeared because the industry backed away from selling long BPs “on the street.”

 2. Two of the carriers reflected in the NWS market focus on senior sales, thereby selling a higher percentage of short BPs.

 3. An insurer that sells a lot of eight-year BP policies has a much higher market share on WS business than “on the street.”

Maximum Monthly Benefit. Table 5 shows that the WS market had 53.9 percent of its sales below $150 a day compared to 38.7 percent for the NWS market. Each market had fewer sales below $150 a day than in 2012, but the difference in the percentages remained similar. The average initial maximum benefit for WS sales is approximately $143 a day compared to $168 a day for the NWS market. The smaller WS daily maximums are probably attributable to core/buy-up programs and perhaps some small policies being purchased to reach minimum penetration requirements to justify simplified underwriting.

Benefit Increase Features. Table 6 shows a lot of differences between the WS and NWS markets, as regards benefit increase features. The combined total of 3 percent and 5 percent compound increases is similar, but the WS is weighted much more to 3 percent compound. The WS market had 46.2 percent of its policies sold with either no increases, a deferred option or future purchase options (FPO), whereas 31.1 percent of the NWS policies had such features, more than double the spread of 2012.

The previous paragraph indicates that WS sales had less robust benefit increase features.

Future Protection. The lower initial benefit and younger age distribution in the WS market increase the possibility that people with WS LTCI may find that their policies cover a smaller portion of their eventual long term care costs than they might have anticipated.

Based on a $20 an hour cost for non-professional home care (which is the median cost according to Genworth’s 2014 study), the typical WS sale’s average maximum daily benefit of $143 would cover 7.2 hours of care per day at issue, whereas the typical “on the street” average daily benefit of $168 would cover 8.4 hours of care per day at issue.

According to the American Association for Long-Term Care Insurance’s annual Sourcebook, approximately two-thirds of individual LTCI claims start at age 80 or later. To determine the coverage at age 80, we projected, based on the distribution of benefit increase provisions, the daily maximums from the average issue age to age 80. We used the 24 percent FPO election rate reported in the July article.

We projected the cost of care at age 80 using a variety of inflation rates. The results are shown in Table 7.

Table 7 shows that the average WS policy would reimburse 83 percent as much care as would the average “street” product on day one. However, the disparity grows over time. With 4 percent home-care-cost inflation, the relative value of the WS coverage drops to 76 percent at age 80.

Table 7 suggests strongly that “something is better than nothing” because even limited commercial home care can be a huge blessing! However, it is important to remember that:

 1. Results vary significantly based on the particular insured’s issue age, selection of maximum daily benefit and benefit increase feature, as well as the inflation rate and the age at which the need for care occurs.

 2. With 5 percent inflation, the average coverage at age 80 for any type of care is only 53 percent as much for a typical WS sale (3.8/7.2) and 64 percent as much for a typical “street” sale as at issue. It is important that purchasers be educated so that they have reasonable expectations. If they think of their purchase as covering a large percentage of the cost of a nursing home, they might be disappointed at claim time.

 3. Table 7 could be distorted by some simplifications in our calculations. For example, we assumed that each benefit increase option was issued with the same average maximum daily benefit and that everyone has a home care benefit equal to their facility benefit.

Note: We thank George Braddock for his critique of last year’s published survey. The above calculations and explanation are an improvement of our 2013 effort because he stimulated us to find a better way to address this issue.

Partnership Qualification Rates. The benefit increase requirement to qualify under the state partnership programs varies by age. Generally a level premium, permanent annual 3 percent or higher compound increase or an otherwise similar CPI increase is required for issue ages 60 or less. For issue ages 61-75, 5 percent simple increases also qualify and for issue ages 76 or older, policies qualify without regard to the benefit increase feature. Table 8 identifies the percentage of policies which would have qualified for partnership if partnership programs had existed with those rules in all states. However, if partnerships were available in all states (with the rules cited in this paragraph), the percentage of partnership policies would exceed the percentages shown in Table 8, because partnership programs would cause the distribution of sales to change in those states that don’t currently have partnership programs.

The WS market provides an opportunity for the industry to serve less-affluent people efficiently. These are the people who would most benefit from partnership qualification. Unfortunately, the percentage of policies sold in the WS market that would meet partnership qualifications fell from 56.6 percent in 2012 to 51.6 percent in 2013. In the total market, the percentage that would qualify for partnership dropped from 64.2 percent to 60.3 percent. Our July survey article discussed some ways to improve these percentages. In the WS market, core programs might lower the initial monthly maximum benefit in return for adding 3 percent compound increases.

Elimination Period. In Table 9, WS sales are more clustered to 90-day elimination periods (EPs). There is less customization of this feature in the WS market than in the NWS market.

The zero-day home care elimination period (in conjunction with a longer facility EP) is more common in the WS market because the carriers that sell such features are more active in the WS market.

Sales to Couples and Gender Distribu­tion. Relative to gender sales, the most striking difference between the WS market and the NWS market continues to be that the WS market is much more likely to insure only one partner (54.8 percent vs. 35.2 percent), a bigger difference than in 2012. Particularly in core/buy-up programs, employers are likely to pay for the employee but not the spouse. (See Table 10.)

The percentage of single people among WS insureds is 23.9 percent compared to 18.1 percent in the NWS market, probably because the WS market is younger and because of core programs.

The above two factors cause the percentage of both-buy couples to be much lower in the WS market.

Perhaps reflecting 2013’s last-chance opportunity (with many insurers) for females to get unisex pricing in the NWS market, females comprised 3.5 percent less of the WS market than the NWS market. In 2012, the difference was only 1.4 percent.

Shared care is sold less in the WS market because, as noted above, fewer couples buy together in the WS market. Furthermore, shared care is not typically included in executive carve-out programs that include single executives. Of the WS couples who both bought limited benefit periods, only 33.6 percent purchased shared care, compared to 40.4 percent in the NWS market.

Type of Home Care Coverage. Table 11 shows that the main difference between WS and NWS as regards home care is that WS is much less likely to have weekly or monthly determination. We suspect that is because of a desire to minimize the cost for core programs.

Other Features. Return of premium (ROP) was much more common in the WS market (24.8 percent) than in the NWS market (4.4 percent), probably because an embedded limited (e.g., for death occurring before age 67) ROP benefit is an inexpensive way to encourage more young people to buy coverage. Voluntary purchase of ROP is rare in the worksite.

Partial cash alternative was also more common in the WS market (30.0 percent) than in the NWS market (16.7 percent) because the carriers offering this feature have a bigger market share in the WS market.

Shortened BP was also more common in the WS market (2.4 percent) than in the NWS market (1.0 percent). One company seemed to be particularly responsible for the difference.

On the other hand, restoration of benefits was less common in the WS market (5.0 percent) than in the NWS market (8.8 percent) and was more likely to be embedded in the WS market than in the NWS market.

Limited Pay. 2013 saw a large decrease in limited pay sales because fewer carriers offer limited pay (the industry is down to three such carriers in summer 2014) and because there was an unusually high percentage of limited pay sales in 2012 due to “fire sale” opportunities. Limited pay accounted for 4.0 percent of WS sales (down from 9.4 percent) and 1.5 percent of NWS sales (down from 2.7 percent). See Table 12.

Closing

We thank insurance company staff for submitting the data and responding to questions promptly. We also thank Nicole Gaspar of Milliman for managing the data expertly. We reviewed data for reasonableness. Nonetheless, we cannot assure that all data is accurate. If you have suggestions for improving this survey, please contact one of the authors. 

July 2014

2014 Long Term Care Insurance Survey

Claude Thau

Dawn Helwig

Allen Schmitz

The 2014 Long Term Care Insurance Survey is the sixteenth consecutive annual review of long term care insurance (LTCI) published by BROKER WORLD magazine. The survey compares products, reports sales distributions and analyzes the changing marketplace.

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

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

Highlights from This Year’s Survey

• Participants

We are pleased that Mutual of Omaha and United Security Assurance have, as indicated last year, resumed participation in the survey after a one-year hiatus.

The carriers that participated last year are all participating again. Although Northwestern Long Term Care Insurance Company's product is not included in the product display section, Northwestern LTC has, once again, provided background statistical information to help us report on the entire industry.

In addition, New York Life contributed sales totals. Prudential and Unum, although not accepting any new groups, provided sales of new certificates to existing cases. These companies are not reflected in the statistical distribution.

In our 2008 survey article, we reported that there were about 45 insurers selling stand-alone individual or group LTCI. Now there are only 16.

• Sales

   • The 15 carriers that reported individual sales to this survey sold 174,775 policies ($403,924,967 of new annualized premium) in 2013, plus 26 single premium policies ($1.5 million of premium). Single premium stand-alone LTCI has been unavailable for nearly two years; these apps were submitted in the summer of 2012, but not placed until early 2013. We estimate that these carriers sold well over 99.9 percent of the stand-alone LTCI industry’s 2013 sales.

   • Industry sales were down 26.5 percent from 2012 in terms of premium and 22.9 percent in terms of the number of lives insured with individual policies.

   • Thus, the average premium per new sale dropped from $2,424 to $2,311, a surprising change of direction, recognizing that prices are increasing. Two primary factors contributed to the decrease: 1) Consumers purchased less-robust benefit increase features and 2) consumers purchased shorter benefit periods.

   • Worksite sales also dropped (28.6 percent less new premium; 6.4 percent fewer policies), partly because some insurers discontinued worksite sales or restricted underwriting concessions and price discounts. Worksite business produced 10.2 percent of new policies, but only 6.8 percent of new annualized premium. The average worksite premium dropped from $2,033 in 2012 to $1,551 in 2013.

   • Affinity sales increased, with 27.4 percent more premium and 26.3 percent more policies than in 2012. These figures do not include AARP sales for either 2013 or 2012.

   • The sales picture is worse than the numbers indicate. It is striking that sales are down so much despite “fire sales” (such as single women buying before the introduction of gender-based pricing). (See the Market Perspectives section for more comments.)

   • Because of the strong persistency of LTCI business, in-force premium for these 15 insurers increased 5 percent (to $6.9 billion) from year-end 2012 to year-end 2013, and the number of insureds increased 2.4 percent (to 3,456,000). Average in-force premium rose from $1,949 to $1,997. However, four carriers had decreases in their number of in-force policies at year-end 2013 compared to year-end 2012, and two others saw their number of in-force policies grow less than 1 percent.

   • Deaths, normal lapses and lapses in response to rate increases totaled about 2.7 percent of year-end 2012 in-force policies.

   • Genworth, Prudential and Unum collectively sold true group LTCI to 100,379 new insureds ($39 million of new annualized premium, not including additions to in-force certificates). That’s a drop of 12 percent, compared to 2012, in new certificates sold, but 57 percent in new premium sold. The big drop in premium compared to sales seems to reflect a lot of core program additions.

   • Two group carriers also reported new annualized premium ($4.9 million) from 20,922 insureds who increased coverage. That’s 15 percent fewer insureds who increased coverage than in 2012, but only 10 percent less premium. Presumably because in-force certificate holders are aging, future purchase options (FPOs) have higher average premiums.

   • We estimate that 25 percent of the group FPOs were exercised in 2013. That result is very close to the 24 percent of individual policyholders who exercised such options based on data submitted by four insurers, which is consistent with past results (see Table 9).

   • Only 34.4 percent of sales were in the least costly rating classification, compared to 56.3 percent in 2012 and only 3.6 percent had lifetime benefit periods, down from 19.9 percent.

• Claims

 Participating insurers paid $3.4 billion in claims in 2013 and have paid nearly $25 billion since inception. Overall, the LTCI industry incurred $7.7 billion in claims in 2012 (the most recent year reported in NAIC reports), much paid by insurers that no longer sell LTCI.

About the Survey

This article is arranged in the following sections:

 • Highlights provides a high-level view of results.

 • Market Perspective provides insights into the LTCI market.

 • Claims presents industry-level claims data.

 • Sales Statistical Analysis presents industry-level sales distributions reflecting data from 13 insurers, representing 92 percent of the policies sold in 2013.

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

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

 • Product Details provides a row-by-row definition of the product exhibit. We have 21 products displayed, including 7 products that were not displayed in 2013. Several others have changed premiums, design options and/or multi-life parameters since 2013.

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

Market Perspective

 • In a major change of direction, women’s prices are now generally at least 50 percent more than men’s prices. The premium differential is justified by long-known claims differences. Prior to 2013, insurers priced individual LTCI assuming that most buyers were females. Couples’ discounts reflected that nearly every couple included a male. So, prior to 2013, single males were overcharged. When shifting to gender-distinct pricing, most insurers used more conservative investment yield assumptions. So male prices tended to remain the same, while female prices increased 50 percent or more.

 Of the 13 insurers displaying product in this survey, six have gender-distinct pricing. Together, those six carriers accounted for 64 percent of the market in 2013, in terms of both annualized premium and number of policies sold, slightly more than their 60 percent of annualized premium and 62 percent of policies in 2012. Four other insurers indicate that they will probably implement gender-distinct pricing by the beginning of 2015. All insurers are likely to do so eventually, to avoid a higher percentage of their sales being made to single females, an adverse change that would undermine their pricing assumptions.

One carrier uses gender-distinct individual prices, but unisex pricing for couples, an interesting approach that impacts the market differently and leaves different issues for management to consider and watch.

For the six insurers, the average ratio of prices for single females to prices for single males for a 5-year benefit period did not vary significantly by age. For issue ages 40, 50, 60 and 70, the percentage ranged from 50 to 53 percent with a flat benefit and ranged from 57 to 63 percent with 5 percent compounding.

As of April 2014, only California, Florida and Montana have unisex pricing for all LTCI. Montana appears immune from gender-distinct pricing because such pricing is illegal in Montana, and Montana is not part of the Interstate Compact for LTCI. There is a bill in the California legislature that would forbid gender-distinct LTCI pricing in California.

The impact on the individual and couples market should be clearer by next year’s Broker World issue. The move to gender-distinct pricing may also adversely affect the worksite multi-life market, the professional association market and small (non-multi-life) executive carve-out markets, but the impact on those markets might unfold more slowly.

However, civil rights complaints, lawsuits and legislative changes may change the trend toward gender-distinct pricing. On January 16, 2014, The National Women’s Law Center filed a civil rights complaint against four insurers, three Medicaid departments (Kentucky, Minnesota and Washington) and the Center for Medicare and Medicaid Services, alleging that gender-distinct LTCI policies are a violation of the Affordable Care Act and that the states and federal government were complicit because their partnership programs promote policies with gender-distinct pricing.

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

 • With insurers demanding higher profit margins to compensate for perceived risk, the market is resisting. Some observers believe that, because today’s prices are so much higher, the average applicant is less healthy than in the past, a characteristic that could contribute to a rate spiral. Only 65.8 percent of the applications were placed in 2013, despite more restrictions on high-age product availability.

 • Underwriting continues to evolve. As of May 2014, two insurers require paramedical exams. One insurer denies preferred health discounts to young applicants with family history of early dementia, Parkinson’s, stroke or coronary artery disease. For several years, insurers have gathered data to determine whether such underwriting decisions would be justified and have required more evidence of insurability due to family history without making an underwriting determination on that basis. Over time, family history is likely to have an increasingly important effect on underwriting.

 • Although no carriers dropped out of the market in the past year (16 insurers currently sell stand-alone LTCI policies in the United States), the market is far from stable. Some major carriers are expressing serious concern about their ability to provide traditional LTCI and make reasonable profits with reasonable certainty. As we have discussed in the past, when interest rates increase, actuaries will be appropriately reluctant to project such higher interest rates into the future, after experiencing our recent unprecedented period of extremely low investment returns. The industry, regulators and consumers must find product solutions for such an economic environment.

 • The top 10 insurers, in terms of sales, were the same in 2013 as in 2012, but there was considerable shifting after the top three. Two insurers combined to account for 60 percent of the new individual annualized premium in 2012, but in 2013 (as reflected in Table 4 on page 46), as in 2011, it took three insurers to account for such market share. We expect 2014 sales to be distributed significantly differently than 2013 sales, and 2015 sales to shift further.

 • Existing policyholders continue to see large rate increases. However, insurers seem likely to experience favorable deviations in the future, relative to today’s pricing assumptions, because interest rates are likely to rebound, adverse persistency seems unlikely with typical assumptions of 0.5 percent to 1 percent per year, and improved underwriting should favorably impact claims. Thus, newer blocks are clearly more stable.

 • Independent Review (IR) should be increasing distributors’ and consumers’ confidence. More than 80 percent of our participants have extended IR beyond statutory requirements, most commonly to policies issued prior to the effective date of IR. If insurers conclude that a claimant is not chronically ill, the claimant can appeal the decision to binding IR. Our participants report only 30 cases in which insureds have taken their claims to IR, and the insurers’ denials have been upheld 80 percent of the time.

Claims

Eleven participants reported individual claims for 2013, and three reported true group claims, which is one more insurer in each category than last year. Their total claim payments rose to $3.359 billion in 2013, 11 percent more than 2012, whereas their total in-force premium rose only 5 percent, demonstrating the “tip of the iceberg” nature of LTCI claims. Claims rise from year to year mostly because existing insureds get older. In addition, monthly maximums are increasing due to various benefit increase features, long term care costs are going up, claims are shifting to more recently issued policies which have larger maximum benefits, etc.

These insurers have paid nearly $25 billion ($24.5 billion) in LTCI claims through 2013.

The LTCI industry has had a much bigger impact than indicated above because many claims are paid by insurers who no longer sell LTCI. According to the NAIC’s report for 2012 (the most recent report available when this was written), the industry incurred $7.7 billion in claims in 2012, boosting the industry to $81.2 billion of claims incurred since 1991. Incurred claims increased 9 percent in 2012, 9.6 percent in 2011 and 14.7 percent in 2012.

LTCI claims paid by insurers that no longer sell LTCI might differ significantly from data reported below because their claimants might be more likely to have facility only coverage, be older, have smaller policies, etc.

Table 1 shows claims distribution based on dollars of payments, whereas Table 2 shows the distribution based on number of claims. In the distribution of the number of claims, if someone received care in more than one venue, they are listed more than once. Claims will continue to shift away from nursing homes because of preference for home care and assisted living facilities (ALFs), because home care and ALFs are increasingly available and because new sales are nearly entirely comprehensive policies (covering home care, adult daycare, ALFs and nursing homes), whereas many older policies covered only nursing homes. Claims which could not be categorized as to venue were ignored in determining the distribution by provider type.

Table 3 shows the average size individual and group claim since inception. The average total claim, all venues combined, is large compared to the averages by venue because 31.6 percent of individual policy claimants and 26.5 percent of group claimants receive benefits in more than one venue. The percentage with claims in multiple venues will increase as comprehensive policies increasingly dominate future claims.

 These average claims may be misleadingly low because:

 1. A lot of very small claims drive down the average. The purpose of insurance is to protect against experiencing a non-average result. The potential deviation is more relevant than the average.

 2. People who recover, then have another claim, are counted twice. It appears that more than 30 percent of claimants recover. Their claims were presumably quite short, on average, but many of them may have a second claim.

 3. Older policies typically had lower maximum benefits and were sold to older people, resulting in smaller claims for shorter periods of time.

 4. Twenty-seven percent of the inception-to-date individual claims included 2013 payments, as did 23 percent of the corresponding group claims. Thus, a meaningful percentage of the inception-to-date claims are still open. Our data does not include any reserve estimates for future payments on open claims.

To the degree that policy maximums do not increase automatically and that people do not exercise FPOs, claims can be significantly lower than service costs incurred by the client. It is desirable to sell policies with robust benefit increase provisions.

Group claims are less mature than individual claims because group LTCI has not been sold as long and is sold to younger people who have yet to go on claim. The group average claim is 78 percent as high as the individual average claim. Group claims have a younger age distribution, hence may last longer, but have had shorter benefit periods and may have lower maximum daily (monthly) benefits. Core programs are particularly likely to insure only a small portion of the eventual need, but perhaps they have not yet turned into claims because people who have only core coverage tend to be younger.

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

Statistical Analysis

Twelve insurers contributed to this statistical analysis, but some 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

Table 4 lists the top 10 carriers in terms of 2013 new premium, ignoring single premium sales.

• Characteristics of Policies Sold

Average Premium. Ignoring single premium sales, participants’ average premium per new policy was $2,311, down from $2,424 for the same insurers in 2012. The lowest average size premium among participants was $1,273, while the highest was $2,729 (compared to $3,341 in 2012). Eighty percent of the insurers had a lower average premium in 2013. Most were slightly lower, the maximum drop being 20 percent and the maximum increase being 16 percent. The average premium per new purchasing unit (i.e., one person or a couple) dropped 8.4 percent, from $3,689 to $3,378. The average in-force policy premium for participants increased 2.5 percent, from $1,949 to $1,997.

Issue Age. The average issue age rose to 56.8, higher than 2012’s 56.25 but still lower than the 57.7 to 58.1 range from 2007-2011. Part of the change is due to changes in survey participants. Table 5 shows that the concentration at ages 55-74 increased. Prices have increased more at younger ages than at older ages.

Benefit Period. Table 6 shows the dramatic drop in lifetime benefit period (BP) sales to 3.6 percent. Increasingly, insurers are unwilling to cover this risk at any price. Sixty-one percent of those sales came from insurers that no longer offer lifetime BP. Only three participants offer lifetime BP.

Six-year BP sales increased because six-year BP is the longest offering of some insurers that dropped lifetime BPs. A huge jump in 3-year BP sales, which accounted for more than 35 percent of all sales, caused the average length of fixed-benefit periods to drop from 4.14 years to 4.05 years. Coverage is better than the 4.05 average suggests because of shared care.

Maximum Monthly Benefit. Seventy-nine percent of 2013 policies were sold with a monthly or weekly maximum, which is superior to a daily maximum.

Surprisingly, despite increasing costs for long term care, the percentage of policies with a maximum benefit less than $3,000/month increased noticeably for the second consecutive year, as indicated in Table 7. Even excluding worksite cases, 13.4 percent of the policies had a maximum lower than $3,000/month. However, the percentage below $4,500/month dropped from 43.5 to 39.9 percent.

In general, maximum monthly benefit increased, perhaps to help offset reduced BPs and less robust benefit increase features. The average maximum benefit increased from $4,800/month to $4,830/month.

Benefit Increase Features. Sales of 5 percent compound increases finally plummeted, dropping from 32.7 to 22 percent under continued pressure from increasing prices. Carriers and consumers appropriately favor 3 percent compounding over 5 percent simple increases; 3 percent compounding grew to 29.1 percent of sales. (See Table 8)

The percentage purchasing policies with no benefit increase feature or with FPOs dropped, but the percentage with a deferred compound option, which is usually not exercised, increased significantly.

The deferred compound option allows purchasers to add a level premium compound benefit increase feature within five years of issue if they have not been on claim.

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

Indexed level premium policies are priced to have a level premium, but the benefit increase is tied to an index such as the Consumer Price Index (CPI).

Applying the distribution of benefit in­crease features (and making some assumptions as to CPI and election rates) to project the age 80 maximum benefit, we conclude that the maximum benefit at age 80 for a 58-year-old purchaser in 2013 will be $311.84/day, which is 5 percent lower than 2012’s $328.14/day at age 80 for a 58-year-old purchaser. The 2013 purchaser will be age 80 in 2035, whereas the 2012 purchaser will be 80 in 2034. So in addition to their average benefit being 5 percent lower, their purchasing power will slip by the percentage increase in average long term care cost between 2034 and 2035.

Several insurers provided data regarding FPOs, but only four insurers were able to provide both the number of available options and the number exercised. Based on their data, 24 percent of insureds exercised FPOs that were available in 2013. As shown in Table 9, this percentage has held fairly steady since we started reporting it. However, election rates are likely to decrease as people age, because the cost of each election increases dramatically (both the amount to purchase and the price per unit increase) and the buyer gravitates toward fixed income.

Elimination Period. As Table 10 indicates, elimination period (EP) selections were pretty similar to 2012, with the 84-100 day EP gaining, partly at the expense of longer EPs.

The percentage of policies with zero-day home care EP (but a longer facility EP) increased from 37.6 percent in 2012 to 38.9 percent in 2013. Calendar day EP was included in 32.2 percent of the policies. Each of these features is offered by six insurers.

Sales to Couples and Gender Distribution. As shown in Table 11, the percentages of buyers and single buyers who were female increased compared to 2012, but not compared to prior years. Single females comprised 15.5 percent of sales of insurers that moved to gender-distinct pricing and 13.8 percent of sales of other insurers.

Overall, single people were a lower percentage of buyers in the past six years (18.5 percent) and one-of-a-couple sales hit a new high, 18.3 percent, even though only 58.7 percent of applicants bought their policy if their spouse was declined.

Shared Care and Other Couples’ Features. About 40 percent of couples who both purchase limited BP opt to buy shared care (51 percent for insurers that offer shared care). With lifetime BP disappearing and as popular as shared care is, it seems surprising that the percentage is not higher.

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 2013, 30.3 percent of policies sold to couples-both-buying included joint waiver of premium but only 16.3 percent included survivorship because one major company that sold a lot of survivorship in the past discontinued the feature in 2013. (See Table 12.)

Table 13 on page 52 shows that the most common shared care sale (combining the traditional and third-pool designs) has a 3-year BP chassis, but the BP with the highest percentage of shared care sales is the 4-year BP. Above we stated shared care is selected by 40 percent of couples who both buy limited BP. Table 13 shows that shared care does not comprise 40 percent of any BP; that’s because Table 13 includes BPs for single buyers in the denominators.

Existence and Type of Home Care Cover­age. Two participants reported home care only policies, which accounted for 2 percent of sales. Five participants reported sales of facility only policies, which accounted for only 1.1 percent of total sales.

Nearly 98 percent of the comprehensive policies included home care benefits at least equal to the facility benefit.

Most policies (79 percent) use a weekly or monthly reimbursement design, while 21 percent use a daily reimbursement home care benefit. Only one company sold indemnity, and it was so few policies that it did not amount to even 0.1 percent. The only company that sells a full cash benefit did not report the breakdown of its sales this year. Last year that carrier caused 2 percent of the industry’s sales to use a disability (also known as cash definition), but the impact would have been lower this year because it discontinued its policy which had a built-in cash benefit.

In addition to the cash policies, 17.7 percent included a partial cash alternative, which allows people, in lieu of any other benefit that month, to use a percentage of their benefits (between 30 and 40 percent) for whatever purpose they wish.

Other Characteristics. Policies with return of premium features accounted for 6.4 percent of all policies. They 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. Approximately 79 percent were embedded automatically; embedded features are designed to cost little, so the death benefit decreases to $0 generally by age 75.

A bit more than eight percent (8.1 percent) of the policies with limited BPs included a restoration of benefits (ROB) provision. ROB provisions restore used benefits when the insured does not need services for at least six months. Approximately 44 percent of the ROB features were embedded.

A bit more than 1 percent (1.1 percent) included a shortened benefit period (SBP) non-forfeiture option. SBP makes limited future LTCI benefits available to people who stop paying premiums after three or more years.

The percentage of non-tax-qualified (NTQ) policies was 0.6 percent.

Limited Pay. Twenty-six single premium stand-alone LTCI sales were placed in 2013, but all were applied for before September 2012.

Only four insurers will sell either 10-year-pay or paid-to-65 policies. In 2012 when these alternatives were being pulled off the market by most insurers, 7.5 percent of the policies issued were limited pay, triple the 2011 percentage. In 2013, the percentage dropped to 1.6 percent. Eighty percent of the 10-year-pay sales in 2013 were sold by companies that no longer offer such an alternative.

Multi-Life Programs

Reported affinity business amounted to 7.8 percent of the 2013 new insureds and 6.4 percent of the premium, up from 5.7 percent and 4.3 percent respectively. Please note that AARP sales are not included in these affinity figures but are included in the total sales figures. Worksite business produced 10.2 percent of new insureds (up from 7.4 percent in 2012), but only 6.8 percent premium (up from 6.4 percent). Worksite

sales are understated because small cases that do not qualify for a multi-life discount are not considered to be multi-life. The shift to gender-distinct pricing may damage the worksite market in the future.

Partnership Programs

When someone applies for Medicaid to provide long term care services, states with partnership programs disregard assets up to the amount of benefits received from a qualified LTCI policy. Partnership sales were reported in 41 states in 2013, as one insurer reported sales in Delaware’s new program. In 2014, partnership may commence in Illinois. Alaska, Hawaii, Massachusetts, Michigan, Mississippi, New Mexico, Utah, Vermont and the District of Columbia have not established Partnership programs.

One participant sold partnership policies in 40 states, two in 39 states and one in 38 states. The average participant offered partnership policies in only 30 states because some participants don’t sell LTCI in all jurisdictions; few sell partnership in California (1), New York (4) and Connecticut and Indiana (7 each) because those original partnership states require separate products and fees; and some insurers have not secured partnership approval where available. Six insurers participate in 93 percent or more of their available partnerships. One sells partnership in 85 percent (all but the original four states, not yet in Delaware and Kentucky). Three participate in about 75 percent of their states’ partnerships, two in about 66 percent, one in only 39 percent, and one participant does not do partnership at all.

In jurisdictions participating in the Deficit Reduction Act (DRA) LTC Partnership Program, 66.7 percent of the policies issued were partnership policies, up from 65.4 percent in 2012 and slightly above 2011’s 66.6 percent. However, we estimate that if partnership regulations had applied in all states and all carriers had certified their products, only 60 percent of the policies issued in the United States would have qualified (down from 64 percent in 2012 and 69 percent in 2011). This deterioration is attributable to less robust benefit increase options being sold.

Wyoming led all states with 89.8 percent of participant policies being partnership-qualified. Minnesota, Wisconsin, Nebraska, North Dakota and Maine all topped 80 percent.

The original partnership states increasingly lag in this regard—California (27.9 percent), Connecticut (37.3 percent), Indiana (47.9 percent) and New York (16.3 percent).

One carrier issued 90.4 percent of its policies as partnership-qualified in

The Analysis of Worksite Long Term Care Insurance has been published in Broker World magazine annually since 2011. The worksite multi-life market (WS) consists of sales made with discounts and/or underwriting concessions to groups of people based on common employment. Unlike true group sales, the WS market does not offer guaranteed issue.

This analysis excludes true group and combo products (also called linked benefits). Combo products pay meaningful life insurance, annuity or disability income benefits in addition to LTCI. WS sales can use either group policies with certificates or individual policies, collectively referred to as policies herein.

The July 2013 issue of Broker World magazine reported on the overall LTCI market. Its policy exhibit displayed three WS products—John Hancock, LifeSecure and Transamerica. Two other participating companies—MassMutual and MedAmerica—showed worksite discounts in their display of their street products.

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

Our data may under-report WS sales, because some of these sales may not be identified as such in the insurers’ administrative systems.

About the Survey

As this article is written, five (identified above) of the 11 insurers whose products are displayed in the 2013 LTCI Survey provide discounts and/or underwriting concessions for WS LTCI, and all contributed data to this article. In addition, Genworth (which suspended WS sales in March 2013) and Northwestern contributed WS sales and WS sales distribution data. Mutual of Omaha and United of Omaha (both of which suspended worksite sales in 2012) and New York Life provided aggregate WS sales data, but are not reflected in the sales distributions.

To the best of our knowledge, the following reported sales figures represent the entire industry and the sales distributions represent more than 85 percent of the 2012 worksite market.

Highlights from This Year’s Survey

 • In 2012, insurers reported sales of 18,076 WS policies for $35,556,483 of new annualized premium.

 • Of the seven carriers that contributed WS sales for both 2011 and 2012, five increased sales in 2012 (by as much as 88 percent) and two experienced sales decreases (by as much as 55 percent).

 • Reported WS LTCI sales accounted for 6.3 percent of the LTCI industry’s new annualized premium sold in 2012 and 7.8 percent of the number of policies sold. The percentage of business for companies producing WS sales ranged from 1 to 74 percent of total LTCI sales, as measured by annualized premium.

 • Reflecting seven carriers which reported both sales and in-force figures, new WS annualized premium in 2012 was 12.5 percent of the year-end in force. New WS policies were 15.4 percent of the year-end in-force. By comparison, for the NWS market, the corresponding figures were 7.5 and 5.8 percent. The WS market is newer, hence growing more quickly, but the new WS policies in 2012 had a lower average size premium than the in-force, the opposite of the NWS market.

 • Market share by carrier varies significantly in the WS market compared to the total market. Table 1 lists the top carriers in terms of premium and compares WS sales to individual sales (NWS).

 • The nine insurers’ average WS premium per policy was $1,967, down 3 percent from 2011. This result is influenced by the mix of contributors to the survey; the average premium rose 0.8 percent for carriers that contributed data in both 2011 and 2012. The 2012 WS average size premium was 77 percent of the average size premium for NWS sales ($2,544) because the average age is younger and there are some small core premiums.

 • Four insurers reported the average number of policies per employer case, which ranged from 19 to 140.

 • Issue age and maximum daily benefit are considerably lower in the WS market, and 37.7 percent of the WS policies (down from 48.6 percent in 2011) either did not have a benefit increase feature or had a feature that would require significant future premium increases.

 • More than half (57 percent) of the WS policies meet partnership qualifications, compared to 66 percent in the NWS market. The executive carve-out WS market insures people who generally don’t need or can’t benefit from the partnership programs. But the rest of the WS market provides an avenue to reach people who are more likely to benefit from partnership programs.

Market Perspectives

We urge caution in projecting WS LTCI market growth for the following reasons:

 1. Young workers have higher priorities for their take-home pay than buying LTCI.

 2. Higher LTCI prices dampen penetration rates, reducing the interest of brokers and employers, but especially of middle class employees.

 3. There are fewer carriers in the WS market.

 4. Participation requirements have increased, which narrows the market and may cause more WS business to look like NWS business in insurers’ sales reports.

 5. Underwriting requirements have become tougher, not only causing more applications to be denied, but also making WS LTCI less attractive to some employers.

 6. The move to gender-distinct rates may cause gender-neutral pricing to be less available and/or less competitive for employers with fewer than 10 employees.

Insurers’ worksite markets can differ tremendously:

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

 • Another might focus on voluntary programs in the worksite, perhaps core/buy-up programs in which employers buy small coverage for a large class of employees. Such a company might have a low issue age distribution, low maximum monthly benefits, few lifetime benefit periods, almost entirely 90-day elimination periods, weak benefit increase options, many single people, and few preferred health discounts.

Consequently, an insurer’s sales distributions can vary greatly from industry averages, and industry distributions may vary significantly from year to year partly due to a change in participating insurers.

Statistical Analysis

Market Share. WS market share is less reliable than total individual market share because some carriers understate WS sales for the following reasons:

 • Two business partners and their spouses might buy LTCI without a discount or underwriting concession. Because there was no discount or underwriting concession, some insurers would not report these sales as WS.

 • An insurer might classify WS business as affinity business if this business qualified for a discount, but not for underwriting concessions.

Nonetheless, it is clear that WS market share is distributed very differently than the individual market.

Issue Age. Table 2 shows that the WS market has more than three times as many sales to clients younger than age 40 and the NWS market has more than twice as many sales to ages 60 and older. Both markets made a higher percentage of new sales to people below age 50 than in 2011.

The average age of purchase in 2012 was 49.9 in the WS market, compared to 56.7 in the NWS market.

Rating Classification: As shown in Table 3, the WS market had less than one-third as many policies issued in the most favorable rating classification (18.7 percent) than in the NWS market (58.9 percent), despite having a much younger age distribution. That is because simplified underwriting precludes the most favorable classification. The less frequent granting of preferred health discounts helps to permit the simplified underwriting.

Benefit Period. Table 4 demonstrates that 45.8 percent of WS policies had a three-year benefit period (BP) or less compared to 34.2 percent of the NWS market. On the other hand, 5.6 percent of the WS market had lifetime BP, whereas 20.9 percent of the NWS was lifetime. The relative distribution by BP was very different in 2012 than in 2011, partly because there were different contributors.

Ninety-two percent of the WS eight-year BP policies were issued by a particular carrier.

Maximum Daily Benefit. Table 5 shows the WS market had 20.2 percent of its sales below $100 a day (and below the similar $3,000 a month size) compared to 12.6 percent of the NWS market and 58.3 percent below $150 a day compared to 42.4 percent for the NWS market. The large percentage of small daily maximums is probably attributable to core/buy-up programs and perhaps some small policies being purchased to reach minimum penetration requirements to justify simplified underwriting. The average initial maximum benefit for WS sales is approximately $137 a day compared to $164 a day for the NWS market.

Benefit Increase Features. Table 6 shows many differences between the WS and NWS markets, in regard to benefit increase features. The combined total of 3 and 5 percent compound increases is similar, but the WS is weighted much more to 3 percent compound. The WS market had 37.7 percent of its policies sold with either no increases, a deferred option or future purchase option (FPO), whereas 31.8 percent of the NWS policies had such features. The best estimate we have of FPO election rate was reported in the July article—our data (reflecting three carriers) shows an election rate varying between 24.4 and 27.0 percent during the past three years.

The previous paragraph indicates that WS sales had less robust benefit increase features. The lower initial benefit and younger age distribution in the WS market exacerbate the possibility that people with WS LTCI may find that their policies cover a smaller portion of their eventual long term care costs than they might have anticipated.

We calculated what percentage of the cost of a private room in a nursing home would be reimbursed at age 80 for a typical WS and NWS buyer. First, we projected the median cost of a private room in a nursing home at 5 percent (based on the 2012 Genworth Cost of Care Survey). Then we calculated how the maximum daily benefit would compare to that figure. The percentage reimbursed would be higher than our calculation if the cost of a private room in a nursing home inflates at less than 5 percent per year and also if less expensive home care or assisted living facility care was used. So our calculation clearly understates the typical reimbursement percentage, but the relationship between the WS and NWS figures is meaningful.

We used the average ages of 49.9 (WS) and 56.7 (NWS), the average initial maximum daily benefits of $137 (WS) and $164 (NWS) and what we calculated as approximate composite compound benefit increase rates of 2.6 percent for the WS market and 3.3 percent for the NWS market. The result was that a typical WS sale would cover 34 percent of the projected cost of a private room in a nursing home at age 80 and a typical NWS sale would cover 57 percent of the cost.

Partnership Qualification Rates. The benefit increase requirement to qualify under the state partnership programs varies by age. Generally a level premium, permanent annual 3 percent or higher compound increase or an otherwise similar CPI increase is required for issue ages 60 or less. For issue ages 61-75, 5 percent simple increases also qualify, and for issue ages 76 or older, policies qualify without regard to the benefit increase feature.

Table 7 identifies the percentage of policies which would have qualified for partnership programs if they had existed with those rules in all states. However, if partnerships were available in all states (with the rules cited in this paragraph), the percentage of partnership policies would exceed the percentages shown in Table 7, because these programs would cause the distribution of sales to change in states that don’t currently have them.

The WS market provides an opportunity for the industry to serve the less-affluent efficiently, and these are the people who would most benefit from partnership qualification. Our data last year suggested that only 41 percent of the policies sold in the WS market met partnership qualifications, but the data this year improved to 56.6 percent. In the total market, the percentage that would qualify for partnership dropped from 69.3 to 64.2 percent.

Elimination Period. In Table 8, WS sales are more clustered to 90-day elimination periods (EPs). There is less customization of this feature in the WS market than in the NWS market.

The zero-day home care EP (in conjunction with a longer facility EP) and the calendar day EP are both significantly more common in the WS market, partly because the carriers that sell such features are also more active in the WS market.

Sales to Couples and Gender Distribu­tion. Relative to gender sales, the most striking difference between the WS market and the NWS market is that 45.8 percent of WS couples insure only one partner, versus 26.4 percent in the NWS market, as shown in Table 9. Particularly in core/buy-up programs, employers are likely to pay for the employee but not the spouse.

Perhaps partly because of young people covered by core/buy-up programs, the percentage of single people among WS insureds is 24.2 percent compared to 19.6 percent in the NWS market.

The above two factors cause the percentage of both-buy couples to be much lower in the WS market and the percentage of one-of-a-couple sales to be much higher in the WS market.

Shared care is sold less in the WS market because, as noted, fewer couples buy together in this market. Furthermore, of the WS couples who both bought limited benefit periods, only 26.0 percent purchased shared care, compared to 40.6 percent in the NWS market.

Type of Home Care Coverage. Table 10 shows that all comprehensive WS sales had the same home care benefit as facility benefit. The WS market has 0.3 percent facility only sales and no home care only sales, whereas the NWS market has 1.0 percent facility only sales and 2.7 percent home care only sales. Years ago, the WS market (particularly group insurance) was much less likely to have identical home care and facility maximums than was the NWS market.

The WS market had five times as high a percentage of indemnity sales as the NWS market and six times as high a percentage of disability or cash sales. One insurer contributed all the indemnity sales (and no longer offers indemnity) and one insurer contributed all the cash/disability sales and had a much larger market share in WS market than in the NWS market.

Limited Pay. Limited pay policies were more popular in 2012 in both the WS and NWS markets in reaction to rate increases on older policies and because consumers rushed to buy limited pay policies from insurers who were discontinuing such sales. As shown in Table 11, 9.4 percent of WS policies were limited pay compared to 2.7 percent in the NWS market.

Closing

We thank insurance company staff for submitting the data and responding to questions promptly. We also thank Nicole Gaspar of Milliman for managing the data expertly. While we reviewed data for reasonableness, we cannot assure that all data is accurate. If you have suggestions for improving this survey, please contact one of the authors.

July 2013

2013 Long Term Care Insurance Survey

Claude Thau, Thau, Inc.

Dawn Helwig, Milliman, Inc.

Allen Schmitz, Milliman, Inc.

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

Unless otherwise indicated, references are solely to the U.S. stand-alone LTCI market and exclude the exercise of future purchase options or other changes to existing coverage. Stand-alone refers to LTCI policies which do not include death benefits (other than returning premiums upon death or waiving a surviving spouse’s premiums) or annuity or disability income benefits.

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

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

Highlights from This Year’s Survey

• Participants

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

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

• Sales

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

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

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

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

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

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

• Market Consolidation

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

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

• Claims

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

 • The LTCI industry has made a much bigger difference than the above numbers indicate because a lot of claims are paid by insurers who no longer sell LTCI. According to the NAIC’s report for 2011 (the most recent report available when this was written), the industry incurred $6.8 billion in claims in 2011, boosting the industry to $73.6 billion of claims incurred since 1991. Industry incurred claims increased 9.0 percent in 2010 and 9.6 percent in 2011.

About the Survey

This article is arranged in the following sections:

 • Highlights provides a high-level view of results.

 • Market Perspective provides insights into the LTCI market.

 • Claims presents industry-level claims data.

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

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

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

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

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

Market Perspective

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Claims

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

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

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

Claims will continue to shift away from nursing homes because of preference for home care and assisted living facilities (ALFs), because home care and ALFs are increasingly available and because new sales are nearly entirely comprehensive policies (covering home care, adult day care, ALFs and nursing homes), whereas many older policies covered only nursing homes. Claims which could not be categorized as to venue were ignored in determining the distribution by provider type.

Table 3 shows the average size individual and group claim since inception. These average claims may mislead because:

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

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

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

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

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

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

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

Statistical Analysis

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

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

• Market Share

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

• Characteristics of Policies Sold

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

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

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

The average length of fixed-benefit period policies dropped from 4.32 years to 4.14 years, which undervalues the coverage because of the shared care considerations discussed below. Most shared care policies allow a claimant to dip into the spouse’s policy, after exhausting his own policy. If two four-year BP policies are shared, each is counted as a four-year BP policy in this study. While the combined benefit period is limited to eight years, either insured could use more than four years, added value not reflected in our 4.14 statistic.

Some shared care policies maintain independent coverage for each insured, but add a third pool that either insured can use. If the base coverage is four years, the survey classifies them as four-year policies, but either person has access to eight years of benefit—and the total maximum is 12 years.

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

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

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

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

The deferred compound option allows purchasers to add a level premium compound benefit increase feature (based on its price at the age when they add the rider) within five years of issue if they have not been on claim. If clients exercise those options, policy benefits will approach those of level premium permanent fixed increase policies. If clients do not exercise those options, these policies become no benefit increase policies.

Indexed level premium policies are priced to have a level premium, but the benefit increase is tied to an index such as the Consumer Price Index (CPI).

Several insurers provided data regarding future purchase options, but only three insurers were able to provide both the number of available options and the number exercised. Based on their data, 25.5 percent of insureds exercised future purchase options that were available in 2012. As shown in Table 9, this percentage has held fairly steady since we started reporting it. However, election rates are likely to decrease as people age, because the cost of each election increases dramatically (both the amount to purchase and the price per unit increase) and the buyer gravitates toward fixed income.

Elimination Period. As Table 10 indicates, elimination period (EP) selections were pretty similar to 2011 except that EPs of more than 100 days increased in popularity.

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

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

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

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

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

Some products offer (or include automatically) joint waiver of premium (premium waived for both insureds if either qualifies) and/or survivorship features that waive premiums for a survivor after the first death if specified policy conditions are met. In 2012, 31 percent of policies sold to couples both buying included joint waiver of premium (46.4 percent for carriers that offer that feature, because it is often automatic) and 36 percent included survivorship (53.7 percent for carriers that offer that feature).

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

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

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

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

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

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

Other Characteristics. Nearly 5 percent (4.8 percent) of the policies included return of premium features, which return some or all premiums (usually reduced by paid LTCI benefits) when a policyholder dies—sometimes after only a defined number of years or before a particular age. Approximately 80 percent were embedded automatically; embedded features are designed to cost little, so the death benefit decreases to zero by age 75.

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

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

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

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

Multi-Life Programs

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

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

Partnership Programs

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

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

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

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

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

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

Underwriting Data

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

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

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

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

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

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

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

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

About the Survey

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

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

Key Findings

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

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

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

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

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

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

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

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

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

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

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

Statistical Analysis

Insurers’ worksite markets can differ tremendously:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Maximum Daily Benefit. Table 5 illustrates that the biggest difference in maximum daily benefit between the worksite and non-worksite market is that 19.1 percent of worksite sales were below $100 a day (and below the similar $3,000 a month size). The large percentage of small daily maximums is probably attributable to core/buy-up programs and perhaps some small policies being purchased to reach minimum penetration requirements to justify simplified underwriting.

Benefit Increase Features. The striking difference shown in Table 6 is that 33.4 percent of worksite policies had no increase option and another 5.9 percent had only a deferred option to add a benefit increase feature later. In the non-worksite market, the corresponding percentages were 7.6 percent and 1.7 percent. Thus, these designs were four times more frequent in the worksite market. Unfortunately, the younger age policyholders with worksite LTCI are likely to find that their policies will cover only a small percentage of their eventual long term care costs.

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

Partnership Qualification Rates. The benefit increase requirement to qualify under the State Partnership Programs varies by age. Generally a level premium, permanent annual 3 percent or higher compound increase or an otherwise similar Consumer Price Index increase is required for issue ages 60 or less. For issue ages 61-75, 5 percent simple increases also qualify and for issue ages 76 or older, policies qualify without regard to the benefit increase feature.

Table 7 identifies the percentage of policies which would have qualified for partnership programs if they had existed with those rules in all states. However, if partnerships were available in all states (with the rules cited in this paragraph), the percentage of partnership policies would exceed the percentages shown in Table 7 because the distribution of sales would change in those states that don’t currently have partnership programs.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Closing

We thank insurance company staff for submitting the data and responding to questions promptly. We also thank Nicole Gaspar of Milliman for managing the data expertly.

We reviewed data for reasonableness. Nonetheless, we cannot assure that all data is accurate. If you have suggestions for improving this survey, please contact one of the authors. 

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