Friday, March 29, 2024
Home Authors Posts by Ronald R. Hagelman

Ronald R. Hagelman

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Ronald R. Hagelman, CLTC, CSA, LTCP, has been a teacher, cattle rancher, agent, brokerage general agent, corporate consultant and home office executive. As a consultant he has created numerous individual and group insurance products. A nationally recognized motivational speaker, Hagelman has served on the LIMRA, Society of Actuaries, and ILTCI committees. He is past president of the American Association for Long Term Care Insurance and continues to work with LTCI company advisory boards. He remains a contributing “friend” of the SOA LTCI Section Council and the SOA Future of LTCI committee. Hagelman and his partner Barry J. Fisher are principles of Ice Floe Consulting, providing consulting services for Chronic Illness/LTC product development and brokerage distribution strategies. Hagelman can be reached at Ice Floe Consulting, 156 N. Solms Rd., New Braunfels, TX 78132 Telephone: 830-620-4066. Email: ron@icefloeconsulting.com.

Myth Busters

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It is certainly widely accepted that rate increases, particularly the big fat and somewhat unanticipated ones, are bad for all concerned. It should not however be a revelation be that individual health insurance is often subject to the variable and often violent wind storms created by medical inflation. Unfortunately, that universally accepted truth does not exactly hold water when viewing the history of rate increases in the world of stand-alone long term care insurance. Medical inflation has been consistent with expectations and was always a planned-for pricing consideration. The fact is that, this time, what did contribute to the creation of what I suspect looks more like an adverse selection rate spiral than anything seen before could simply not have been anticipated by those stakeholders involved in the creation and growth of this market.

Don’t misunderstand—the damage caused by this lack of omnipotent clairvoyance is very real and verges on the catastrophic. All too many have been running for the exit doors, including: reinsurers, companies, agents and most importantly consumers. Consumers point the finger at those old mean and greedy insurance companies. The politicized regulatory universe has done much the same, even though they know better. Companies have retreated moaning about lack of profitability, reserve drain and future claim uncertainty. And those of us out there every day trying to protect our customers have been caught in the crossfire. How do you explain to the most perceptive and intelligent clients in your book of business the cause of onerous rate increases so soon in the history of this “new“ and some would say “experimental”  line of retirement protection?

The truth is, no one could have peered into their crystal ball and seen that this would become the most loved accident and health product of all time. Virtually the only lapse is death—new products are being priced with a one-half percent lapse rate.  15 years ago you would have been laughed out of the board room with so ludicrous a concept. Who could have predicted the collapse of our economy in the Great Recession and that the interest rate environment would remain dead flat ever since with no end in sight? Who would have guessed that the caregiving landscape would shift to assisted living and that the palliative effects of that level of care would dramatically affect longevity and claim duration? Who would have thought that two-thirds of the companies who lined up to help develop this market would throw in the towel so soon?

The destruction caused by what has appeared to be capricious rate actions must be accepted and frankly forgiven so that we can get past the grief and move on. As circumstances have developed, we have repeatedly had to explain that this is health insurance after all and that rate increases on older blocks of business must be proven justifiable to the appropriate state regulatory authority before they can be enforced. We also know that recent research conducted by the SOA clearly indicates that future rate increases on policies sold today are more stable and reliable than at any time in our past. We have explained to consumers that, even with the increase in cost, their policy will remain less expensive than purchasing new coverage today. Most important, we have gently explained the obvious that the new cost remains diminutive when compared to the potential claim.

What you may not know is what actually happens to consumers in terms of their protection when a rate increase takes place. What is the real dimension and size of the loss in coverage when consumers are facing a rate increase? I asked the largest historical writer of LTCI and the answer is—no one walked away with an empty basket. 85.2  percent kept their coverage and accepted the rate increase, 9.1 percent kept approximately the same premium and reduced their benefits, and only 5.4 percent took the non-forfeiture benefits with access to past premiums in the form of available benefits paid. The cost of caregiving in America remains the problem that will not go away. Although rate actions have been unpopular and unpleasant, they may not have been as disastrous as advertised. We have tried—I believe valiantly—to help, and there is no other answer but to profit from what we have learned and keep trying.

Other than that I have no opinions on the subject. 

Ding Dong

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There are simply those who, even after repeated exposure to the glare of the truth, are subsequently unable to admit they were wrong.  Our industry suffers seriously from this flaw in human behavior. Far too many have conveniently pointed the finger of blame at  those responsible for our lifeless interest environment ( whoever those people are) and not taken sufficient responsibility for the “mistakes” that were made in our past pricing assumptions. “We” got it way wrong and the damage done to all concerned is much more extensive than many are willing to admit. Stand-alone LTCI sales are a shadow of their former selves. The destruction to new sales caused by repeated rate increases is pervasive and insidious.  We have unfortunately created a general public malaise and aversion to all things LTCI both in terms of those who we said were the smart ones for leveraging their risk early and those prospective buyers considering the security of policy ownership. What is of course much worse is that we have successfully decimated the ranks of those willing to help sell the product. The age-old equation is now painfully obvious to all concerned: rising premium creating falling sales culminating in a drastically reduced field force. This artificially created sales spiral  is much more than just a self- fulfilling prophecy.  We must first admit that it is also a self-inflicted wound.

We must first freely admit and acknowledge our own culpability. Frankly, we over built benefits, underpriced mortality and morbidity, and overestimated potential sales in the initial rush to achieve market share. We completely missed the whole side of the barn in terms of persistency and honestly we were basing our future experience on far too little actual claims data.

That has all changed!  “Ding Dong the Wicked (Rate Increase) Witch is Dead!”  The Society of Actuaries has recently completed a research project designed specifically to evaluate the historical potential for rate increases.   The research clearly indicates that products priced today are much less likely to have future rate increases. What is absolutely certain over the last 15 years is that the need for long term care  services and support, the growth of assets and income needing protection, and the certainty of a need for expensive care is now greater than ever. We have also accumulated a substantial volume of claims information upon which to more accurately base current pricing.

The conclusion of the SOA analysis is that confidence in current pricing “should” be at an all-time high. Claims data is no longer scarce. We  have an abundance of claims to evaluate at this time, meaning we have  reduced the potential likelihood of future rate actions. According to the SOA, “Premium stability on today’s LTCI products is at its highest.” The SOA identified a number of benefits of the new pricing stability as the study found that, “Claim experience nationwide in 2014 was 70 times more credible than in 2000.” The fact that we now have a history to evaluate has laid the groundwork for future carrier optimism concerning this market. Pricing stability contributes to:

• Greater carrier confidence in key assumptions concerning lapse, morbidity and mortality.

• Less operational administrative risk translating into lower expenses. Constant change is expensive.

• Less friction on the regulatory level and potential stress on reserves.

Restoration of consumer confidence at this point is a massive undertaking.

The Study also illuminated the validity of what we knew were serious contributing factors:

• Long term investment return has fallen dramatically from 6.4 percent in 2000 to 4.6 percent in 2014.

• Commissions have crept up during the same period of time, emphasizing first year compensation, and while administration expenses have declined.

• Based on experience, allowable margins for error have also increased. 

What is important is that we have learned from our experience and that the relative predictability of current premiums has risen from a low of a 40 percent chance of a future need to raise premiums to only 10 percent today. The study also pointed out that the regulatory environment has provided evolving strength by implementing the necessity of providing adequate margins for adverse circumstances under the NAIC Model Regulations beginning in 2000 and subsequently enhanced in 2009 and 2014.

The journey now standing before us must certainly begin by joining hands with those new friends willing to take that first step on the yellow brick road as we must ask the wizard to help us restore the faith of consumers and agents alike. Together we must recognize that we have indeed survived the flying monkeys and that our strength of purpose to find a home for the risk that will not be ignored was always built upon our brains, our heart and our courage.

Other than that I have no opinion on the subject. 

Herding Cats

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According to the National Retirement Risk Index:  “52 percent of households are ‘at risk’ of not having enough to maintain their living standards in retirement.” When you bombard this fragility with caregiving costs, substantial emotional and financial suffering awaits far too many Americans. None of this is taking place in a vacuum. The conversations concerning acknowledging the reality of the risk are proliferating.  I  don’t  think any of us have ever witnessed such an overwhelming need juxtaposed with a wasteland of adequate response. My mind remains unable to grasp the dimensions of the sales opportunity in contrast to our on-going struggle to find sufficient troop strength, effective ammunition or carrier support to fight the battle.  To compound the disarray we seem to have become order takers once again, not asking the hard questions or taking the time, effort and energy to shine a light on the obvious. This can happen to you and there is no greater threat to maintaining you and your family’s lifestyle. And why are we continually being forced to round up professional insurance strays to help  abrogate chronic illness risk? 

Markets are reviving. Corporate long term care planning conversations emphasizing premium deductibility and enhancement of selective benefits for the most eligible for incentive compensation are once again threatening the complacency of rigid HR departments. Competitive accelerated modal premiums are again available.  (Ten–Pay and Single Pay). Conversations concerning possible corporate tax avoidance strategies utilizing an IRC Section 105 Medical Reimbursement Plan for stand alone LTCI or an IRC Section 162 Controlled Executive Bonus Plan utilizing combo life both providing the opportunity for “golden handcuffs” for key employees, juicy incentive compensation and corporate premium deductibility.

We do indeed live in strange times. Although stand-alone LTCI may exhibit shrinking availability, alternatives to address America’s caregiving risk are continuing to proliferate. Pricing has stabilized on traditional products and the potential for onerous rate increases on new business has decreased dramatically. We have been herding cats for so long it may be difficult to see that finally many of them seem to be lining up and at least focusing their interest in the same direction. The “Initial Recommendations to Improve the Financing of Long Term Care” report from the Bipartisan Policy Center begins with the painful truth that “the demand for LTSS will more than double over the next 35 years and is fiscally unsustainable.” It is clear the government understands and anticipates a strong role for private insurance. It is also clear there is developing advocacy for some form of additional safety net program for the middle class. 

It is however the work of the SOA sponsored Think Tank on the Future of Long Term Care Insurance that may hold the greatest predictive value at this time. In the most recent report from Maddock Douglas, Inc., “Exploring The Possibilities For Helping The American Public Manage The Financial Burden Of Long Term Care,”  the following areas were thoughtfully evaluated by the experts in the Think Tank:

• Helping people pay for their care differently.

• Making care more accessible.

• Reduce the cost of care.

• Mitigating the cost of care in the first place.

The final concepts developed by the participants coalesced around three “Platforms of Influence”:

1. Data-Driven Decision Support.  The effort here would be to focus on caregiver education and managing current information so that care recipients can be informed as to best practices in terms of care coordination to improve pricing and future recommendations. The object here is to continue to explore new ways of coordinating data collection. Examples being explored here are creating a ‘Health Longevity APP” and a consumer “Care Portal.”

2. Service Evolution and Expansion.  The purpose here would be to more efficiently distribute available care to match needs, improve access to quality care and delay the need for care in the first place. Examples of development in this category would be “Uberfication” of care delivery services and rebuilding LTCI policies to look more like traditional health insurance for better consumer understanding and transparency.

3.  Paying for Care (“Pay-fors”).  This development initiative directly addresses how long term care costs are funded. This includes partnerships and or potential legislation that should be considered. Examples being explored are developing additional qualified dollars through a “Flex 401(k)” which would create a new multi-purpose savings account, or establishing a new “family long term care account” designed to provide tax privileges on a cumulative and progressive benefit basis for all family members.

Regardless of the direction from which you may have observed the progression and evolution of this market, you would have intrinsically known that the risk and the commensurate opportunity to be helpful are immutable. Although it has been frequently frustrating and strategically disappointing that our past sales success has never really met our expectations. What must be acknowledged from the wandering concepts in this market is that pricing is sounder, claims are clearer, technology  will remain an accelerant, chronic illness product proliferation will continue to expand and this industry will continue to be hell bent on resolving the conundrum of aberrant feline behavior.

Other than that I  have no opinion on the subject. 

Meanderings

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This is after all an eclectic commentary column and it is not required to connect all the dots. We are certainly in a time of transition, upheaval and reexamination of all those previously held beliefs concerning the structure of product and basis for the sale itself. It appears nothing was sacred, which makes sense because apparently very little of what we have been doing was working well anyway. Like so many others I am trying to understand the changes in sales emphasis and product direction. How does the expanding universe of chronic illness risk management influence my practice and prioritize my planning to best serve my distribution?

Consequently, meandering through my current understanding of what’s relevant and what’s superfluous might be fun. Some of these random thoughts have appeared before—they therefore probably bear repeating. So in no particular order of importance here goes:

Americans know they have a problem. Recent retirement research suggests that two thirds of the populace believe that health risks will destroy their retirement. They have seen it first-hand—as not so coincidentally two thirds know someone who was financially decimated by the problem.

There are two sales: a primary sale that replaces financial risk with insurance; and a supplemental sale that is designed to preserve dignity and independence for as long as possible by “shoring up” assets and income already in play. We have actually succeeded fairly well at the first and failed dismally at the second. If we fail to protect the middle class from rigid government bureaucracy and the fate of budgeted warehouse care, the shame will haunt us for generations. If the private insurance industry cannot rise to this occasion it must seriously question its own relevance. However, to have any hope of success it must begin by focusing clearly on which sale it is making and how best to accomplish each separate and distinct goal.

Again recent surveys at the Center for Retirement Research at Boston College  suggest that the odds of needing care are higher than we thought, although the length of care is shorter than we originally anticipated. Average nursing home stays were .88 years for men and 1.44 years for women. However, for those who do need nursing home care, 50 percent of men and 39 percent of women will need more than three years. Most striking of all is that after age 65, 44 percent of men and 58 percent of women will find themselves in need of nursing home care.

The risk is very real and those who choose to ignore the risk will pay a very high price for their personal cowardice in not planning for the inevitable!  Even though it will be a manageable problem for most Americans, regardless of how you define severity, it will be a catastrophic financial debacle for a double digit percentage of those after age 65.

There are no “Easy Buttons”.  The sale itself is hard and does not  get any easier over time. The regulatory environment is dense and unfriendly. Adverse selection is present to some degree in every sale.  Constant vigilance is required by all concerned.

The rapid rise of premium, which created a corollary decline in sales, has left a really bad taste in the mouths of many consumers. And for all those early adopters, onerous rate increases have disenchanted existing policyholders.

The landscape of future sales is transforming before our eyes. Any company that ignores the new market mantra of faster, easier and cheaper will fail.

We are seeing kitchen table sales recede in our rear view mirror. “Share screen” computer/phone sales are the most common denominator today. Every company has an electronic application, and paper apps may become a collectors item on the Antiques Roadshow.

We have inadvertently created an industry now resting firmly on a solid bedrock of false promises. Even if our past history transpired on a completely innocent basis, we still have a lot of explaining to do.

Fear drives this sale. Fear of disability, dependence, loss of control, asset depletion, legacy evaporation and government bureaucracy.

There is an unavoidable ethics component to this conversation.  In my opinion the industry has not  yet come to terms with its responsibilities in this regard. How does a company or an insurance professional avoid a conversation about this risk in a world in which there are such plentiful opportunities to deal with the financial devastation now available within every product genre—life, annuity and health.

Price matters, underwriting speed matters, access to technology matters and simplicity of design matters. Without these key ingredients present progress will not take place.

Combo sales are not a panacea and the new fulcrum in every combo life sale must be which sale are you making?  Life with LTCI, or LTCI with life? And please explain how you can avoid annuity combos when they are clearly the lowest net cost for the risk…

My two hottest predictions remain on the table: 1) when interest rates rise, combo annuities will become the star LTCI attraction; and, 2) 1035 activity, both life and annuity, has yet to hit its stride but it will eventually.

Chronic illness ADBR 101g riders will continue to proliferate and improve.

This is the risk that will not go away. The industry will continue to try to meet the need with new and innovative product.  We will continue to learn from our mistakes.  Our insurance responses will be based on our cumulative experience. Both product and sales approach will continue to evolve and improve. We are no longer just staggering around in the darkness. We are knowingly meandering forward with purpose and resolve.

Other than that I  have no opinion on the subject.

By The Numbers: Cowardice Prevails

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There is an unavoidable and immutable truth throughout the known universe concerning the relationship between what things cost and how many people buy them. LIMRA numbers over the last ten years demonstrate this direct yet inverted  “metaphysical law” better than any economics textbook.  As the cost of standalone policies began to increase dramatically, sales began to fall just as rapidly. Two thirds of sales take place within less than 10 percent of the available market. If we do not readjust our sights we simply have no future. The SOA defines the ”mass middle” market as those Americans between 55 and 64 with about $75,000 in income and $100,000 in assets. This should represent over 80 percent of our target market. According to a recent Genworth analysis of the 2012 Census: If the price were reduced by half to $1,200 annual we would have 10 times the available buyers and 5 times as many sales. There is absolute consensus when viewed from 30,000 feet as to what needs to be done to increase sales among those most in need of protection: simplify the product, reduce premiums, reduce/broaden underwriting as well as provide some reassurances in terms of premium stability and the flexibility to “cash-out” to some degree. Now you need to flavor the easily identifiable structural concerns with the reality of the situation on the ground. The Bipartisan Commission this spring began its report with the obvious: “LTCI take up is stalling because policies are too expensive, distribution is too limited and the traditional product is not sustainable for the carriers.”

Let’s begin with affordability. Cheaper is probably better but where do you attack the pricing?  If you streamline benefits, which ones are the most vulnerable to reduction or omission? Popularity with consumers must be balanced with the reality of our current knowledge of the claim. What is more important—“zero” day elimination for home health care or assisted living facility paid exactly the same as nursing home? Where should premium do the most good—on the front or the back end of the claim? Is waiver of premium really that important? Does the mass middle only need short and fat benefit structure and the affluent simply more flexible stop loss options?  And we simply cannot continue to ignore legitimate concerns over “use it or lose it”. Some consumer “cash-out” provision must be available, even if it’s only an aggressive return of premium. 

Even the politicians in Washington recognize something must be done. Again the Bipartisan Committee recently said: “The LTCI market could be stabilized and expanded to include more middle income Americans if a new form of lower cost, streamlined policies were available.”

For many years there has been a cry for simplification.  The question is, can we amend what we have or do we just need to start over?  The market is shifting beneath our feet toward more combo sales, and the only real planning question for the foreseeable future is: “Where are you addressing the risk each time?” Life with some LTCI, or LTCI with some life? There are also voices that are suggesting that we are all attacking the problem from the wrong direction and that we should just find a way to “marry” this risk with other retirement/investment strategies.

Enough rambling speculation which somehow never seems to produce sufficient direct action. The really hard question, however, does need to be asked one more time: If price matters and we know that most claims are manageable, do we really only need new product, new creative ways of selling or maybe just new people selling the product?

Other than that I have no opinion on the subject. 

Mix and Match

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Periodic election cycles ultimately force us to choose sides even if the choice is the lesser of two evils.  When we were much younger and found ourselves involved in choosing teams, there was always some fear in the back of our mind that we might be the one that someone was forced to add to their team as a last choice. Partisanship and sandlot theatrics are beginning to invade our chosen backwater of insurance distribution. This column started out many years back talking about the new product possibilities created with the combo opportunities revealed in the Pension Protection Act as a three legged milking stool. All three approaches—stand-alone LTCI along with annuity and life combos—would be holding up the working posterior of our industry. The point of the analogy was that all three were required to maintain consumer support and benefit flexibility.

Each and every market response is needed, and those who are asking us to choose sides as if one approach was somehow superior to another need to stand down, back up and rethink their own  product flavor of the month arrogance. There is simply not one “better” product answer that fits most long term care risk scenarios. This is true regardless of how comfortable or enamored you may have become with a particular product approach.

Each situation must, of course, be customized based on circumstance. What was the primary need that fueled the conversation to begin with and what is your intention as to how best to confront that need? The argument churning the market today seems to be to first identify which team you are on: life with LTCI or LTCI with life. Frankly we do not want to sell some of either if they are not needed. It’s fantastic to able to add a chronic illness accelerated death benefit rider to a life policy to hedge a gigantic bet on the potential destruction of one’s lifestyle concerns. It is also important that the present valued death benefit was not derived from life insurance protection that was not needed or required in your planning process. As we try to determine which product approach fits best there are some “facts” that require our attention: 

Most claims are of a  fairly short duration, however approximately one in five are catastrophic in nature.

Nursing home admissions do not hit double digits until almost the mid-eighties.

Average nursing home, assisted living and home health care durations are all under 3 years.

Men’s claims will be earlier and shorter than women and the corollary is also true—women’s claims will be later and longer .

It’s never just about the money regardless of how many assets your client may have. Avoiding a discussion of the emotional impact of caregiving may be detrimental to your professional health.

The bottom line is that not just one size, but more important, that not just one product can possibly address every situation. Why can’t each sale involve a little potential mix and match—a little of this, a little of that—applying benefits and features as needed. There are product options which provide guaranteed benefits whether they are needed or not. Not all consumer responses require absolutes. For example, shared care benefits may indirectly help consumers worried about “lose it or use it” as at least one is much more likely to access benefits. A shorter duration benefit for the man and a longer contingency for the female spouse may require more than one policy option. Another example may also be consumer concerns about lengthy elimination periods, and that in and of itself may steer you in particular product directions.

Creative customized solutions are fueled by choice. My suspicions are that the growing plethora of product options is a blessing not a curse. Choosing teams at this point in time is a sure formula for permanent residence at the end of a fiduciary blind alley.

Other than that I have no opinion on the subject. 

Form And Substance

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The publisher of this remaining bastion of free insurance speech and introspective dialogue has suggested privately in the past that this “Commentary” column may, at times, resemble a monthly “rant” on those long term care insurance issues which hopefully concern us all. Every one of us that is still engaged in the on-going struggle to deflect what, for the majority of American families, will constitute a crippling blow of strategically unprepared and  unanticipated caregiving chaos must feel the same frustration with current events. This column is clearly guilty of repeatedly discussing and evaluating every industry or governmental attempt to analyze existing sales and project innovative ideas that might improve future market performance. Is there really anyone left out there who does not understand what is wrong with our market and therefore does not intuitively know exactly what needs to be done? 

Who among you does not know that we have isolated our efforts by exclusively selling expensive co-insurance policies to only the most affluent American consumers?  According to the 2012 U.S. Census, Genworth Policyholder Analysis: nine percent of American households represent 66 percent of current sales. Is there anyone left who does not understand that, as premiums have risen, sales have fallen dramatically?  Is there anyone politically naïve enough to think that the middle class in America is not in trouble—being ignored or passed over for wage improvements, victimized by inflation in consumer goods, drastically restricted in new home ownership and virtually ignored by any attempt of the insurance industry’s  to leverage a known risk for far too many?

It seems every time we ask ourselves why we cannot adequately penetrate this market and speculate what needs to be done to move forward, the answers seem to mock us as they echo back to us over and over. “We need smaller, simpler, faster, cheaper, less underwriting restrictive, guaranteed premiums that do not manifest the possibility of complete irrelevance.” What did I miss? 

My fellow travelers, we now live in a Brave New World of alternative chronic risk solutions. Unfortunately it often looks more like a three ring circus. We have stand-alone sales in the center ring. Think of these as the elephants who never forget, have a small inventory of recognizable tricks yet remain historically popular with the circus owners and the ticket paying public. In the left ring we have the new and exotic ”combo’s”, dressed in more flamboyant costumes and entertaining us with spell binding contortions and new feats of legerdemain. In the ring to your immediate right resides the Shetland ponies and dwarf clowns  flying under the HIPAA regulatory radar as proponents of short term care policies. Unfortunately a circus implies purpose and intent. I would like to believe it’s merely a way of giving the public the type of spectacle they want. Maybe the market demand has created something more than mere spectacle. Maybe what’s true is that without three rings no one will attend the performance. There are no easy answers. Selecting which ring in which you believe you have the greatest affinity or comfort by choosing to love only elephants, acrobats or ponies and clowns, remains the surest formula for myopic implosion. We must all expand our vision to accommodate diversity and innovation. Bravely mix and match your attempts to alleviate risk. The more diverse the choices in your inventory of attractions, the greater the opportunity for creative and meaningful solutions for your customers.

Hoping to have everyone’s attention by now and while you are dreaming of organ music, monkeys and cotton candy, something  very important needs to be said: “What if what is needed is not just new, cheaper premium,  more streamlined underwriting or easier to understand product?  What if it is not about substance but form?  What if what we really need now is new, untainted, unjaded sales talent offering creative multiple flexible solutions?  What is the reason for going to the circus in the first place?  Was it to simply always anticipate what was to be expected and familiar, or was it to openly marvel at what was new and creatively possible?

 Other than that I have no opinion on the subject. 

Impurities

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The inherent beauty of universally recognized “art” is something that is created as a process of elimination.  Michelangelo released David from a solid block of inanimate marble. By methodically chipping away and discarding what was not necessary, something of permanence and exception was revealed. By systematically removing impurities something of transcendent truth may be discovered. The artist involved is actually only a facilitator guided by previous rules of engagement and extensive experience in the pursuit of lasting accomplishment. 

Although it may be a stretch to compare the current residue of our grand LTCI experiment to the artistry of Auguste Rodin, it is impossible to ignore our ongoing intention to create something of substance and beauty. Our industry’s dedicated attempt to define and serve a public outcry to diminish the financial and emotional impact of unattended and ill prepared chronic illness risk has certainly represented a historic process of elimination. We have accumulated substantial experience and we have consistently removed the parts that were not working. If it was superfluous, ineffective, overpriced or undersold it has been trimmed away. Our 20-plus year hard headed crusade to expose the reality of the risk and identify a cost effective insurance management tool may be finally beginning to reveal an object of permanence and purpose. Public and private initiatives to reform and improve the market have begun to narrow their focus and solidify around the essentials of future success:

• All the moving parts require attention and some form of structural cooperation between the insurance industry and imbedded governmental support will be required.

• Most claims are fairly small and middle market benefits need to focus on upfront expense and immediate support. By the same token the potential for catastrophic risk must remain at the heart of the individual sale for the more affluent.

• Regulatory reform is now mandatory from the NAIC to state and federal legislatures. This should include greater benefit flexibility and a willingness to consider innovative ideas. Why not allow immediate long term care access to current tax preferred accounts?  Additional tax incentives should also include an enhancement review of existing tax deferrals, premium deductions and credits.

Perhaps the clearest evidence of our ability to remove impurities can be found in the recent research conducted by the SOA’s LTC Section and the ILTCI offering LTCI New Business Pricing: How Safe Is It?  The primary question asked was to identify any differences between past and current pricing stability. I don’t think anyone would argue with the notion that rate increases are the primary scourge of consumer confidence and lackluster sales. The question is: Have we learned from our marketing  mistakes and our growing volume of claims data?  The truth is we have learned from experience.  We do have more information to fine tune pricing assumptions.  We are offering less risky product and the actuaries are using better modeling tools. Rate increases are, of course, the result of the inherent clash of current reality versus the initial assumptions concerning lapse rates, morbidity and mortality. The research team looked at three dates for comparison purposes (2000, 2007 and 2014).  Our current volume of claims experience has taught us that our morbidity experience was somewhat worse than anticipated over time. Our mortality rates are now more conservative, and as you well know our lapse rates are now much more conservative. The companies have learned from each other and  premiums have stabilized with very little difference today in pricing between carriers. The bottom line is we simply have much more information on which to base future assumptions. For example, we are able to evaluate 16 times as much data in 2014 as in 2000 for all policy years and 70 times as much claims information. The reliability of current pricing as it relates to the possibility of future rate increases has increased dramatically over time. In 2000 the chances of future rate increases was about 40 percent, in 2007 it was 30 percent.  However, in 2014 it was only 10 percent. The profitability of the product has also increased—caused by bone on bone lapse assumptions, better understanding of the claim and a low predictable interest rate environment. 

We do apparently learn from our mistakes. We can adjust to new realities. We do profit from accumulated sales wisdom. It’s not getting any easier, but it does seem to be emerging from relative chaos into a clear and trustworthy vision sculpted and solidified by experience.  We  have all accumulated our share of marble dust helping to create a transcendent image void of disfiguring impurities. We may yet gaze upon a sculpture that will withstand the test of time.

Other than that I have no opinion on the subject. 

Reboot

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In the beginning, if you held it up to the light, it almost looked like a Med-Supp policy. Surely there were also those who may have thought it was simply just another flavor of disability indemnification. In many ways it was instead a new distribution discipline in search of form, substance and direction. Life and annuity options are greatly influenced by the known and predictable gravitational pull of undeniable mortality. Health insurance profits from the certainty of recurrent morbidity experience. There is ultimately no entrenched consumer disbelief concerning death or illness. Like disability income protection, the acquisition of long term care coverage is based on a vision of a possible distant adverse future event. This perception must be conjured from the client’s own caregiving experience or it must be vividly illuminated by an agent’s ability to explain the reality of the need.

The potential catastrophic financial and emotional nature of caregiving in America is the inherent propellant that fuels our struggle to protect as many as possible before it is too late. The motivation to acquire a chronic illness policy is based on a premonition that already exists in the consumer’s mind or a conceptual risk construct based on a well planned explanation of: “What is long term care?”  “What does it mean in my life?” and an explanation of “Why it is not expensive.” The problem of course is that the very folks who know they need to transfer the risk to an insurance company are frequently exactly the wrong prospect.

Placement rates are at an all-time low. At least four out of ten who have the courage to complete a 50 page application will apparently not be eligible for coverage. Unfortunately, we already have too few agents even attempting to help place LTCI protection. The number one obstacle to greater sales is probably underwriting frustration. The fear of rejection remains a barrier to increasing sales. Too often underwriting, that took too long to begin with, stood as a possible specter ready to destroy existing client relationships and potentially jeopardize current premium.

If we wish to ever change the existing paradigm, we need to address the problem on both ends. We need to rebuild a better approach for business going in the hopper and better alternatives after adverse underwriting results have poisoned the transaction/relationship. It is not one problem but two: Cause and Effect!  It is time to stop patching what is already clearly broken and reboot our approach to the sale and our dedication to help all those who are willing to make the attempt to help themselves. In no particular order of significance, maybe we can at least stir up an introspective conversation:

  • Return to a universally mandatory requirement of no C.O.D. Cash down equals commitment up front. This also blunts the often too frequent “medical close” and encourages honesty in the beginning.
  • Field administration must pre-underwrite all sales and ask all the questions every time.
  • Reinforce and legitimize “Underwriting Hot Lines” by formalizing informal submissions. Informal quotes, if adequately documented initially, must be held valid (just like life insurance) unless there is substantial change in the submitted information. This will require that authorized BGAs be allowed to order their own APSs.
  • Companies must reconsider where they draw the lines of responsibility concerning prospective submissions.  As an example, until an application has been compared to the para-med, MIB and  RX screen it is not considered a valid submission in terms of placement rates.
  • Perhaps require the use of electronic applications or at least weight them differently. This enhances the quality of submissions and sets the stage for drastically reduced underwriting time frames.
  • The time has come to better control agent and general agent submission privileges. Someone knowledgeable must be in place to screen applications . The authority to submit directly to the home office must be earned and well documented. This however must be policed at the company level.
  • No more political submissions: ”This is my best client, I have to at least say I tried.”  Try the truth—it works better for all concerned.

Agents and general agents must do a better job of managing expectations. The LTCI risk, as we know, is leveraged successfully by applying a liberal dose of good health backed up with financial commitment.

  • Particularly since HIPAA, sales have been farmed in a monoculture. (All corn no soy beans.) Current sales should not become an either/or product proposition. We must do a much better job of helping determine the direction of the sale—stand-alone, life and annuity combo or short term protection—one size does not fit all.
  • There is nothing easy about any of this.  Brokers and general agents who are not able to dedicate time and training necessary to successfully submit business must allow those who have specialized to help. BGA’s who really only handle a few cases need to outsource administration, and agents who infrequently write LTCI need to be willing to “split” cases with professional LTCI specialists.
  • Last but certainly not least the entire industry must stop wasting and subverting the needs of so many that have pre-established or prospective impairments. Surely we should be able to build creative and limited response policies to address the needs of so many that are systematically turned away—much as we have with other lines of business.

Better quality business coming in the front door and a new market for those that are not successful running the underwriting gauntlet has the best hope of success.  There is sufficient confusion, disenchantment and consternation to go around. A fresh start built on a complete re-examination of purpose and process is required. Frankly nothing less will help.

Other than that I have no opinions on the subject. 

Abolish The Madness!

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This column has been relatively successful at just skirting  the edge of a direct and personal attack on current industry practice or specific company indiscretions fueled by strategic wrong thinking. Not this month—there is simply no more room for political correctness on this subject. The time has come to call for the immediate end to the detrimental use of placement ratios in long term care insurance. This is a sentiment that has been bubbling to the surface for some time. Under present conditions it no longer reflects any meaningful measurement. There is absolutely no predictive or redemptive relationship that connects with the reality of distribution behavior. I have never enjoyed being punished for something over which I have no control. This is like threatening to cut off my electricity because I have not been adequately monitoring my personal contribution to global warming. This is an unfortunate remnant of a past that no longer exists. I categorically refuse to be judged by circumstances not of my making. I vehemently reject the notion that I can control the underwriting and placement of individual stand-alone LTCI. The prevailing  premise of this recurring and entrenched madness is that the field is intentionally sending in bad business and then not working hard enough to get it placed. Horse Hockey!

In the dim and murky past of LTCI sales there might have been a reason for measuring submitted versus paid applications. In a distant and almost  forgotten universe where the average age of buyers was 50 percent higher than today, premiums at least 50 percent lower and underwriting perhaps not as experienced it may have had some meaning. Maybe like the mythical Brigadoon somewhere in the highland mists there was  a  temporary  and visible rationalization process to scrutinize bad applications and punish the evildoers that intentionally wasted everyone’s time and money. Perhaps once upon a time you might have been able to make an argument that there was some intrinsic  value to holding distribution’s feet to the placement fire. That world is dead and gone, never to return. Individual sales no longer originate or conclude from the same sources. As we know, they are originating with much younger, wealthier and healthier consumers.

Look, I get it!  Almost half of those who attempt to run the LTCI underwriting gauntlet no longer have any real prospect of crossing the finish line. I have simply had it with the notion that distribution is in a position to influence the current course of placement success in any meaningful way. The cost of doing business in this manner is patently absurd for all concerned. Neither of us can continue to operate in this manner. It must be clearly understood that the current financial pain is shared equally by company and distribution. The field is not intentionally throwing bad spaghetti against a Teflon and Pam sprayed wall. We understand that protecting the initial integrity of new business is critical to our mutual survival. We understand that the companies wish to accept every ‘good’ application possible and must reject those tainted by known and measurable future risk.

So whom is to blame for the unbelievable mess in which we all now find ourselves?  There is more than enough responsibility to go around. Declines have been around 15 percent for many years.  However, over the past 18 to 24 months they have risen to 25 to 30 percent.  The prevailing assumption is that the field is simply submitting more bad business. Even if the numbers bear out that theory the question not being asked is why? Field underwriting has been abbreviated and discounted by the companies. Distribution does ask basic traditional pre-screening questions.   The majority of agents and agencies understand that there is no point in even running numbers on prospective insureds without some degree of belief in completing the process successfully. Company sponsored “Underwriting Helplines” are frankly not helpful. What we know and ask about will not be the problem anyway.  Some companies are even relying on extra-terrestrial (sorry I meant extra-territorial) para-meds to find those worthy of protection. Rarely is anyone knowingly submitting cases known to fail. Everyone involved will lose: client, broker, company and general agency. Then why so many declines?  I submit that it involves  the nature of today’s sales and the reduced veracity of proposed insureds in that environment. Every LTCI sale that has ever taken place involves some degree of adverse selection. The buyer always has some perception of  future risk and expense. By definition they believe something seriously adverse could happen to them. Being completely honest with an insurance company that might pay their bills is asking a great deal of American consumers. A senior underwriter of one of our leading insurers recently explained that the number one reason for declines was incorrectly reported height and weight, not undisclosed medical conditions. The second most frequent reason for declines was diabetes. I suspect not “if they had it” but “how severe is the current pathology.” Please explain how the field could increase the accuracy of evaluating the clinical reality of that illness or, like some carnival con man, accurately guess someone’s actual height and weight?

The same is true in terms of the increase in withdrawn applications and not taken policies. The question is again not being asked:  Why have these placement categories also risen so dramatically?  More important, why  should the responsibility for this problem fall most heavily on distribution?  Frankly there is a crisis of faith in LTCI. Perpetual rate increases compounded by periodic and persistent bad press, much of which is a self-inflicted wound, has not helped new sales.  In addition, rising declines directly affect placement—particularly when one spouse or the other does not make the cut. 

The bottom line is that onerous and actionable (in the form of withheld bonus compensation) placement ratios are a myopic and outdated response to a problem that is much larger and cries out for a wiser and better focused solution. The corollary truth is that together we must find a better way to write and accept quality business.

Other than that I have no opinion on the subject.