Ronald R. Hagelman

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. 

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. 

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. 

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. 

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. 

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. 

In the early dawn of brokerage we all operated humbly, at least publicly, by placing our hand on our hearts and soliciting “surplus and excess only.”  We walked softly and carried three big sticks–better rates, better commissions and spectacularly better underwriting. The winner, to our credit, was of course the American consumer. My father used to say that the big career companies would eventually, like vultures on a phone pole, swoop down to co-op the new freedom we had introduced into the opening marketplace. On a corollary basis, we of course profited from a reservoir of well trained and well-disciplined professional agents. For an aging generation of brokerage freedom fighters perhaps our greatest voiced concern at this moment in time is: “Where will we find those experienced and motivated brokers to continue business as usual?”

In the smaller brokerage  world of chronic illness risk abrogation, our concerns and our options for growth are seriously restricted by the nature of what we do. We sell a product which may appear to have a lot of moving parts but product flexibility is restricted and contained within a regulatory razor wire fence. Perhaps the consumer protections were needed, but they have created a sterile and desolate landscape which discourages creativity and innovation. Holding your breath for dramatic reform at the NAIC or for that matter the sacred halls of Congress does not appear to be an immediately rewarding strategy. 

The sale itself will never get any easier and a healthy commission will continue be required to justify the time and expertise necessary to do it right. Again, however, the market and the regulators have built in barriers for compensation. Higher commissions will not build this market. Market experience has also given us a product struggling to keep pace with needed premium adjustments, and although one company or another may have a temporary pricing advantage it is transitory by definition. Once upon a time in brokerage we could offer substantially better pricing because we enjoyed reduced overhead. As we well know much of that overhead has been returned to us. We know price matters, but substantial price differentiation for traditional stand-alone LTCI  does not and will not drive this market.

For those with sufficient courage to view the most recent LIMRA numbers we know that individual sales for stand-alone LTCI are down again for the first two quarters of 2015. However, when the dust settles on 2015 I believe more Americans will have chosen to solve their chronic illness risk problem than at any time since the high water marks of sales in 2002 and 2003. Those choosing to leverage the risk simply now cover a much wider spectrum of alternatives. Without over generalizing, my personal estimate for 2015 is about 50 percent of buyers will choose individual tax-qualified LTCI; about 25 percent will choose a life combo plan; and, another 25 percent will elect a smaller benefit policy flying under much of the regulatory radar. In response to this shifting market we have all expanded our solutions portfolios to provide as  many available chronic illness risk options as possible. 

Just so no one misunderstands—I am delighted that we have so many choices. Each product direction has its own inherent benefits and strategic limitations. Stand-alone LTCI has clearly demonstrated that it has a pricing ceiling. Life combo selection must be preceded by a need for life insurance, asset based sales require the existence of discretionary dollars and short term benefits obviously do not protect against catastrophic risk. I continue to believe every planning conversation should begin with evaluating the shortest distance between the pain and the premium, and in most circumstances a careful examination of the need for traditional LTCI is required.

The potential for substantial growth and brokerage success may coincidentally involve the very market in which we are historically the most familiar. It is that line of business which lies at the emotional heart and entrenched core of almost every brokerage operation. For many it may no longer be our most profitable exercise, but it is the one challenge we know we are really good at and is probably the one we secretly most enjoy. It is not based on price. In most situations it is not susceptible to benefit level requirements. It was never based on agent commissions earned. It goes against the corporate risk-taking grain of the vast majority of our “me too” conservative carrier behemoths. In other words, co-opting this market and reducing consumer choice to mediocrity will take much longer and never completely succeed. Long term care insurance brokerage must return to its roots—impaired risk/substandard successful case placement!  These sales are not governed by the lowest rates, highest commissions, pristine A.M. Best ratings or competition from the giants. When you understand there have always been two LTCI sales—one policy decision that addresses as close to 100 percent of the financial risk as the client can afford, and one that strives to supplement existing assets and income to provide the ability to maintain freedom of choice and guarantee personal dignity at the time of claim—you are then free to make even the smallest risk leveraging decision a strategic success.

The potential market is enormous. Today’s placement ratios are at an all-time low.  I suspect almost 50 percent of those applying for coverage are unsuccessful, and that does not account for the thousands that never even tried. This problem has been the plague of our business from the beginning. To put it mildly there is an existing backlog of frustrated need waiting to be addressed. Aside from “Are you certified?” our most frequent conversations involve trying to determine why a policy was not placed or explaining that one or both of those applying was declined or rated up. 

At this point our answers are few and far between. Several current approaches are possible:

• Utilize a life policy with a chronic illness ADBR life rider (IRC Section 101g), particularly those who automatically include the benefit with the policy but only charge for its cost in the event of a claim. They, therefore, only use mortality underwriting and with up to a Table 4 life risk a policy could be issued.
   
• Utilize a SPWL policy with living benefits and reduced underwriting expectations.
   
• Asset-based LTCI provides  simplified issue “drop ticket” underwriting and may provide some marginal risk relief.
   
• There are tax qualified SPDAs and FPDAs for home health care (HHC) and facility protection that allow both guarantee and simplified issue options.
   
• There are short term reduced benefit HHC and nursing home policies with dramatically reduced underwriting providing basically modified guarantee issue alternatives.
   
• Multi-life can still provide reduced underwriting with sufficient participation.

Create a new marketing plan that can truly “salvage” surplus business. Solicit previously unavailable premium that is not already operating in heavy competition.  Offer alternatives not available from your less focused brokerage competition. Getting your agency in position to take full advantage of what amounts to an emerging market is always a good strategic plan. Because, dear reader, there is much additional product assistance in the protection pipeline that is soon to appear in a theatre near you. In the very near future I would expect to see a number of approaches that will provide better access to some of these potential sales.

Currently in varying stages of development :

• Enhanced underwritten single premium immediate annuities which provide guaranteed additional income to those most in need at the point of claim. The more serious the impairment, the greater the payout.
   
• A new generation of accelerated death benefit “life riders” which,  if filed through the IIPRC, may elect to no longer require a permanent disability  and some will offer reduced underwriting.
   
• A number of new and exciting whole life , UL and IUL  plus chronic illness present value alternatives with reduced underwriting are also in development.
   
• New multi-life opportunities are also in development incorporating modified guarantee issue levels of enrollment.

The truth is the market is huge, growing and anxiously waiting for relief. Placing the ADB rider risk subordinate to a primary life risk utilizing a combo strategy structurally reduces the cost of the chronic illness portion and can, based on pricing, also reduce underwriting. The market for smaller (less than 365 day benefits) policy sales based on underwriting concessions will also continue to attract converts.  “Actively at work” underwriting concessions will continue to emerge in the group supplemental benefit realm. I therefore invite you to return to your roots, remember your origins, have some fun again providing help where none appeared to be available, and let’s kick this magical, old fashioned brokerage can on down the road again.

Other than that I have no opinion on the subject.

I recently had the privilege of speaking to the board of directors of one of the handful of courageous LTCI companies that have chosen to stand and fight. Their concerns were a reflection of the same valid soul searching that we all have to be going through. It is almost impossible to look at the rise and fall of LIMRA numbers over the last 15 years and not question your commitment and your sanity.

The questions that seem to continue to beg for an analysis are:  Why do sales continue to fall?  Why have so many left the field of combat?  The problem is those are the wrong damn questions!

The questions should be: Where have the chronic illness risk abrogation sales relocated and why?  Why have some companies stayed the course and why have a substantial number decided to throw in the towel?

Perhaps a brief over simplified review of recent LTCI history is in order:

• 2000-2003 Post HIPAA birth of the modern LTCI market. TQ policies turned the horses loose with a little over 100 companies lining up to attack this exciting new market of corporate premium deductibility and tax free benefits. It was a horse race populated by horses that had never been on this track and no one should have expected that every horse was going to cross the finish line a winner.
• 2004-2006 First wave of market adjustments: claims were real, persistency was unreal and sales were somewhat unpredictable.
• 2007-2009 The Great Recession coupled with severe rate actions on both old blocks and new premium.
• 2010-2015 Sales appearing to fall steadily for 10 years seemed to be reinforced by “The Great Company Exodus.” Carrier white towels thrown in the ring began to look like a New England blizzard.  Which brings us to today’s situation with  about 30 companies successfully still in the race selling stand-alone LTCI.

“The Great Company Exodus” deserves further analysis.  Why did they leave?  It was not related to the validity of the sale itself or any inherent flaws in the market or the product. Each company originally perceived an opportunity to serve a new market. They made their own unique decision to try to strategically answer consumer demand, perhaps accommodate their own distribution and hopefully make a profit.  It was only the decision to move forward that was the same. Each one has subsequently left for their own indigenous reasons. Their decision to throw in the towel was based on issues which were unique to them, not LTCI.

There were as many reasons as there were defections:

• Some were never really even in the business, having secured 100% reinsurance. Making it very easy to walk away.
• Some companies changed ownership and therefore direction. Nothing wrong with the new mortgage holders wanting to focus on more profitable lines of business.
• Some suffered from bad management and poor sales, never achieving sufficient premium to overcome costs.
• Some oversold benefits or underwriting—never a wise choice.
• Some just had a classic changing of the marketing guard creating new priorities and global agendas.
• Some did experience bad claims, particularly in the true group arena. Guarantee issue on a voluntary basis is a known formula for problems.
• Some suffered from their own inherent distribution channel conflicts.
• Some began to weary from repeated needs to provide additional reserves to cover the long gestation period and anticipated claims trends in LTCI.
• Some simply lost faith. This line of business just wasn’t what we thought it would be. When you hold it up to the light many expectations simply did not materialize. Poor performance on a non-essential line of business always has a problematic future.

None of this has anything to do with the value, importance or ultimate profitability of stand-alone LTCI!  Insurance marketing stuff just happens and not every company was ever going to cross the finish line anyway.

It’s the corollary question that deserves the most attention:  Why have some stayed and continue to work hard every day to find the right balance of competitive premium, accurately anticipated claims and empathy with the needs of distribution and at the same time stay committed every day to maintaining a strong value proposition for consumers and ultimate faith in the profitability of LTCI?

• Some have been leaders and innovators from the beginning, creating substantial blocks of in force premium. The sheer forward momentum and centrifugal force of new premium makes it very hard to even consider walking away.
• Some have always been health companies with the experience and long term view necessary to maintain the required commitment.
• Some are owned by experienced medical health companies who understand the true historical nature of this market and the longevity required to accomplish goals.
• Some have corollary lines of business and LTC planning “fits” well with life or supplemental offers.
• Some have already made the transition to product that addresses the same risk but uses a new and novel approach to its solution.

There is much that the LIMRA numbers do  not show. Some examples:

• The most successful sales companies may coincidentally also have the best premium for the best benefit. Look carefully at the companies that offer family care. They illustrate the most competitive premiums and demonstrate  the greatest recent sales growth. How could that be? Best benefits plus best premium equals best sales. Amazing!
• The lowest average premium companies have the best sales. Maybe there really is an invisible ceiling on relative purchase price. Incredible!
• Sex distinct pricing, tighter underwriting and retail sales force shutdowns dramatically impacted sales. Surprise!
• Companies with better trained and better controlled field forces make more sales. Shocking!

And last but not least in any way, please get this straight: Sales are not down, they are flat. If you will just take a moment, stop looking at the market through your panicked fingers, and do some simple math you will notice that sales addressing chronic illness are as strong as ever. If you will simply add stand-alone LTCI to combo life sales and short term sales, the number of folks solving their risk problem or the number of companies actively engaged in chronic illness risk abrogation is actually fairly static. Premium and company commitment has relocated, it has not vanished. The sky is not falling it’s just a different color blue.

Other than that I have no opinions on the subject. 

The truth will set you free. Perhaps we have all spent too much time dancing around recognition of the painfully obvious. This column has often succumbed to its own forms of subterfuge by employing contrived parables, questionable allegories and tangential comparisons. As one of the world’s unabashed eternal optimists, I may have let my feeble attempts at humor sugarcoat what must be said.

The future of LTCI is actually very clear. The wealthier consumers will continue to have the option to solve a known and quantifiable risk with insurance. The poor will continue to have a social safety fall-back position. And the incredibly underinsured vast economic middle will eventually find they will be participating in some form of benignly coercive partnership between public and private funding sources. Our professional involvement will include providing risk leveraging options for the wealthy, supplemental choices for the middle, and every time we do so, knowingly offsetting the taxpayer burden of the social safety net.

Private insurance is currently paying billions in claims, and we have potentially already pre-funded hundreds of billions more. However, our lackluster market penetration simply reflects our approach to the sale. It is also true that when you isolate and aggregate all “chronic illness” sales data for the more affluent, our market penetration record is much brighter. Unfortunately we continue to react to the symptoms of the problem instead of doing the hard work necessary to accomplish our goals. In our hearts we know LTCI has always been riddled with blatant or suspected adverse selection. Even when the primary motivation to buy is a family experience with caregiving and not a hidden health issue, there is most likely a clear premonition that they may be next. The corollary reality is that those who most actively seek protection have helped define an industry-wide negative self-fulfilling prophecy of early and lengthy claims, excessive persistency, poor placement ratios and flat sales.

Everyone knows this! Why do we continue to hesitate to take action?

While we are at it, perhaps a short litany of universal truths is in order:

 • Medicaid must find its own truth. Eventually settling for its original intent. That and no more.

 • Medicare is already chomping at the bit to cover more home health care. Publicly mandated payroll deduction strategies to pay for it is the most likely scenario going forward.

 • Combo policies are not a panacea—only a supplemental solution tool. The shortest distance between the risk and the claim remains stand-alone LTCI.

 • Asset-based policies should only involve discretionary dollars.

 • If there is a need for life insurance, adding a chronic illness/long term care rider makes perfect sense.

 • Combo annuities will, in my humble opinion, ultimately be the lowest net cost cork that floats to the surface.

 • There is still great potential for a 1035 firestorm, and I am seeing signs of brush fires off in the distance.

 • We know you can wake any good disability income agent up in the middle of the night and they will tell you in no uncertain terms that DI must be sold. Not to shock anyone, but LTCI is a kissing cousin to DI.

 • LTCI must be sold for exactly the same reasons: It’s cheaper when sold earlier. Putting insurability in place before health turns corners and it’s too late is critical. The need is real. The risk is real. Premium is always cheaper than claims.

 • And the bottom line is that when you “make the sale” (not just take an order), the client and his family will always be grateful, and you will have satisfied your professional fiduciary responsibilities. If you don’t want to do it personally, then work with a specialist who can help you protect your own book of business.

The remaining LTCI companies need to rededicate themselves to selling, sooner rather than later. Younger, healthier clients are more than just good business—it’s our survival.

It also must be said: The entire insurance industry—all disciplines included—needs to get up off its dusty recalcitrant posterior and, in their own best interest, try to be helpful. In particular, life and health companies must stop waiting for someone else to solve the problem that can adversely affect all insurance transactions and help us focus on one straightforward theme. LTCI must be moved from the back of the line to the front—as a prerequisite conversation for all those other important insurance decisions.

Our redemptive slogan must be chiseled across the foreheads of our nation’s most progressive leaders at Mt. Rushmore: SELL LTCI FIRST!!

Other than that I have no opinions on the subject.

I’m not sure where to begin this subject.  I know it has something to do with bad apples and rotten barrels. I know it seems to remain the most serious and perpetually frustrating part of my day. I know I simply have to locate and remove the bad apples which continue to threaten the normal harmony and peaceful flow of apple-cations through our offices. Unfortunately, the bad apples remain elusive and, for the most part, very hard to properly identify so one can take appropriate remedial action.

We seem to have entered a new and precarious era of placement ratios distress. I recognize that we can now count the available storage barrels for LTCI apples on fingers alone, no toes. And I know growing claims and the persistent noise of onerous rate actions haunt the corners of our minds. Underwriting is tough and becoming rigid and impenetrable.

I understand that with LTCI we cannot buy claims and that the coin of the realm to purchase protection is the client’s good health. As we enter each conversation about the importance and common sense of LTCI ownership, we must be extremely wary. I have heard it whispered that all LTCI sales are riddled with adverse selection worms. That every potential apple—and particularly those who have come looking for you—does so because they know something you do not about their health, finances or family history. Except among the vanishing cadre of LTCI specialists, the average number of LTCI sales per agent is very small and, frankly, most were taken away from the broker, not solicited as new sales. In other words, the client who has asked about buying a policy is probably the absolute worst place to begin this process.

There is nothing easy or efficient about getting these policies in place.

The relationship between those submitted and those actually placed has always been tenuous by its very nature. For a very long time a 70 percent placement rate was adequate. Those who didn’t make the cut were usually composed of about 15 or 20 percent declines, 7 or 8 percent not taken, and 7 or 8 percent withdrawn. If these basic tolerances were exceeded, we knew exactly where to look for brown spots on our apples. Either that apple was already bruised and in bad health with a predisposition to spoil, or someone did not adequately complete all the paperwork, certifications and signatures required for safe apple storage. Then, of course, there are always those who have changed their minds about purchase after the process has begun. As we know, three-fourths of apple submissions come in pairs­—committed couples and cohabiters proud of their relationship to each other and unwilling to accept a process that does not guarantee that both will be accepted. In other words, when one applicant is not healthy enough to complete the process the other all too frequently adopts the brilliant strategy that therefore no one should have the privilege of safe storage.

To put it another way, it has always pressed down to be either poor health, poor paperwork or poor choices! The companies involved in this horticultural business have recently modified their tolerances, with 60 percent placement versus submissions as the new minimum standard. Frankly, even with the lowered expectations of success, many of us are still struggling. There may be some clues as to the source of the problem. In no particular order of significance:

 • Most applications come from agencies in which LTCI is a corollary line of business. Life and annuity applications are handled differently, with incomplete applications and the possibility of negotiating the underwriting outcome as a routine business model. With LTCI you cannot throw applesauce against the wall. It will not stick.

 • It is mandatory to reduce expectations. Preferred, unblemished, prize-winning apples are very rare. Please stop quoting like they can be found easily on the ground.

 • Field underwriting is critical. We do not even encourage running proposals until the broker has at least prescreened the risk. What good is accomplished in the sales process if you don’t even know yet if apples are available? An abbreviated medical questionnaire is actually a required component of our proposal request form. We need height and weight, tobacco use, prescription medications, and any major health issues or pending surgeries at the very least. We make prescreen calls to underwriting helplines when there is any doubt at all about outcome—which is almost every time.

 • Medical questions have even been removed from some applications in anticipation of a more thorough paramed exam. If the application does not ask the questions, you must. A bad paramed is not a happy outcome for anyone.

 • Prepare prospects for exams and phone interviews. Warn them that the underwriting procedure is thorough and somewhat intrusive. Problems past and potentially future will not remain hidden.

There are also some nebulous underlying concerns that may also be influencing profitable production. Somewhere between 35 and 40 percent of those who wish to buy will simply not be able to complete the transaction. Massive anticipated rejections may be creating their own self-fulfilling prophecy. Market distractions in the acquisition of health insurance and a seemingly perpetual flat economy also have to represent a contributing factor to sales growth. The company exodus from the market is also not building faith in our line of business. Excessive underwriting based on perceived potential claims paranoia is also obviously not helpful.

However, the coolest thing about apples is that if you inspect them carefully, certify their soundness, submit complete paperwork and store properly, they have an extremely long shelf life.

Other than that I have no opinion on the subject.