Ronald R. Hagelman

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.

I love the blues. Complacency and inertia are not available when confronted with a driving beat, coupled to a soulful and experienced lament. Seems like everyone is tuned into the “combo blues.” The popularity of the combo blues is clearly self-evident by a recent off-the-cuff rough estimate that approximately 30 percent of all new life sales had some form of long term care or accelerated death benefit rider attached. The music of living benefits has arrived. However, I have never seen the degree of confusion and accidental misdirection as seems to be evident among those beginning to tap their feet to the new sales rhythm.

Hopefully we can begin with getting the nuances of the title distinctions within the new musical genre correct. “Combo” is simply any new financial instrument that performs more than one function or financial risk abatement. It could just as easily be disability income plus critical illness. If a product of that nature is not already out there, it is certainly on someone’s drawing board. There is still a lot of confusion out there. I suppose both hybrid or linked benefit products refer to some form of chronic illness benefit added to an annuity or life product. However, to make my own marketing and sales efforts less confusing in-house, we refer to hybrid products as those with a life/accelerated death benefit rider under IRC Section 101g, and linked refers to the addition of a true health/long term care benefit under IRC Section 7702B, and for God’s sake please check the fine print of the score so you know what music you are attempting to play before you begin.

I am always surprised how many times I need to respond to the question: “Which long term care risk solution alternative plays the least expensive melody?” Well, if you have to pay royalties on two songs instead of one, what would you guess? My favorite response has become: “Just think of stand-alone as term insurance.” This concept also helps when viewing the premium difference and answers consumers’ fears of wasting payments they may never get to use versus explaining the value of living benefits, where somebody always gets something. It’s an old song but still a goodie! I do understand the frequent lament concerning “use it or lose it.” I would simply remind folks that unused term premiums are the life blood of the life industry.

The message from the new sales music created from these products can be heard from all points on the life and annuity marketing compass. The beat is somewhat irresistible; someone always gets paid, underwriting is reduced or streamlined, product and premium outcomes are more predictable, return of premium is available, and the romance of “killing two birds with one stone” strikes a perceived chord of efficient harmony. Sales were already on the rise when the long term care provisions of the pension protection act went into effect in January 2010. Remember the core source of the new rhythm is that the internal cost of the long term care now takes place in a neutral tax environment, and the strength of the beat is reinforced by enhanced 1035 opportunities. Sales on average have increased 25 to 30 percent each year for almost 10 years.

As popular as this music has become, there are problems and concerns which should color your own decision to sing the Combo blues:

 • The lyrics of the sales song should follow a consistent line of reasoning, beginning with, “Is this a life theme or a long term care theme?” Presenting long term care in the form of life insurance or life insurance in the form of long term care is disharmonious at its origin. If there is a need for life insurance and you wish to expand the sales concept by adding a chronic illness long term care risk leveraging rider—that works. Or if there is a need for long term care and you need to fine tune the music by offering the advantages of a long term care asset based reasoning—that also works. Just remember that the blues is most cost effective when you have the shortest distance between the risk and the premium. In other words, the musical composition of the combo sale must originate with the true reason for the sale, otherwise leave well enough alone and sell stand-alone.

 • Do not forget the residual discordance that may be created by the tax deductibility of the premium. LTCI premiums can play that song, but life premiums cannot.

 • The special high notes available from partnership or state premium deductibility will also not be available for life sales.

 • There is greater personal pain if you choose the life refrains, as the client’s money will be used first. Whereas the tune may be sweeter when you select a health approach in which the client will be using the insurance company monies.

 • Do not get carried away in the heat of the sales song by promising too much. For example, I too often hear a verse that sounds like, “With asset based sales the client can always get his money back.” This is not exactly true. If an asset based policy is surrendered for cash, the client will receive a 1099 for the cumulative annual cost of the rider plus any gain. However, it could be 1035’d into another life policy with the rider cost reducing basis in the new life policy and no 1099 would be issued. In other words, as fun as these words may be to sing out loud, there is no free lunch.

Combo blues, combo blues

 All I want to hear is these combo blues

All night long, every other client or two

 Now take off those old jams

And let’s hear some combo blues, all right!

—Sung to the music of the 

Down Home Blues—Etta James

Other than that I have no opinion on the subject. 

How can we be in such deep water and not know we are drowning? The tide keeps rising and our own unwillingness to face the reality of the inexorable pull of caregiver gravity continues to defy reason. Recent numbers now identify 65.7 million Americans as family caregivers. This represents 29 percent of the population. The annual economic value of that caregiving is estimated at $450 billion, and the lifetime loss of income and assets for an average American caregiver is a whopping $303,800. In addition, since 7 in 10 caregivers are still working, this represents a loss to employers of $25 billion annually.

A recent consumer survey conducted by the Office of the Assistant Secretary for Planning and Evaluation/U.S. Department of Health and Human Services, “2014 Survey of Long-Term Care Awareness and Planning,” was evaluated at the recent ILTCI Conference. Past buyer surveys have indicated that the number one driving force for buyers is personal experience. The survey asked those in the 40-70 year age group if they or someone they knew had ever:

 • Required long term care—52.8 percent said yes.

 • Paid for in-home care for ADLs—31.3 percent had.

 • Been a resident in a nursing home or assisted living facility—44.2 percent said yes.

After all our hard work, how many even understood or were willing to acknowledge the real cost of the problem? Only 20 percent knew what a month of nursing home care costs. Only 15 percent knew the cost of an hour of home health care. Only 25 percent knew that Medicaid was the primary payer. Doesn’t it seem a little contradictory that those who reject the wisdom of insurance have no clue what that actually means to them financially? Interestingly, two-thirds knew that waiting to buy a policy increases the cost with age, and 41 percent knew that good health is required. Doesn’t it again seem strange that the very urgency created by potential changes in health and the certainty of higher costs does not seem to influence buying behavior? Perhaps even more disconcerting is the fact that consumers do seem to understand the true nature of the problem.

 • 78.9 percent are concerned about becoming poor and relying on Medicaid.

 • 90.6 percent are worried about losing their independence.

 • 82 percent are concerned about being able to afford quality care.

 • 83.3 percent are worried they will lose control/choice over long term care services and support (LTSS).

Consumers do not want to be a burden, yet they apparently want the potential problem to remain a secret. Only 16.8 percent have even discussed the role of family members in long term care with their spouse or family. I’m not sure we are talking about a pleasant surprise. The inconsistencies in thinking become progressively bizarre when you ask what actions they would be willing to take if they needed care.

Seventy-five percent said they would be perfectly happy to rely on spouse/family/friends for needed care, with 69.7 percent even willing to have family or friend move in with them. However, 48.5 percent were not willing to move in with their family, only 42.4 percent would use their home equity for care and, of course, only 28.6 percent would be willing to go to a nursing home. Doesn’t this strike you as perhaps a little inconsistent with such a strong desire to “not be a burden”?

The deeper you dive into consumer thinking the more disoriented you may become. The survey questioned what the prevailing attitudes are toward who is responsible for long term care, and 71.2 percent of consumers immediately responded that, “It is important to plan now for services in the future.” And 58.7 percent said it was the responsibility of individuals to finance their long term care. The corollary of this is also important, as only 37.1 percent believe it is the government’s responsibility to pay for long term care. However, as we would expect, only 11.5 percent of those surveyed own private insurance. The survey then asked about the subject of “trust.” As we try to find common cause and common ground with the public sector, these findings should at least give us some food for thought: 62.7 percent indicated the government should not tell us what to do about LTCI; 51.1 percent said they did not trust the government; and 32.3 percent said they did not trust private insurers.

In conclusion, the survey determined that consumers are concerned about becoming disabled and subsequently becoming dependent on others. Their understanding of LTSS is marginal at best, and yet they don’t seem to mind using free family care when available. They believe individuals should pay and not the government—as long as they are not the individuals in question. There was little support for public LTCI, yet they, of course, were not buying their own policies. The survey also went on to examine which factors involving benefits and costs were the most important. Benefit levels were important as long as they were cheap. And even though private insurance is best, they would accept a mandatory public plan if it came with big benefits and very low premiums.

Is it any wonder we remain frustrated? Consistent rational thought is simply not available for viewing. Maybe it just makes more sense to go ahead and leave us aging Americans outside the cave to freeze. That simple, yet perfectly effective, approach can’t be any more irrational than the clarity of direction and purpose reflected in this survey.

Other than that I have no opinion on the subject. 

I  have a titanium knee. I’m not complaining. It is certainly a dramatic improvement over my old knee, which was simply worn out and, frankly, aggravatingly dysfunctional. I remember the orthopedic surgeon telling me that I needed to trade up and join a new bionic future because my current motion reality was “bone on bone”—meaning the protective meniscus which I was born with was no longer available. Our industry suffers from the same affliction. There is no longer any margin of error or anticipated pricing lubrication. No more investment margin, no more margin of error for anticipated claims, no more slack in underwriting practices, no more obvious manipulation of benefit availability.

Is there anyone who wishes to argue with me about the reality of limited carrier options, the certainty of much higher premiums, a world of substantial benefit reductions, and underwriting practices tantamount to induction into the fraternity of Navy Seals? Our world has changed. We don’t exist in a vacuum. There was a crash in 2007-2008 and we got it on us. Bond rates are down, consumer confidence is down, and somehow Dow Jones is up. Recovery has been slow, interest rates have flat-lined with no resuscitation anywhere on the horizon. And it may be politically incorrect to recognize the obvious, but the ACA has sucked the oxygen out of far too many insurance protection rooms.

At the recent Intercompany Long Term Care Insurance Conference in Colorado Springs, those in attendance were treated to an analysis of recent history, an evaluation of the current state of the industry, and a predictive analysis of current rate stability. It is no secret that A.M. Best is not a fan of LTCI. We are all aware of a decreased market, with ongoing underwriting concerns, pricing confidence issues and benefit reductions. A.M. Best anticipates continuing rate increases on older blocks of premium. However, for companies with diversified lines of business, the outlook is “stable.” There is greater concern for monoline companies. There is some cautious optimism for new product offers.

It is, however, the initial data and not yet final research coming from the SOA that has attracted the most attention, currently titled “How stable are premiums on new blocks?”

Begin again with acknowledgment of the obvious:

 • Higher prices have contributed to more stable rates.

 • We have learned from our experience.

 • We do now have a lot of rate, sales and claims data.

 • New products are being built that are less risky by definition.

 • We have begun to develop an acquired skill in managing this risk.

 • Actuaries have better and more sophisticated modeling tools.

 • We have intentionally over-priced those benefits which we consider the most harmful, such as 5 percent compound and lifetime benefits.

 • We are doing a much better job of anticipating problems allowing for greater margins of adverse risk.

 • Gross premiums have risen dramatically.

We now live in a world of expanding product diversity, increasing premium stability, underwriting requirements that may have actually gone too far, rate increases primarily on older blocks, and a valiant core of dedicated LTCI carriers. For all the reasons that are painfully obvious to us all, now is the absolute best time to accept the reliability and sustainability of that metal knee. According to this preliminary research, in the year 2000 there was a 40 percent chance of a rate increase. However, in 2014 there was only a 12 percent chance of a possible rate increase.

According to the report:

“New business with stronger margins, better understanding of morbidity and rock-bottom lapse assumptions indicate a relatively low probability of a rate increase.”

And “If companies can achieve relatively moderate portfolio yields (e.g., 4.9 percent), there is a good chance companies will make satisfactory profits.”

All right, at this point we should all be very happy with what is obviously really good news. I’ll be honest—I liked my original knee better, but I have to admit the new one does work without all the pain. It’s better, I suppose, although somewhat different; but absolutely necessary after all.

Other than that I have no opinions on the subject. 

Many of us would probably admit that the inexorable advance of technology is sometimes simply overwhelming. It’s like that recurring dream where you are running but not distancing from what is inevitably gaining on you. Escaping the lack of future long term care planning strikes me as very similar. However, the truth is that the probability of at least a marginally adequate solution to America’s lack of long term care protection is excellent. This is true for no other reason than it is a problem of immense proportions that cannot solve itself. It sometimes seems we live in a time when many of the primary stakeholders traditionally assembled to deal with risk at this level have chosen to turn their backs on the problem. There is no current plan in motion to supplement or enhance current government funding levels. The burden of health care expense is falling more severely on all our citizens. More important, the suspicion that health care inflation knows no bounds is sucking much of the oxygen out of many other insurance conversations. Individual LTCI sales are still weak, and basic structural reform or innovation on any level seems to be experiencing a major drought. The industry appears to have folded itself into its own form of lethargic cocoon.

As your resident eternal optimist I must remind all concerned that even after a particularly brutal and bleak winter a new and exciting spring stands before us. Metamorphosis is defined as “a striking alteration in appearance, character or circumstance.” We have been seeing the signs for some time. Traditional LTCI sales have been down, but they did not disappear—they may have simply partially relocated. Combo sales coming from all directions in the planning process have provided one of the only signs of new life available for viewing in life and annuity sales. These options are expanding rapidly, both in form and substance. Innovative product response is emerging. Pricing concerns are being addressed. New co-insurance strategies are being made available.

None of this activity is random. It is a recalculated and recalibrated response. It is because we now have a serious body of evidence that helps us to better understand the real nature of the claim. Its cost, duration and location. We have accumulated substantial buyer and consumer analysis to better understand why, why not and what if.

We have not only come to understand and better appreciate the limitations of government and private industry. We may even have begun to understand where each can be most helpful. We both clearly recognize that private insurance remains the only meaningful defense against the depletion of federally mandated and state operated Medicaid. We have come to appreciate that there is not one grand solution but many approaches that can help to isolate and take down the problem—not only by a massive frontal attack on the risk but also by incremental and planned attrition. We have reviewed our own structural limitations and looked for creative ways to work around them.

One new product alternative deserves special mention. It’s a product concept that has been discussed for some time and was a key recommendation of the SOA”Land This Plane” survey released last year. Perhaps the two most significant restrictions present in traditional stand-alone LTCI pricing are  the inability to share either the unpredictable investment environment or the constantly evolving morbidity landscape with the policyholder. The underlying principal of flexible premium life insurance (universal life) is the ability to manage all the moving parts and adjust to fluctuations in circumstance while providing substantial consumer product transparency in the process. A new and potentially spectacular new specimen has recently emerged from a market seemingly in stasis. “Universal long term care” is a radical departure from business as usual. It is an exceptional opportunity to spotlight the inherent beauty of an old and yet very familiar sales alternative. I’m excited that a new and colorful product “butterfly” is loose upon the wind.

Other than that I have no opinion on the subject.

What keeps haunting all of us is our persistent inability to adequately ameliorate this risk. I’m not sure our industry has ever faced such a clear and present threat to all we hold most sacred—not only an institutional desire to preserve assets and income at retirement but a strong moral commitment to do all we can to improve the quality of care our customers will receive. Long term care risk so obviously cries out for an insurance solution yet continues to frustrate our sincerest efforts to be helpful. The LIMRA numbers for 2014 are of course disheartening for all of us who try so hard to convince agents, consumers and companies to be prepared for the inevitable.

My first plan after absorbing the reality of the production numbers is the same one I have every time I am staring at bad LTCI news. I always have a vision of “Boxer,” the horse in Animal Farm. His defiant voice rings in my ears: “I do not believe it. I would not have believed that such things could happen on our farm. It must be due to some fault in ourselves. The solution, as I see it, is to work harder. From now onwards I shall get up a full hour earlier in the mornings.” This time is different. Instead of once again examining my work ethic, I have had a blazing epiphany. I think we are all beating a dead horse. I believe that with a legendary single-minded focus, many of us have repeatedly re-enlisted to fight a battle that is already over. Is there really anyone who does not accept the sound planning strategy of utilizing insurance to leverage a known and potentially catastrophic risk? Our only job is to identify and then measure any financial threats to our clients and their families. We then isolate and insulate that weakness in their defenses and hopefully apply a liberal dose of insurance to seal the breach.

We just keep trying to fight the same battle with persistent diminishing results. Frankly this sale, and this somewhat stale rationalization process, has in some ways just worn out its welcome. It’s a permanent and entrenched part of our repertoire. We rapidly look at the cost of care, estimate the “average” duration of a potential claim, and then throw in as much inflation protection as possible—and abracadabra, our responsibilities are fulfilled and our fiduciary chores are successfully accomplished. This has been our single target and our chosen response, at least since HIPAA. Same target, same response…lackluster results. What did I miss?

We keep trying to improve our delivery accuracy with marginal success. We continue to rededicate ourselves to taking better aim at the same bullseye and then we live in fear of the next LIMRA report. Survey after survey confirms the obvious: if you have money you would, could and should buy a policy to cover the financial exposure. We all also live with ambivalent mixed emotions, every time we help put protection in place. We know that protecting assets and income at retirement is our primary mission, but we also know that what convinces people to buy is their own personal experience with the realities of an extended claim. This sale may be about replacing financial risk with insurance, but it is accomplished by an understanding (known or communicated) of the emotional burdens of dependence and caregiving.

Unfortunately, knowing this has not prevented us from attempting to improve the efficiency and trajectory of our aim. The industry was asked to simplify the product, and much good has been accomplished—both in terms of product structure and benefits to accomplish that goal. However, I am hard-pressed to find any direct evidence of substantial premium growth resulting from our efforts. In addition, innovations in benefit design, from “shared care” to step-rated inflation protection, appear to have met with similar success. We understand price matters, and recent consumer research confirms that even a small reduction in cost can dramatically open up the availability of potential sales. I’m just not sure that offering a stripped down, benefit discounted version changes the objective of the sale or will substantially alter results.

There also seems to be a myopic fairy tale working its way through the popular marketing culture that the benefits of the Pension Protection Act have somehow already solved all our problems. We’ll just magically paste the perception, and sometimes reality, of long term care benefits onto any financial instrument that moves. If the primary issue is pricing, forgive me for observing the obvious: Combo policies providing combo benefits generate combo pricing. And any newcomers to our target practice may have joined us only to be helping us shoot at the wrong target. There is absolutely nothing wrong with evaluating the financial risk and determining who wants to pay in the event of adverse circumstances. It’s just that we continue to have only one target focus to replace the risk as much as possible with insurance.

There is another target. One that in many ways is even more important. What if what we need to care about most is granting as many Americans as possible a safe, dignified, non-regimented and government-free “care receiving” experience. Our more affluent clients can and will continue to buy as much coverage as possible and transfer the risk. Co-insurance is for everyone! It’s just that it needs to be aimed at two targets: 1) a risk paying strategy between the insured and the insurance company, or 2) supplementing the cost of the risk by strengthening reserves to maintain personal control of the claim. The cost of defending freedom of choice and maintaining quality of care is clearly much less when your goal is to supplement, not prevent, the cost of the claim. Leaving this world at the mercy of a sterile government bureaucracy or in fear of inferior caregiving alternatives must never be an acceptable goal. The question that has not been properly targeted is not how much insurance is needed at a discount, but how little is needed to guarantee that the wrong “others” will not be making decisions for your customers.

Other than that I have no opinion on the subject.