Ronald R. Hagelman

The research used as a baseline for this month’s column was derived from a series of papers presented at last fall’s SOA Conference on long term care and retirement concerns—this month the excellent work of Vickie Bajtelsmit and Anna Rappaport, “The Impact of Long Term Care on Retirement Wealth Needs.” The color commentary, extrapolations and sheer speculation are, as usual, the sole responsibility of this columnist.

Insurance is all about planning ahead. The long term care insurance (LTCI) risk conundrum is about the result of not planning at all. Is LTCI planning merely a tangential component of a larger and more comprehensive retirement readiness evaluation? Should it be tied to the overall and somewhat nebulous “health” planning exercise? Should it be first or last in the planning process? What are the critical issues indigenous to long term care risk planning? And what are the fiduciary responsibilities of professional insurance agents in the long term care planning process? Unfortunately, these outstanding, crucial questions are still blowing in the wind.

The truth is painfully obvious: There are currently insufficient, disjointed and random approaches to trying to understand the who, what, where and how of long term care planning needs. My layman’s understanding of a stochastic approach in insurance is that it takes into account the magnitude of the moving parts and the fact that there may be many random outcomes in the given risk equation. Trying to understand what may be the most likely outcome is the challenge. In other words, it is hard to take aim at strategic planning issues when the target is composed of multiple spinning wheels.

The ultimate success of anyone’s retirement plan is subject to the positive aspects of self-discipline and commitment to the cause. It is, of course, also vulnerable to uncontrollable adversities such as rampant inflation, the mixed blessing of unanticipated longevity, poor investment performance, and health and long term care expense. We are intimately concerned with only one question: Will you have the funds available when the time comes, if it comes at all, to pay for care, and what impact will that have on your desired lifestyle in retirement?

The reality is that those with greater assets and income at retirement may be better prepared, acknowledging that insurance may increase cost before retirement but can substantially reduce risk exposure later in life. Even the wealthy who choose not to purchase LTCI, however, will not escape unscathed from the emotional and financial firestorm created by an extended need for care. There will always be some cost, at least in terms of reduced planned estate disbursements or discounted charitable objectives. The great failure of our industry is that it has simply been unable to protect those who are most vulnerable to the problem: low and middle income households.

Models designed to simulate the financial impact of an adverse event are, again, subject to the whims of a variable economy, duration of the claim, and available family support. It is also important to recognize the nature of the risk itself. Most claims will be small and manageable, but a significant number will be very large—which means it is impossible to use averages when evaluating risk. As an example, the average risk may be three to four years, but that number does little to help plan or understand the real extent of the potential financial impact.

The bottom line, however, is that the research does strongly suggest that “middle income households could benefit the most from LTCI, provided the premium costs do not adversely impact wealth accumulation.” Caregiving in America—including caregiver shortages, lost wages and erosion of retirement benefits—shall remain the primary motivation for government reform, product innovation and insurance sales. A recent phone survey estimated that as many as 50 percent of Americans are already involved in caregiving. Aggregate lifetime costs to caregivers are in excess of $3 trillion. According to recent analysis from the Kaiser Family Foundation, America’s caregivers are 58 percent female, 66 percent above age 50, with 38 percent caring for a parent and 44 percent providing care for three or more years. It is specifically the collateral damage to all those family members and friends that will continue to keep the long term care problem in the direct path of progress for the government and the insurance industry.

Currently the bottom line is that for wealthier Americans after retirement who are “lucky” enough not to experience any unexpected financial setbacks, they may be able to withstand a health or long term care shock claim. For just about everyone else, being completely unprepared is a formula for pure disaster. Related retirement research also indicated that the best approach to being better prepared may be a combination of reducing retirement expenses, downsizing housing and purchasing insurance.

The catastrophic risk may be relatively small, but its possibility is absolutely certain. There is no escape, no reprieve, no pardons and no excuses for all concerned. 

Other than that I have no opinion on the subject.

Create the understanding of the problem or locate the existing need and provide a solution. We got it. The only variable in the sales process is how much commitment you have built in to solve how much of the problem. The only meaningful demarcation is between those who understand they need to do something and those who continue to place their faith in divine intervention and or government largesse.

 The truth about long term care is painfully obvious. For the majority of Americans the claim is of a short duration and financially manageable. However, for a substantial double-digit number, it can be a financial and emotional debacle. There have always been two sales. The first and most popular approach which, by the way, we have done a fairly good job of addressing, is to measure the potential size of the entire financial exposure and then buy a policy to cover the risk. I personally loaded the boat (lifetime benefits, 5 percent compound inflation, 100 percent indemnity and 10 pay) when I bought my policy because the catastrophic risk was my primary concern. I lost my wife two years ago. She also had a paid-up policy just like mine. Forgive me for clarifying the obvious—the money for her policy is gone, but so is the risk! For those who can afford to, leveraging this risk directly by paying for as much protection as their budget will allow shall remain the absolute best solution.

 The second sale is, in many ways, even more important. It addresses an even more important principal. It’s not just that some insurance is better than no insurance, it’s that so little insurance can make such a huge difference in someone’s life. At the point of claim, all available dollars will be put on the table to solve the problem. As little as $50 a day added to Social Security and even a little savings, home equity or personal retirement benefit can guarantee the private pay status of an individual. Providing control of the quality of life issues should be at the beginning of any plan for custodial care. I saw some recent academic research suggesting that maybe it was just best and cheaper to simply streamline your admission into the Medicaid welfare system. Frankly, a sterile academic environment may be the wrong place to evaluate this problem. I can’t help wishing that those good folks could share the privilege of spending a month in a semi-private ward of one of those wonderful Medicaid warehouses that the middle class should just resign themselves to patronizing.

 Now let’s see if we can connect some dots. The group/association/multi-life LTCI market is on life support. The only place to deliver relief and control of the claim process is at the worksite. Supplemental coverage is a valid and critical choice. Short term care policies, whether sold on an individual or group basis, represent an exceptional opportunity to change the destiny of all who purchase coverage. These policies provide benefits similar to long term care, nursing home, assisted living facility and home health care, and they fly just under the regulatory radar with benefit periods just short of 365 days—the minimum benefit for a tax-qualified LTCI policy. These policies are often described as a “recovery benefit”—they can fill in the gaps created by longer elimination periods and buy time for the family to get a better and more permanent plan in place. Perhaps most important, they can represent an affordable “add on” to existing funds for care, making the difference in maintaining the freedom of private care with private choices. Although these policies may have some limitations, they may also provide freedom of choice at very reasonable rates.

 There are, of course, other concerns when taking these options to the worksite. Underwriting may remain an obstacle. Two sales are harder to explain quickly than one. Long term care certification muddies the water. There is, however, growing consumer resistance to “use it or lose it” premiums and the continuing uncertainty of potential premium increases from pure health insurance.

 The answer is right in front of us. There may be a Technicolor solution just over the rainbow. One with which we are intimately familiar, and with a long and personal relationship in which we are readily available to provide experienced guidance. Currently almost one-third of all stand-alone life insurance has some form of accelerated death benefit attached. Combo products available at the worksite addressing two needs are beginning to appear and gain traction. Life and health LTCI riders, alone or in combination, attached to UL or whole life, can create a transforming sales opportunity. Creating a worksite combo product with potentially guaranteed premiums, the certain knowledge that someone will always get paid, underwriting that is diminished or eliminated, and premiums that are dramatically reduced is in my humble opinion the best formula for success I’ve seen in some time.

 Other than that I have no opinion on the subject.

I have just returned from the National Society of Actuaries Conference in Orlando. I did not see Mickey. But I certainly feel like I learned a lot. The surprising theme was that this is the absolute best time to be in LTCI. To many who read this column, we probably couldn’t be any more in it than we are now—and furthermore we are not going anywhere. We already know the bottom line: Inevitable demographics and a sure and certain knowledge that private insurance shall remain a key ingredient of our solving the LTCI conundrum keeps us staggering forward.

Let’s begin with a reality check. The stand-alone LTCI business is flat. But one-half a billion dollars of new sales does continue to take place every year. There are five to six million individual policyholders and two to three million group policyholders. I would also be remiss if I did not comment that these folks may be among the smartest purchasers of one of the greatest insurance bargains of all time. The cost of care continues to rise, now at an average of $81,030 annually for a semiprivate room in a nursing home.

The planning process is critical. This is exactly where insurance professionals should appear and take center stage. It was also pointed out that our industry’s reputation may be a planning issue of its own. The public is not unaware of higher premiums and frequent rate increases taking place in an atmosphere of fewer benefits, products and companies. Product complexity and restrictive underwriting continue to represent serious obstacles to growth. What is most important to policyholders is the value of the purchase itself, the stability of the product being purchased, and how the purchase contributes to future financial stability.

Rate increases will continue to be a problem for all concerned. The National Association of Insurance Commissioners (NAIC) has recommended new guidelines requiring annual corporate reporting each May on the health of LTCI blocks. Loss ratios were built at 60 percent but are trending toward 80 percent. For the most part, companies may have given up on profitability and are now aiming only at sustainability. Rate increases on old in-force and new premiums have become a serious impediment to progress. It was pointed out that the real reason for rate increases is approximately two-thirds lapse assumption and one-third mortality. It is not investments, morbidity or expenses. Current and highly visible claim reserve adjustments are not based on incidence, but duration. Longevity is a problem. Insurance commissioners are keenly aware of the problems caused for consumers when faced with substantial rate increases. A new NAIC Model Bulletin now mandates “landing zones,” where consumers may take reduced benefits and maintain current premium levels. This can be primarily accomplished by accepting a reduced compound inflation option.

Reform is in the air! It is expected that at least a bipartisan attempt at reform of Medicaid is very likely. It is also, therefore, possible that allowing some access to existing individual qualified dollars is a distinct possibility. The primary argument being that freeing monies and therefore reducing government income from IRAs and 401(k)s

could be offset by savings to  Medicaid. There will not be any new CLASS Act look-alikes. However, we need to keep an eye on the Bipartisan Policy Center report on long term care and retirement savings, due out by year end, and the scheduled 2015 White House Conference on Aging.

In the meantime, product development will continue with more short term options (both individual and group), reduced streamlined benefits, catastrophic coverages, 1035 programs, and many more life/annuity hybrids.

The problem that will not go away still stands before us, somehow remaining smug in its self-certainty that we have only dented its defenses. What it does not understand is that we are now more experienced, better equipped, better prepared and better trained. We have a growing arsenal of product alternatives and risk leveraging strategies. We will not stop until we have accomplished what we know how to do best, and that is exactly why now is the absolute best time to be in the LTCI business.

Other than that I have no opinion on the subject.

Perhaps we just don’t like to dance. Far too many have remained casual observers. A reluctance to participate has kept the vast majority of consumers and agents glued to their chairs. They know that the dance of life requires mandatory attendance. They acknowledge that the music is compelling and that none of us is completely devoid of some sense of rhythm. The majority of Americans and their insurance professionals remain all dressed up and waiting to be asked to dance. We intrinsically know there is no escape from the dance and the importance of taking part in the festivities, yet we continue to appear to lack the confidence or the perceived popularity to stand up and take our proper place on the dance floor.

There are signs that this may be changing. If you look carefully at the wallflowers assembled at the periphery, you will begin to notice some toes tapping and the subtle beginnings of animation and intent. The music is loud and compelling. We publicly spend well over $100 billion annually, with unpaid caregivers contributing another $450 billion. There is universal agreement that remaining motionless in the face of compelling evidence to take action will be catastrophic. The number needing care is expected to explode from 12 million today to 27 million by the year 2050. Complacency on the dance floor is no longer available. The Congressional Budget Office projects that total spending from all public and private sources will mushroom from 1.3 percent of GDP in 2010 to 3 percent in 2050. There is no choice but to restrain public spending and increase our dependence on private solutions. This understanding and recognition of reality is currently taking hold in several other developed nations around the globe. It is no longer a question of who will lead—public or private financing. It is much more important that we begin to work out how we can dance together and not step on each other’s toes. No one in his right mind would suggest that our current attempt at synchronized dancing is working on any level.

We remain desperately in need of reform both public and private. The potential cost in terms of lost productivity as family and friends step in to fill the void jeopardizes the future of all Americans. We are simply not ready. Only one-third of all Americans are financially prepared for retirement. We must change course now or stop and prepare for the inevitable devastation that will be caused by the emotional and financial firestorm at our doorsteps.

Inevitably your ability to dance is fueled by the clothes you wore to the prom. As income increases, so does the acquisition of private insurance. There have always been two markets. Those with substantial assets to protect, and those with sufficient assets and income to remain teetering on the edge of maintaining control of their own claim or being exposed to the possibility of becoming just another ward of the state. The truth continues to remain maddeningly unavailable for viewing. Most continue to believe that someone else will pay. However, the central truth will always remain: “If you can afford to pay, you must pay!”

As you might suspect, we will never be asked properly, except perhaps in a tangential manner, what should constitute meaningful governmental reform. Just know that at its conceptual core there will be a flight from expensive institutional settings to more care at home, and that in the process, cost will shift in the same direction. Know also that the cost of protecting the middle class will be funded at the worksite and that some form of additional social insurance is inevitable. There remains, however, a clear recognition of the continuing importance of private insurance as evidenced recently by statements reinforcing the necessity of private solutions by the Federal Commission, the SOA “Land This Plane” research, and the new retirement initiative from the BiPartisan Policy Center on “America’s Long Term Care Crisis: Challenges in Financing and Delivery.” They each confirm a need for a strong and concerted effort from private insurance to continue to help meet the growing crisis.

The important question is: What can we do to encourage increased activity and more spirited dancing? There are growing signs of reanimation. Current estimates are that 30 percent of all the life insurance policies sold have some form of accelerated benefits attached, at least contributing to meeting anticipated expenses. Anecdotal evidence also suggests that reinsurance in this area is strengthening as demand for combo products increases. The sweet music of reform is in the air. The NAIC is reviewing greater flexibility in our product offering. Product innovation is picking up the beat. New ideas to both limit and share risk are again receiving careful evaluation by companies and reinsurers. Universal LTCI certification is becoming a near term certainty, meaning the chairs occupied by wallflowers are being removed slowly but surely from the dance floor. You may be able to stand and gawk at the assembled dancers for a little longer, but you will not be able to sit comfortably and watch from the sideline. Many more combo solutions are continuing to find space on the dance charts. In order to get everyone on the dance floor we must continue to improve the risk solutions available and their delivery in both the public and private marketplace.

   There may be trouble ahead

 But while there’s moonlight and music

 And love and romance

 Let’s face the music and dance.

 Before the fiddlers have fled

 Before they ask us to pay the bill

 And while we still have a chance

 Let’s face the music and dance.

Lyrics by Nat King Cole

 And other than that I have no opinion on the subject.

The frustration inherent in the title is not the point. Surveys continue to point out the obvious: As far as the future of the LTCI industry is concerned, familiarity with the pain and stress of caregiving in America remains the most reliable motivation to buy. The most recent U.S. census information confirms the inexorable progression of an aging population with 13 percent of our population currently over 65, rising to 20 percent by the year 2030. Institutional care has never been the answer. Nursing home populations have decreased by 20 percent since the year 2000. Although the growth of assisted living alternatives has been noticeable, seniors would of course rather receive care at home if at all possible. A report just released by the U.S. Census Bureau, “65+ in the U.S. 2010,” confirms what we already suspected: “90 percent of people older than 50 express the preference to be cared for in their own home.” The problem of course is who will provide that care. In another recent poll, 75 percent of seniors reported they could only identify two people who might help them when the time came that they needed care.

Finding care may be the single largest problem we all will face when the need for care arises. The fact is that roughly 70 percent of all informal care comes from relatives. This is, however, a vanishing resource. According to the new AARP study, “The Aging of the Baby Boom and the Growing Care Gap,” the ratio of potential family caregivers to high risk people in their eighties is falling rapidly. Although seven to one in 2010, it is expected to drop to four to one by 2023, and three to one in 2050. There is no alternative but to shift to more paid caregivers, which will dramatically increase the cost of future long term care. I think we can all agree that perhaps the hardest part of the sales conversation is explaining the real risk and convincing your prospect that, “Yes, this can happen to you!” Improper, misguided and inadequate planning remains our curse.

Although most buyers claim that protecting assets is their primary motivation for acquiring coverage, the purchase of LTCI is never just about the money. Just as a long term care event is never just about the person needing care—it is about all those family members willing to respond to the problem, which can severely impact their own finances and their careers (including their own health issues aggravated by the stress of caregiving). The bottom line is that attempting to plan for long term care is not simply a financial decision. There are more important questions concerning who will provide your care, in what setting will it take place, to what extent do you plan to involve family members, and from exactly where will the money arrive? Please recognize that it is immediate family, those for whom the insured cares the most, who will bear the burden of care. Eighty percent of the time, informal caregivers are the most immediate family, including spouses, daughters, daughters-in-law, and sons-in-law. Caregiving, especially from spouses, may represent a substantial threat to the caregiver’s health, accelerating their own need for long term care. Usually there is a progression of care from part time assistance to full time maintenance, and as we know, as the need for care increases, the importance of freedom of choice and the quality of that care also increases.

A strong recommendation is to include your anticipated plan for care and available funding dedicated to that purpose in a separate “Care Agreement.” Too often families find themselves thrust into a care event for which no one was prepared. It is estimated that one-quarter of all Americans are currently receiving care. For 10 years this column has attempted to explore why what may represent America’s largest underinsured, under-planned and under-

prepared risk remains at the end of the planning conversation instead of at its heart. Too many on both sides of the sale continue to ignore the obvious at their own peril. By not making the risk a required universal recognition and featuring its resolution as a centerpiece of everyone’s planning practice, we unnecessarily jeopardize consumer confidence, agent ethics and company relevance.

Other than that I have no opinion on the subject.

We are all, of course, guilty of succumbing to the temptation of embracing easy answers. However, sometimes it seems our chosen profession may have a particular affinity for simplification excess.

This is evidenced by a statement I heard recently from the committee examining the wide and growing world of combo products. “Hybrid, linked and combo products are the fastest growing segment of both life and long term care insurance.” When you add asset-based long term care sales, we have a several billion dollar industry, with stand-alone LTCI sales accounting for only about $500 million. The interesting question is: How much of the current life production is written with some form of chronic illness benefit? The current guess is approximately one-third. This number will continue to grow as more companies move aggressively to provide some form of living benefit. I suspect that worksite alternatives will also increase, adding fuel to the fire.

Our industry is often slow to react, but a clear threat to a company’s competitive position does eventually drive real change. Unfortunately these riders are being produced across a very wide spectrum of quality and intent. I am very concerned that many people may not clearly understand what was sold or automatically included in their life policies. I am even more concerned that consumers do not clearly understand what they bought. I am having dreams of a future plethora of E&O debacles.

Any leveraging of risk is preferable to ignoring the problem. It is also very helpful that we have so many more choices. As the long term care provisions of the Pension Protection Act approached, I gave many speeches about the upcoming advantages of our new three-legged milking stool with stand-alone LTCI as well as life and annuities with LTCI. As this market continues to evolve, it is starting to look more like an untrainable and ill-tempered octopus.

Here are a few of the rhetorical questions that come to mind:

 • How can you sell the perception of long term care protection and not be trained or certified to have that conversation?

 • If the sales opportunity arises as a question about long term care risk, doesn’t that automatically defeat the purpose of the combo sale? Remember, more than 80 percent of LTCI sales originated with the consumer, not the agent.

 • How do you offer a “no current cost” benefit when you can’t even tell the consumer with any confidence what it will cost them if they use it for care?

 • If you offer a benefit, do you not have a responsibility to at least offer the lowest net cost to pay for the risk?

 • Premium deductibility?

 • Did you evaluate 1035 opportunities first?

 • How do you explain the sale of life insurance where there may not be a need for additional life insurance, or the loss of annuity savings when they are needed for income?

 • Did you clearly explain that IRC Section 101(g) “life riders” requires a permanent, nonrecoverable disability threshold for benefits?

 • Where do you place the “planning”? Is this a health or estate or asset management planning process?

The perceived ability to conveniently address more than one need for protection with one sale has always been attractive. The current popularity of this approach as it relates to LTCI, however, requires an understanding that the temptation of easy answers must be resisted. There is no one right answer—each situation is unique. Begin as usual with a careful review of what is already in place. What could be exchanged, and at what cost? How best do you enhance long term care protection, and what is the net cost of those recommended options? We have not simply stumbled onto a new and miraculous panacea for the long term care risk conundrum. We have not found an easy answer or an easy way out. The truth is complicated and requires training in all the available solutions. The best answer may actually require a little of this and a little of that. Learn to mix and match with confidence and enthusiasm and give up the quest for that “easy” red button.

Other than that I have no opinion on the subject.

August 2014

The Last Word On LTCI…

We Are Not Alone

Ronald R. Hagelman, Jr.

We are indeed not alone. Our long term care support and services problem is not unique to our culture and political climate. Being unaware, uncommitted and unprepared is not unique to America. A population aging rapidly but steadily living longer as the result of advances in medical technology is a global problem.

Japan has the greatest proportion of age 65-plus—in 2010, 23 percent. The projected rate among six countries—France, Germany, Japan, the Netherlands, United States and United Kingdom—showed a range from 13 percent to 23 percent, projected to be 21 percent to 40 percent by 2050. The 85-plus age group in these six countries, as high as 8 percent of the population in 2010, projects to 12 percent in 2050. The problem is of course compounded by a steady decline in the younger age group of 15- to 64-year-olds, meaning fewer to provide care physically or financially.

Demographically, help and support is simply not on the way. The number of those dependent or potentially dependent on others is increasing, and those available to help is decreasing. The “dependency ratio,” defined as the ratio between those 65-plus compared to those 15 to 65, has been increasing steadily for all six countries beginning in 1960.

Adding to the demographic maelstrom are additional social considerations. For example: Marriage rates continue to decline and divorce rates are increasing. Funding for health care and long term care also takes place along a fairly wide perspective, with France and the Netherlands publicly funded; Japan at 86 percent, Germany at 71 percent, and the United States at 59 percent publicly funded; and the United Kingdom with funding slightly more private than public. The percentage of long term care expenditures compared to overall health cost also varies widely with a low of 7 percent in the United States to 28 percent in the Netherlands.

Perhaps a brief overview of the different approaches could help put our own circumstances in better perspective. The French model is a combination of government sponsored reserving strategies and reliance on family support. Sharing costs with families is an important component of the French long term care system. There has been rapid growth of private insurance. In 2007, only 1 percent owned a private policy, but that has increased rapidly to more than 15 percent today. Indemnity plans are the most common, with built-in inflation protection. In Germany there is a combination of compulsory social insurance using a health insurance structure. However, there is an active private market for higher wage earners. Private compulsory insurance may be chosen instead of the mandated ­employer-collected option. Social insurance costs are slightly more than 2 percent of income earnings. The private option is supported by a 50 percent contribution from employers.

Japan has very high life expectancies and low birth dates—the “perfect storm.” The dependency ratio has increased from 9 percent in 1960 to 35 percent in 2010. Family support for informal care is also reducing. Japan’s social insurance program began in 2000 and is compulsory for those over age 40. The system in the Netherlands is also very interesting. Over half of those receiving care did so in their own homes. A compulsory social insurance program is in place, costing 12.5 percent of earnings. Even at these high funding levels, coinsurance costs are so high that care is restricted for higher wage earners. A fully mandated social insurance program is not working, and the government is moving to shift costs back to the private sector. The market in the United Kingdom has been slow to develop, as there remains a perception that the government will provide. Much of the insurance market is addressed with prefunded immediate needs annuities. Current recommendations sound very familiar—“a new partnership between the individual and the state—one where individuals need to take reasonable and appropriate responsibility, but the state provides protection for those with greatest needs.”

The statistics provided above come from a report by the Institute and Faculty of Actuaries “Long-Term Care—A Review of Global Funding Models” March 10, 2014. The conclusions of that report require your careful consideration:

 • Shifting from a means tested model to more universal approaches is growing in popularity.

 • Long term care costs in nations with reforms in place have caused reduction in benefits.

 • Growing incidence of disability, evaporating family ties, and more two-worker households requires “progressive change to the roles of public and private resources and fosters more innovative approaches.”

 • Publicly funded programs need to consider more public/private partnerships and at the same time increase incentives for informal care.

 • Financial sustainability is the most important ingredient to success.

Indeed, we are not alone. However, it is specifically the creative and innovative nature of our culture which will sustain and protect us. Working together, public and private, each doing what they do best has always been our only path forward.

Other than that I have no opinion on the subject.

Traditional stand-alone LTCI sales are down although, interestingly, average premiums have remained level for several years. I suspect we have stumbled onto another LTCI “truth.” Perhaps it’s average consumer tolerance of expense that has leveled out at $2,300 annually. Every new survey confirms the obvious—the greatest obstacle to sales is cost. However, in today’s world of proliferating chronic illness riders, it’s not just a matter of cost but perhaps more importantly, “relative cost.”

Frankly, I have mixed emotions about the industry’s current rush to complete their rider portfolios. As was predicted many years ago in this column, ultimately all life companies have to include some form of accelerated death benefit rider/LTCI rider. It is just too easy to sell against a company without one. America’s actuarial firms are currently very busy completing riders for the carrier stragglers that have not yet put their risk abatement houses in order. The cry for “living benefits” is heard throughout the land. Everyone who is anyone will be able to proudly proclaim: “I’ve got one too!” In my mind there is really only one clear positive from the current furor. The recently aroused fiduciary dragon rising like “Smaug” from its slumber beneath a mountain of hoarded gold does now guarantee that ignoring the dragon will only take place at your own personal professional peril. The proverbial sleeping dragon has been permanently and irrevocably awakened and can never again be ignored or denigrated.

Now that we have disturbed and exposed the dragon to the light of day, the problem becomes how and by whom can the dragon be slain without breathing fire on an unsuspecting and unaware consumer. If insurance professionals are going to eliminate an ancient and potentially very dangerous foe, are they in any way prepared for combat? Frankly, I have never seen a more confused and woefully unprepared collection of dragon slayers. Most remain confused as to what weapons would be most effective to the task at hand. There is amazing disarray and inappropriate response to the concept of vanquishing dragons.

The ability to correctly identify your weapon of choice might be a good place to start. A “combo” product is any product that desires to vanquish two risks at the same time. Any two risks combining any stand-alone product attached to any additional risk rider would qualify. “Linked” products are those that specifically link life insurance to long term care insurance in the form of an IRC Section 7702(b) extension of benefits rider. “Hybrid” products refers to life or annuity products with a long term care benefit feature, either present valuing the death benefit or enhancing the annuity payments. When you cannot even properly identify your weapons it may be somewhat difficult to be successful in combat.

Let’s now assume you understand which sword to take to the engagement. What is it that most defines the purpose of the quest in the first place? If the dragon has two heads, life/annuity and long term care, which head should be vanquished first? If you do not even understand why you have polished your armor and sharpened your sword in the first place, failure is a distinct possibility. What has brought you to the darkened opening to the dragon’s lair? What is your purpose?

Let me make this absolutely crystal clear: There is no reason for you to be there at all—ever—unless you are there to slay a long term care dragon! This is not about life insurance or annuities. It should only be about cutting off the head of the long term care risk. And somewhere along the journey to the mouth of that cave you must ask yourself, “What will this cost?” Yes, combo intent can potentially solve two problems. However, if used for its purpose, the other element is simply no longer available. In other words, if you kill the correct dragon, other distractions are wasteful and, frankly, superfluous. What must always remain the focus of your sacred quest is to vanquish the dragon with the least waste of effort or expense. What is the most cost-effective method of slaying dragons? As with any insurance risk the shortest distance between two points is always best. I want to drive my sword directly into the heart of the beast.

Other than that I have no opinion on the subject.

Complaining about the obvious is rarely helpful. However, no matter how you hold last year’s production up to the light it is not a pretty picture. The concern, of course, is the residue of attempting to secure coverage, the aftermath of the collision with home office processing, and determining what constitutes the new normal for submitting and hopefully issuing business going forward.

An inventory of the new realities of policy submission and issue may be the best place to start. Applications already the most extensive in our industry seem to have gotten longer, with new, additional forms attached and more signatures required. Cognitive screening is now required at younger ages. Parameds and lab work are required on the majority of all new individual cases. Regular periodic attendance at your physician is almost a new prerequisite to buy. Simplified issue, when available, is really only a marginally shortened part 2. Fewer carriers and cyclical fire sales have strained service issues with all the companies. I would venture a guess that the number of days between submission and issue is the highest we have ever experienced. The truth about insurance companies is that the only structure where they have complete control is service. Poor service, even when created by events beyond corporate control, dramatically exacerbates sales problems everywhere else.

I am absolutely positive that placement ratios are at an all-time low industry wide. The connection between lagging service standards and consumer buying are painfully obvious. I recently heard an LTCI general agency explain to a prominent LTCI company that the most frequent conversation they have with agents begins with, “If they can’t issue policies, how can I expect them to pay claims when the time comes?”

Historically one out of three applications does not make it all the way to “in-force.” Traditionally about 15 percent are declined, and the balance split between withdrawn and not taken. It should not be unusual to suggest that very restrictive new underwriting with issue times at an all-time high have played hell with these numbers. There are, of course, issue and placement concerns that have always been a unique component of LTCI. This is a tough sale, and convincing a client to buy may have exhausted all available goodwill. In other words, many agents do not want to go back for additional underwriting information or forgotten signatures. Field underwriting takes on special meaning as well. After pressing to make the sale there is reluctance to press for information on all impairments as well as detailing all current medications. LTCI is also extremely price-sensitive. Taking an offer back other than applied for is difficult. Perhaps the biggest problem remains where a couple applies and one of them is declined. Regardless of how sincere your conversation is to explain cutting off your emotional nose to spite your financial face, it is often very difficult to keep the remaining policy on the books.

It is simply time to go back to the very beginning of this sale and start over. We must reset expectations or the new underwriting and pricing wear-and-tear will put us all in padded cells. Why not begin by emphasizing the obvious! This is a very important sale! It is critical that we as an industry work very hard together to make every effort to protect the proposed insureds and their families. These are not easy policies to obtain, and premiums are not cheap. There is a reason—the risk is real and substantial and potentially devastating. We must work to gain admission for our clients to an exclusive club—those who have achieved the privilege of transferring their risk burden to the insurance company.

This product is heavily underwritten. We must tell the whole truth and nothing but the truth about medical history and current medications. The company will not miss anything. If we don’t start out with the truth we will have no chance at all. The client may have to have a physical exam. He may have to give blood and urine. He may have to take a cognitive screening test, and he needs to be ready and prepared for that test. This is not easy, and if the company has to obtain medical records it may take some time—30 to 60 days is not unusual.

It is very important that we give this our best shot. If one of the joint proposed insureds is not accepted, the client needs to understand the increased importance of accepting the offered policy. If we cannot secure this coverage there are some other options we can explore. These are the longest and most extensive applications in insurance, and as we go through the underwriting and issue process, we may have to return with additional paperwork. Like many of the most important things in life, this is not easy, but it is so very, very important. This is exactly why it is necessary to begin immediately and be with the client every step of the way.

As LTCI sales specialists, we have all created our own private mantras. “The risk is real, the solution is obvious, premiums will continue to rise and underwriting will become even more restrictive.” And now we must add: Our customers should not enter into this process unaware that “the journey from application to policy may be arduous but necessary.”

Other than that I have no opinion on the subject.

My grandmother was from rural east Texas, with substantial Indian blood in her background. She taught me many things: tolerance and kindness to strangers, pride in my family, to look for the strength and intrinsic quality of character in others, as well as a passion for cooking and caring for others. Her speech of course reflected her humble and labor-intensive beginnings. I always knew exactly what was meant and what was implied.

One of her favorite constructs involved determining if by adding or subtracting components the new whatever-it-was would work. Did the parts actually fit, or for that matter even belong together? So, frequently the word “gozenta” would present itself in multiple contexts in her conversations. I knew she meant “goes into,” and I relished her choice of invented vocabulary. She also read signs and predicted the future in tea leaves.

We have before us another cautionary tale, one that deserves careful scrutiny. It involves what goes with what and to what extent. The question is large, increasingly complicated, very strategically important, and in many ways defines our future in long term care insurance sales.

There are few who would argue against the idea that we need to be price-sensitive and to customize benefits to fit the customer’s economic circumstance. For the last several years we have been selling less and less benefit, focusing on co-insurance strategies, trying to find benefit structures that reduce costs: shared care benefit reductions, alternate and sometimes innovative inflation benefits, longer elimination periods, and the beginnings of plans that actually pass risk onto the consumer. It’s actually all these new product choices as well as the old standby stand-alone solutions that are creating a serious benefit integration problem.

As we try to save money and more accurately evaluate benefit and risk, we run squarely into the question of what fits with what. How much should be base plan and how much buy-up? Can we layer or stack policies? Can I have some of this and some of that? Since we are insuring this risk at younger and younger ages, can I buy a starter policy now and add to my protection later as my assets and family grow? Is it “one and done,” or do these customers remain in your ticker file? Are they ever scheduled for subsequent risk evaluations?

I realize that most of you carefully read all specimen policy forms before you would represent a particular product. However, I would simply like to advise you to read very carefully two sections of the policy forms, assuming they are both present. First, determine if there is a “coordination of benefit” section, then read the “exclusions and limitations” section. The questions on your mind should be:

 • Can I sell more than one policy with this company? Will both policies pay?

 • Will this policy pay benefits if another company also pays benefits?

 • Does this policy coordinate with other coverages other than long term care? Accelerated death benefit riders? Combo life and annuities?

 • Are the only exclusions government entities—Medicare, Medicaid or disability SSI?

 • Do they coordinate on reimbursement and indemnity?

As the moving parts of our industry proliferate and creative solutions are found to cost-effectively leverage this risk, you must be cautious that you don’t set traps for yourself. The ability to stack, layer and build customized product and benefit solutions both within and between product lines is critical to our long term success. If you do not know exactly how it “gozenta,” you are lost before you begin.

Other than that I have no opinion on the subject.