Ronald R. Hagelman

How big? How small? How much? How little? In my mind these remain the greatest unanswered questions in LTCI. We have danced around short and fat versus long and thin benefit conversations since the beginning, yet these two philosophical approaches to the risk have very little to do with the real problem. What is most important is to back up and take a much harder look at what you are trying to accomplish.

We know that in essence there are two markets: the middle affluent and the middle mass, both with very different income and asset thresholds. The sales history of LTCI has been dominated by larger individual sales to those clients with more to protect.

Yet what many have missed is that the middle affluent has always had a much clearer choice. Theirs is an absolute and finite option to resolve the risk—a direct decision to replace the potential financial risk with insurance. Their co-insurance decision has always been flexible in terms of elimination periods, benefit size and duration—an absolute decision-making process in a definable universe.

As we have all said many times, you pay or insurance pays. We always knew these middle affluents would in all likelihood never be a part of any government-based solution. We knew that if faced with a sure and certain catastrophic risk potential, intelligent and caring consumers would choose to leverage with insurance.

This “either or” risk evaluation will remain the sales engine for the middle affluent market. The sale is about benefit size and duration—it is only a matter of degree governed by personal financial planning choices. We have actually been fairly successful with this sale; when age, income and education is isolated, double digit market penetration emerges. This band will continue to play harmoniously and march forward because it is about money—there is never any significant threat of government dependence.

Now we come to the hard part: the middle mass market. All of these good people may become vulnerable not just to financial difficulties but, more important, to the threat of losing control of their claims. The ability to make decisions about their own care can be lost by becoming indigent supplicants to governmental largesse.

Prior claims evaluation has given us some insight. Approximately half of all claims files are closed in a year, 70 percent in two years, and 90 percent or higher in five years. To put it all in perspective, if someone had set aside $100,000 in today’s dollars, that would have paid for about 70 percent of all claims that have ever existed.

Last fall I had the privilege of working with Amy Pahl of Milliman on a presentation (“The Future of LTCI”) to the Society of Actuaries Annual Conference. Amy examined the crucial claims utilization questions that are required to build adequate product options going forward. Data from 76,676 claims was analyzed. The question of “how much is enough” began with an examination of the industry’s success to date in matching benefit to risk (what was sold and how much was actually used).

Obviously the smaller the duration purchased, the greater the utilization. However, when you average benefit period utilization, only 40.1 percent of available claimant benefits and less than 25 percent of all purchased benefits was used by the majority of claimants. Only 14.1 percent of claimants maxed out their benefits. I know we are in the business of protecting against catastrophic risk; however, considering this information, a case can be made that we may have oversold benefits.

For a majority of Americans, the most important question must be: How much supplemental benefit do I need to maintain freedom of choice and control of my own claims destiny?

Since the vast majority of our citizens will have to put all their dollars on the table when the monster of extended custodial care rears its ugly head, the question needs to be: How much do I need to add to what I already have to remain solvent from a cost of care perspective?

Until we answer the question of size and purpose we cannot possibly accomplish our mission.

Yes, it is bigger than a bread box and smaller than an elephant. And yes, it’s about money and human dignity.

And yes…other than that I have no opinion on the subject! 

There has always been an abundance of optimism in this column. More importantly, there is a small army of dedicated LTC insurance enthusiasts who share the faith expressed.

We are right past, present and future to believe in our ultimate success.

 • Sales in 2012 have been solid.

 • Sales are steady across all established markets: affluent individuals, worksite multi-life and asset-based combo.

 • Chronic illness accelerated death benefit riders are proliferating on every carrier street corner.

 • Company defection and retreats appear to have abated.

 • Even rates have begun to stabilize.

 • Best of all, the prevailing winds from our nation’s capital are blowing in our direction for a change. The recent fiscal cliff legislation provided for the final and decisive death of the CLASS Act. A new 15-member committee was created to determine an alternate course forward. I can absolutely guarantee you that our collective views as to what is needed to move forward will at least be heard. Unfortunately, there continues to be concern in our ranks about the security of future sales activity. I am willing to make an iron clad promise that the insurance industry will never walk away from an expanding multi-billion dollar new premium resource when sales are clearly growing, pricing has stabilized and Washington, DC, has left the playing field for now.

We have all come to understand that LTC risk abatement does not take place in a vacuum. All insurance decisions are intimately related. This is particularly true of LTC insurance, which, in my humble opinion, shares DNA with all life and health markets.

The truth is that regardless of your politics, ultimately it is all only a matter of seating at the stadium. We all agree where to place the goal posts on either end of the field: There are those who have the ability and responsibility to pay for their care, and there are those who will need government help to subsidize their care. All that remains to be determined is where and under what circumstances do we draw the line for personal responsibility versus government dependence—hopefully somewhere near midfield.

There are many informed and opinionated voices in the wide world of LTC risk abrogation. We cannot now be drowned out by our own prejudices. Now is the time to close ranks around those most sacred principals from which our experience has indicated consensus. I have a vision of Martin Luther nailing his most fervent and sacred principals to the Health and Human Services’ front door! Here is my initial attempt at that list:

 • There will always be a place for supplemental private insurance. We can help.

 • All life and health agents must be committed to help.

 • Every American must clearly understand what it means to “go bare”!

 • Help those in need with quality of care rather than warehoused care.

 • There must be smaller, more flexible policies.

 • Regulation obstacles need to be removed.

 • Qualified dollars must be able to be accessed.

 • There must be greater cooperation and strategic planning with state and federal efforts. Recognize us for who we are: We are a complement and firewall to Medicaid.

 • A more flexible and economical Partnership Plan must be promoted.

The hard work and hardheadedness of so many passionate LTC insurance soldiers is paying off—at last. This is the corner we have been looking to turn. This is the first year in many we can say, “Full speed ahead! Business as usual! Pass the applications!”

Other than that, I have no opinions on the subject. 

Multi-Life LTC Insurance Sells Itself. To believe you will knock on a corporate door and convince them to buy this product illuminates the concept of false pride. The persuasive powers of even Dr. Phil could not create a conversion of spirit and intent unless there is already motivation for the sale. The truth about multi-life LTC insurance sales is revealed not created during the sales process.

The first hint about the true nature of the sale is that almost all multi-life sales originate at the worksite. Somewhere the need for protection has intruded into the normal atmosphere of benefit complacency. Perhaps someone in senior management has experienced firsthand the financial and emotional devastation commensurate with extended custodial care, or a consensus has developed among the rank and file that there is a major deficit in the existing benefit portfolio.

Multi-life sales are found, they are not made. Insurance solutions to existing known need are discovered and revealed as part of the inquiry process. The interest to understand LTC insurance alternatives is already in place. The knowledge that there is a potentially serious financial problem already exists. Even on those rare occasions when an agent actually asks an employer about LTC insurance, the predisposition to buy was pre-existing.

As I develop new cases, the first questions I ask have always been: Who started this conversation? Why are we talking about LTC insurance now? The source of the inquiry will define the success of the sale. Once the origin of the inquiry is located, the blueprint for a successful conclusion is already in hand. With the need firmly in place, you can roll up your sleeves and wade into the real sales process, determining and hopefully enhancing the commitment to solve the problem.

Start by visualizing the census as an Excel spreadsheet, particularly the occupation and income columns. The first conversation is always: Where will the employer draw the line of demarcation separating those for whom he cares the most? It may be only the owner and spouse. Hopefully, though, the level of concern will extend to additional employees such as vice presidents, managers, those with six-figure incomes, a certain number of years of service, or any other IRC Section 105 class distinction.

The initial carve-out decision is only the beginning, however; each and every time you must try to make a core benefit sale. At this point you must pull out all the tax benefits: premium deductibility, no payroll taxes and no W-2 income to employees—by definition, creating the cheapest pay raise ever provided.

Next you confirm your promise of discounted premiums and underwriting, as well as guaranteed portability, followed by your speech about providing incentive to employees to help them make the decision to protect themselves and their families.

Finally, you kindly suggest the obvious: The employers need to lead by example. If they do not visibly demonstrate that they care, how can they expect employees to do the right thing.

All of the above is how it’s supposed to progress. The carve-out and, hopefully, core buy-up sale is what we know works. Unfortunately there are a couple of serious impediments to the sale, one of which is apparently beyond anyone’s control and the other must be avoided like the plague.

A stagnant economy does not garner employer confidence that now is a good time to expand benefit offerings. This leads to the coward’s way out for employers and sometimes agents as well, unleashing the dreaded “voluntary” conversation.

Successful voluntary sales are very difficult to achieve. For there to be any prayer of success, several immutable iron-clad principles must be followed. At the very least, senior management, the owner or the board needs to buy a policy and then explain to their employees why they bought. Then the employer needs to provide blanket permission to communicate with all employees—preferably at home—at least three times.

An educational campaign is critical to providing essential information before any attempt at enrollment takes place. Employees must understand what LTC insurance is and is not; they must be given the opportunity to understand what the product means in their lives and how the math works, both in terms of inflation and premium. In other words, if employees are not given a chance to understand what it means to not buy a LTC insurance policy, the enrollment will fail.

Following all this, there must be a mandatory benefit discussion of at least 30 minutes to reiterate the above message and schedule individual meetings to customize the benefit selections and enroll spouses. Those individual meetings need to take place at work during working hours and separate from any other benefit enrollment.

LTC insurance requires a stand-alone education and participation process. I also try to require that nonparticipating employees sign and date a declination statement: “I opt out and decline to participate in my employer-sponsored offering of discounted LTC insurance premiums and reduced underwriting.” Anything short of these basic requirements in my experience does not work. Period.

Complying with the common sense ingredients of a successful voluntary enrollment is not the biggest obstacle to sales. The number one impediment to helping America’s employees protect themselves and their families is the dreaded human resources department. LTC insurance simply does not fit in their conceptual universe with other employee benefits.

My initial advice is to always go around, over or through the human resources “sales prevention” department. They will not and cannot understand the need to offer and sponsor LTC insurance (unless, of course, someone in the department has had a personal experience with caregiving). To begin with they most likely will never be included in any carve out that defines valuable employees. Thus, they would rather promote benefits like wellness care or pet insurance—products that everyone will get. They seemingly don’t understand any benefit that cannot be simply enrolled like all the other benefit offerings; thus, the enrollment process is considered intrusive and even minimal underwriting is perceived as a negative. In my experience, if someone in human resources is the primary benefit decision-maker, just walk away.

It has never been easy to assemble volunteers. Finding and encouraging good people to step up and take responsibility for their lives and the lives of others requires passion and insight.

Other than that I have no opinion on the subject. 

Let’s begin this month’s great reveal with a reminder of what we are doing and why. There is an astronomical caregiving debt that will come due for baby boomers, and everyone must understand that bill will be paid. As we know, some of it will be passed on to future generations through our ever-expanding system of government entitlements. But for those who can afford to pay or at least begin paying as private pay citizens, there is no escape from personal fiscal responsibility.

The money already exists to pay the bill, and the government knows exactly where those dollars are waiting. And, by the way, your entire career in the insurance business is related to the creation and protection of these same dollars. There is $6.7 trillion in home equity,1  $4.2 trillion in traditional IRA accounts,2 and $3.2 trillion in 401(k) plans.3 If you fail at your chosen profession these are the very dollars that will be exposed and sacrificed to bad planning.

First—believe it or not—pricing stability will return to this line of business. NAIC rate stabilization and very conservative pricing assumptions will remove turmoil from the market. New products are being priced with a .5 percent lapse rate and a 4 percent investment return over 50 years.

I believe obstinate regulators will have to compromise, oversold benefits will be curtailed, and sales will continue to climb. This industry will never walk away from $500 million of new individual LTC insurance premium or ignore the explosion of asset-based sales. According to LIMRA, combo LTC insurance sales were $1.2 billion in 2010 and $2.2 billion in 2011 and are still climbing rapidly, with average premium north of $130,000.

I also believe we need to re-examine the basic philosophy of the sale. It is not a process of elimination: your client, welfare or insurance. I have come to understand that indeed the “softer” issues are the most important: freedom, choice and dignity. I have come to understand that even the smallest amount of protection can make a dramatic difference in the nature of a claim. I believe what we are trying to accomplish is not just avoiding catastrophic financial loss but to do everything in our power to avoid catastrophic government dependence. I would even suggest we have oversold the risk.

In preparation for a recent presentation at the Society of Actuaries with Milliman’s Amy Pahl, I asked her to take a look at the claims data available. The conclusions do indicate that too much of a good thing may be a contributing factor.

The average percentage of available benefit purchased that was used for claims was 40.1 percent, and the percentage of policyholders who maxed their purchased benefit amounts was only 14.1 percent. Please understand that even the smallest amount of additional insurance dollars can transform your clients’ control of their own care.

Yet what we need to be trying to accomplish is much more subtle and nuanced. Even a supplemental $50-a-day policy tied to their other fixed income will protect clients from the clutches of government controlled care and maintain their status as private-pay patients. Approximately half of all claims filed are closed in a year, and just having time to think and get organized is a major largesse. Add that to the fact that hard-pressed state social services are very appreciative for even the smallest buffer to their overburdened obligations.

Now let’s peer into the proverbial crystal ball and outline the direction products are hopefully going to take. There is no mystery about what is wrong with today’s products. They remain too expensive and, in many cases, too large. They continue to be sold and purchased on an optional basis. I believe the only choice is to decide to not do what is right to protect your family or your profession.

Benefits must be targeted to the actual risk and the application process must be abbreviated with technology. Sales and marketing training must be dramatically enhanced. All of this now gives us a clear formula for future product success. Stable, reduced pricing, greater benefit flexibility, access to qualified dollars, a rededication to focused agent sales training and a dramatically streamlined application/enrollment process.

Here’s how it all boils down. Two directions going forward: simpler, more flexible, much less expensive policies with express underwriting where applicable. In addition, a strategy to access qualified dollars must be found. Sounds easy—but it’s not.

Just for fun let’s talk about some details. Don’t misunderstand, I am cosmically delighted for all those who would rather utilize insurance dollars to solve problems. I am just not going to hold my breath waiting for reality to settle in and find common ground.

First I am a member of the Society of Actuaries’ long term care refinement group, under the brilliant direction of my good friend, consulting actuary Robert Darnell.  The group is currently working on future product development. Our suggestions to the National Association of Insurance Commissioners and the National Council of Insurance Legislators on strategies to reduce Medicaid were as follows:

  1. Allow shorter benefit periods. Remem­ber, $25,000 buys one year of home health care, $50,000 buys one year of assisted living, and $75,000 buys one year of nursing home care.

  2. Allow larger elimination periods, two to five years, and sell in $25,000 increments.

  3. Remove or lower “inflation protection” required in all applications.

  4. Remove “rejection of non-forfeiture” from all applications.

  5. Allow multiple insureds in one benefit pool.

  6. Allow for longer waiting (deferral) periods.

  7. Allow flexible premiums to be filed.

  8. Streamline the application process.

  9. Allow funding with pre-tax dollars, i.e., 401(k)s.

 10. Allow LTC insurance and combo policies in cafeteria plans.

 11. Expand the sales force and mandate LTC insurance certification for all life and health agents.

 12. Expand combo options to include disability income and critical illness.

I am also this year’s co-chairman of the Society of Actuaries’ “Future of Long Term Care Think Tank,” with Roger Loomis, Actuarial Resources Corporation. (I really do appreciate bright actuaries who care.) This is a multi-disciplinary group—those in the industry who are directly concerned with maintaining a future for all involved. We have met periodically over the years to evaluate and give recommendations to those directly involved in the LTC insurance struggle.

The group’s meeting in September generated some additional suggestions. The reality is that qualified dollars must be tapped into on the right terms, otherwise wrong will be done unto us.

The suggestion is to create a qualified long term care account (LTCA) either standalone or as part of a new long term care account. A universal LTCA could be created with short and fat benefit policies—with the LTCA representing consumer coinsurance. Interest risk would be transferred to the policyholder and managed care would be built in to preserve the LTCA. Monies could be easily reallocated to address alternate risk possibilities.

As we enter yet another year of possibilities, forgive me for suggesting our future is burning bright…and thanks to all who read this column and for being part of the solution!

Other than that I have no opinion on the subject. 

Footnotes:

 1. “Americans See Biggest Equity Jump in 60 Years: Mortgages,” Bloomberg, June 14, 2012.

 2. Investment Company Institute, www.ici.org.

 3. Ibid.

And the question is: What is it going to take to finally make LTC insurance a permanent fixture in American financial planning, and what will products need to look like in order to get that done?

Peering off into the distance and attempting to quantify future product manifestations requires some background information. Now more than ever a careful examination of where we are and where we might be headed is critical. The conversation must begin with what I think are the big three unanswered questions:

 1) How much is enough?

 2) How will our efforts best dovetail with state or federal provided care?

 3) How will future sales be best accomplished and by whom?

 Let’s begin with an inventory of current conditions and market accomplishments.

 • Individual sales are again in excess of $500 million. Asset based combo sales are growing exponentially.

 • Living benefits, or chronic illness accelerated death benefit riders, are now a common feature of almost every life portfolio

 • Beginning in 2009 the majority of LTC insurance premiums were sold with an affinity discount (association, group and multi-life).

 • More than 9 million Americans own a LTC insurance policy and, when measured by those with money and an education, we have double-digit market penetration.

 • We are currently collecting more than $10 billion in premium and paying $6.6 billion in claims per year.

 •Perhaps the most important number is that out of the millions of small employers only 11,000 offer or provide LTC insurance.

You do not need to be clairvoyant to recognize these signs for marketing success nor the staggering opportunity for sales growth.

The 20-year Study of Buyers and Non-Buyers prepared for AHIP by LifePlans, Inc., continues to illuminate the obvious. Buyers are better educated and have more assets, are “planners” by nature, and understand that the government will not pay. Non-buyers are less likely to understand the real cost. The number one reason for buying remains to protect assets, followed closely by the ability to afford care. Medical inflation is clearly recognized as inherently evil. The strongest influence in the buying equation remains the agent’s recommendation, and the majority of non-buyers remain potential prospects for the future.

Understanding the math is vital. The current approximate annual cost of a nursing home is $80,000; home health care, $30,000; and assisted living, $40,000. More than 70 percent of all LTC claims would have been covered by $100,000 in today’s dollars. There is a 67 percent chance of having a problem, and 20 percent of those problems will last two years or more.

The take-away must be obvious to even the most obtuse nonbeliever. The risk is real.

While a great majority of claims are fairly small and of a limited duration, there is also serious potential for catastrophic financial loss. I have come to believe that our assumptions about the nature of the risk and the application of insurance may have been flawed.

The philosophy of the sale has been built around our historical notion of risk abatement: Identify the financial problem and replace it with insurance dollars. The questions of how much insurance is needed and why were framed as an absolute. Unfortunately, there is nothing absolute about LTC insurance claims—they are both relative and subjective by nature. We have been selling as a process of elimination: Someone must pay: you, the government or insurance.

I no longer believe the questions we framed as an absolute were correct and, therefore, they provide an incorrect response. LTC insurance is not to replace dollars but, rather, to transform circumstances.

The correct question should be: How many extra dollars do I need in order to maintain the authority to improve the quality of my own care? The ability to defy dependency on family and, God forbid, the government social services and to have freedom of choice and dignity is what matters.

Now with a more accurate perception of “why,” building product to real need is much easier. Yet product development will never succeed until the dimension of the real risk is accepted and everyone correctly understands the real purpose.

We must also understand that government options are more than a  necessary evil. Future product alternatives must be built to complement and protect the primary purpose—that every American must be allowed to end his journey with dignity and respect. The Partnership Plans are gaining sales momentum. We must continue to promote and encourage a firewall to Medicaid cost and dependency. Once the risk and true purpose of LTC insurance is understood, there will be a transformation in how the product is sold, where and by whom.

There have always been two markets: (1) middle affluent and (2) middle mass. New and successful product applications must be better targeted and executed in both markets. Future product development considerations should begin with an evaluation of what may be wrong with today’s product options. Most of what we sell remains too expensive and is bought and sold on an optional basis.

Consumers and agents continue to believe they can ignore the problem and the solution. Previously inadequate lapse assumptions, a vanishing interest environment, intransigent regulators and oversold non-insurance benefits have created constant pricing turmoil. “Stability” has never been a word used to describe LTC insurance.

We continue to struggle with burdensome 50-page applications, outdated technology and a woeful lack of sufficient product and sales training.

What is required for future products to be successful? Stable pricing would certainly be a start. With the help of rate stabilization, a better understanding of claims, a reality with virtually no lapses, and acceptance of the continuing prospect of anemic interest returns—believe it or not, some confidence will return.

There must be a more accurate appraisal of the risk in order to reduce the cost. Plus greater benefit flexibility. Regulators must stand down on outdated ideas of consumer protection and help facilitate needed rate increases. We must set free the availability and use of qualified dollars to solve the LTC insurance risk conundrum. Strategies that expand underwriting concessions must be created in order to give many more Americans the privilege of leveraging even a known risk. And, as I’ve said many times before, both mandatory agent training and expanded technology to streamline the application process are a necessity.

The industry is moving forward with ideas and product options that address all of the above. The great Karnak will reveal all next month.

Other than that I have no opinion on the subject! 

The persistent drought in much of the country is causing immeasurable pain to farmers and ranchers. In addition, the receding waters of lakes and rivers are exposing old and often forgotten problems. There are old wrecks that remain on the bottom as sentinels of former tragedies, as well as rocks, boulders, unwanted trash and sandbars that were always present but previously covered up by the normal flow and accumulation of moisture—all of which have re-emerged to remind us of our potential limitations.

Another result of this drought is that commerce has been halted or diminished, thus old conversations about remaining permanent structural impediments have returned. Yet, a temporary seasonal drought is not the problem. The persistent, recurrent and unrelenting lack of moisture with no relief in sight is the real problem.

I don’t want to overstrain this comparison; however, the lack of life-giving rain is, in my mind, very similar to the lack of earned interest. There just seems to be no relief in sight, and this low-interest rate environment has exposed larger “rocks” that may be permanently hazardous to the health of LTC insurance.

Previously, the innate flaws in LTC insurance were simply not as visible, and contact was not as potentially catastrophic. Today there is no margin for error, no buffer and no clearance; many of our most popular benefits have disappeared with the evaporation of a rational interest environment. Pricing assumptions have become even more exposed without the ability to earn money on reserves. Underwriting must be even more precise and accurate. The new reality is that you will hit the rocks harder and sooner if you are not extremely careful.

The recession without end has exacerbated the oldest problems, which were never completely addressed in the past. Any and every obstacle makes a difficult sale even tougher to complete successfully. The necessity of finding a channel where there remains sufficient depth to proceed has become as clear as the exposed rocks in the harbor.

I believe the LTC insurance industry’s ability to navigate ahead can be condensed to what I call the “Big Three of LTCI.”

 1. How much is enough?

 2. What will our future partnership with state and federal government actually look like?

 3. How will it be sold?

In my mind, there remains a real lack of consensus on how much insurance is adequate. I’m not even sure many in our business would agree on a definition of “adequate” protection. This is the basis for future product development, and it is necessary to increase sales. We must find agreement on what we are selling, to whom and why. We must also continue to grasp the concept that while catastrophic risk goals are compelling, there are also completely legitimate temporary partial risk goal solutions with perhaps even greater validity. Some insurance is better than no insurance; however, how much is “some” and what is its specific purpose?

All parties concerned have come to understand that we must find a greater symbiotic relationship with government programs. Each side must strive to accomplish what they do best while working in greater harmony to solve America’s largest unprotected risk.

Finally, there are some very large outstanding questions about who will be involved in making the LTC insurance sales and exactly where those sales will take place. The hard truth is that the exposed “rocks” are a blessing. We must finally come to terms with the essential elements of the risk, the appropriate insurance response, and where the responsibility for heavy sales lifting will fall. To be continued next month…

Other than that I have no opinion on the subject.

Turmoil but not chaos, concern but not panic, fire sales but not wildfires…and to make matters worse, business is good. Maybe it’s just the persistently bad economy, the interest environment that seems to be in a vacuum or, somewhere at the core of all this, a simple lack of will. Indeed, we do live in trying times.

What is happening with LTC insurance may simply be a dress rehearsal for a massive retreat of policies and benefits across all lines. Yet LTC insurance seems to be the most vulnerable or expendable, depending on your perspective. We are witnessing the end of many of our favorite LTC marketing conversations.

Advanced pay strategies remain ex­tremely desirable from a consumer point of view (i.e., pay up your policy during your most productive years, accelerate the corporate premium deduction and stare down the threat of future rate increases). However, advanced pay obviously requires that additional premiums earn interest—and, unfortunately, the interest rate drought has no end in sight. Advanced pay is not really gone, only temporarily unavailable for viewing. If interest returns, advanced pay returns.

Lifetime benefits are also evaporating before our very eyes. Unfortunately, risk attracts claims and claims follow premium (imagine that), which requires the most aggressive reserving strategies. Thus, without the ability to earn a fair return on investments, unlimited benefits become an impossible pricing conundrum.

Underwriting continues to constrict, and this will continue to accelerate. Decisions to accept risk must be accurate and precise—there is virtually no room for error. Hopefully, new and improved underwriting practices will be used to more accurately price each given risk rather than used as a subterfuge to deny coverage to all but the most healthy.

Situations which contribute to early and prolonged claims will be scrutinized even more severely, particularly contributing issues such as co-morbidity and family history. Coverage is going to become progressively harder to acquire, period. Preferred underwriting that is truly a discount of standard 100 percent morbidity is also vanishing. Even those with the most exemplary lifestyles may be forced to subsidize standard risks.

Behind the scenes, the LTC insurance underwriting process is also undergoing substantial change. Most companies rely on automated initial screenings, using prescription drug records, but these practices are being expanded to verify multi-life gatekeeper questions, making the so-called simplified underwriting subject to even more scrutiny. Some companies are even moving forward with plans to require lab work on all individual applications. Granted, the margin of error will be dramatically reduced, but this approach can be viewed as good and bad, depending on which side of the fence you sit. Bottom line, for many, obtaining coverage—at any price—will become even more difficult.

And God help us, rates continue to rise. When do we finally charge enough to pay for the risk? Perhaps more important, were some of the rate increases justified, or just knee-jerk reactions? Worse yet, were these increases designed to create fear in an attempt to slow down the flow of premium?

Are we experiencing a rationalization process created to convince us that an anemic interest climate is fueling a slowdown in production? Even reducing commissions has become an increasingly popular excuse to attempt to stifle premium. This is another decision-making process that may have taken place in a room with no windows.

None of this thrashing around to slow down premium is going to work. This approach flies in the face of human nature. Everyone loves a good sale; and the more scarce and difficult the best bargain is to obtain, the faster the product flies off the shelf.

In my humble opinion rising premiums, vanishing benefits and constrictive underwriting will only increase production problems because sales will increase rather than slow down, despite all the announcements. Being as scarce as hen’s teeth works for diamonds and gold, and I expect it to work exactly the same for LTC insurance.

Now is the time to get serious about LTCI, because further procrastination may be very expensive and harmful to your career.

Other than that I have no opinion on the subject.

Perhaps Las Vegas is the world’s greatest example of bad math. The results are, of course, overwhelmingly predictable—losing is highly likely. Yet this sure and certain knowledge prevents few from gambling—the prospect of catastrophic gain (or loss) is what defines all financial decisions.

Substantial rate increases and strategic carrier defections continue to plague our business. I am again reminded of wisdom from my father, who served as president of several insurance companies and who understood all too well that in insurance there are two bad math scenarios—too much premium or too little. We have seen some of both in recent months.

Health insurance models are best with slow, steady and predictable growth. Extreme increases in sales or lack of sufficient growth are equally destructive to the longevity of product exercises.

Across the board, our business is built on the necessity of making money on policyowners’ money. Level premiums demand invested reserves. Without the benefit of deferred interest income we become an industry in search of a purpose.

We know that at the heart of our difficulties is an interest environment as flat and barren as Death Valley. Each time I get “the” phone call from yet another casualty of repricing or someone simply throwing in the towel, I am again painfully reminded of the cause—bad math.

Politics do not belong in this column, yet we can only hope that this fall will precipitate a departure from the status quo. Each time we must absorb what appears to be yet another obstacle to sales, I am again reminded that this is all the more reason to complete every open LTC conversation in your known universe! The urgency to get it done is real.

In a recent announcement to my own distribution, I explained that dramatic changes to a specific carrier did not just create another “fire sale.” In fact, forest fires have been raging in the LTC insurance industry since HIPAA. In truth, we all must continue to scream from the mountain top that premiums will continue to rise and underwriting will continue to tighten. Yet, at the same time, we all must understand that bad math is dramatically restricting an adequate flow of water to put out the flames.

Establishing insurability and cost now remains the only protection from uncontrolled wild fires. Waiting to do the right thing is an extremely bad decision for all concerned—agents and consumers. Policies will never again be this competitively priced, and underwriting will never again be this permissive. Agents must act now to save their clients thousands in premium as well as establish the security of attained insurability.

The necessity to take action immediately shall remain true in every client conversation about leveraging the long term care risk.

 •  Believing that your clients’ health will not change is bad math.

 •  Ignoring the potential effects of future rate increases on new policies is bad math.

 •  Paying higher premiums for an LTC insurance policy is bad math.

 •  Leaving your clients open to the ravages of inflation (if it ever returns) is bad math.

 •  Ignoring the protection of your clients’ assets and retirement incomes is really bad math.

Bad math is a pox on all our houses. The urgency that really needs to be communicated is the meaning of not taking advantage of the current opportunity.

Other than that I have no opinion on the subject!

For those still in the long term care insurance trenches, there has to be a growing perception that we might need to be concerned about maintaining our vital supply lines. We cannot fight a sustained battle without adequate ammunition. Our enemy, America’s greatest unprotected risk, continues to gain ground. Our foe will not retire or retreat, so we have no choice but to stand and fight.

The situation is painfully simple: the problem will not go away and there is only one answer. The enemy’s strength is irrefutable, nursing home costs now average $80,000 per year, with home care rising to $30,000 and assisted living in excess of $40,000.

Depending on how you want to evaluate the potential risk, two-thirds to three-fourths of all Americans may need care, and one out of those five will need care two or more years.

We have put up a good fight approaching 10 million insureds and more than $40 billion in premium. Plus, we are adding approximately half a million new buyers each year. More than half of all sales now take place through an affiliation membership. Even with our dwindling supply of ammunition we are making meaningful progress.

We have come to understand there are two markets. Those with larger incomes/assets and better educations, who clearly understand the need to leverage risk with insurance to protect savings, preserve estates and maintain control of their own caregiving destinies. The second market is the “mass middle,” where we are beginning to establish significant growth at the worksite.

Marketing strategies, product alternatives and underwriting structures have all been designed to facilitate these two sales. The number of manufacturers of ammunition has diminished. The reasons for the attrition are easy to identify: Long term care insurance is unpopular in the front office, interest rates are dead flat with few signs of recovery, some benefits have been over-sold, some regulators suffer from blind politics, and the claims can be a little scary for the timid.

The fight will continue because we have no other choice. Surrender or defeat is not an option or, frankly, our entire industry will have dishonored its social obligation. While we may yet see more defections (those who cut and run), we will also have those who will find the courage and the long term commitment to stay the course. They will not quit primarily because they understand their obligation.

There is much work going on behind the scenes, and I am proud to serve on a number of the Society of Actuaries’ working committees. Recommendations to improve market conditions have been made to the National Association of Insurance Commissioners and the National Conference of Insurance Legislators. Among those recommendations are: greater product flexibility, including shorter and reduced benefit amounts, longer elimination periods and waiting (deferral periods); more inflation protection options; streamlined applications; flexible premium structures; expanded pre-tax funding; mandated agent training; and more combo policy alternatives.

The truth is that we, as an industry, have much more work to accomplish. We need more suppliers of new and improved ammunition. We need ammunition that is more effective and efficient. We need more agents to dust off their uniforms and return to combat. This struggle is not just a distraction—it is our primary focus.

Now let’s see who actually reads this column. The Society of Actuaries sponsors a standing committee: “The Future of Long Term Care Think Tank.” This is a multi-­disciplinary group of industry experts—those directly concerned with maintaining a future for all involved. We have met periodically over the years to evaluate and give recommendations to those directly involved in the struggle.

Roger Loomis, Actuarial Resources Corporation, and I are this year’s co-chairs. We are expanding the committee’s membership to include those interested in helping develop a consensus of opinion as we go forward to reform and expand LTC insurance sales. If you would like to help, please send me an email for an application to join the committee: ron@rmgltci.com.

Don’t stop firing at the enemy, just keep your head down and help me pass the ammunition.

Other than that I have no opinion on the subject! 

We have lost another dear friend—a corporate helpmate that professed a strong commitment to LTC risk abatement. A long term partner in our continuing struggle to mitigate a potential catastrophic lifestyle event.

As we age, we come in contact on a more frequent basis with the abrupt and permanent exit of our dwindling number of close personal friends. Of course, these are events we cannot control or prevent. An appropriate period of mourning should take place fueled by grief and a sincere sense of loss.

After the dramatic and unexpected departure of those close to us, all the usual questions arise: What does this tragic demise mean to me? What are the broader implications of this new and final departure?

During the last 18 months those of us in the LTC insurance business have had to process these basic questions on multiple occasions. Immediately after our most recent loss, I left the country for 10 days on a richly deserved vacation where my most important consideration was my drink selection at the swim-up bar. Therefore, I missed the traditional gnashing of teeth and wringing of hands which follows the exit of a prominent player in the market. When I returned the residual burning question was: Is this the beginning of the end?

Absolutely, positively, unequivocally No!

By definition those who read this column are permanent lifetime members in a very special club with an extremely strong indigenous affinity. You Care! In truth this is the common denominator for all those who feature the LTC risk prominently in their professional practice. Yet in our quiet moments when we are alone, we know the truth of our concerns—this is a business, after all, and the tail on a LTC insurance claim is elusive, ill-defined and hidden in the midst of Alzheimer’s and future service delivery.

If you cannot make money, if this chosen line of business is unpopular in the financial front office, if the regulators are perceived as intractable, if you do not believe that long term investment return will improve and if you are frankly just afraid of the claim: You need to quit!

You are welcome to depart without question or accusation. You are always welcome to leave the field of battle when you believe discretion to be a better form of valor. Unfortunately your original professions of altruism and customer service may be worn a little thin in the process.

The issues have always been pricing, reserves or claims; of course, we recognize these obvious realities or rationalizations. Unfortunately, because we care, we bought into the perception that the company also really wanted to help. If the problems were related to investments, reserves or claims, I can only kindly suggest these problems have always been present in the LTC insurance conundrum.

Historically we acknowledge that we have seen a shrinking universe of company and product options in the individual disability insurance market. That market did eventually stabilize and show steady growth because the product was priced more accurately based on substantial experience and adjusted benefit options.

Just in case there is anyone else waiting in the wings to throw in the towel, I would like to extend an open invitation to proceed to the exits without further delay.

If LTC insurance is simply just too hard or your commitment to stay the course too fragile, please forgive me for a small non-denominational humble heartfelt invocation: Please God, no more quitters!

Our supplication is an acknowledgement of an obvious undisputed truth: The problem grows and the government cannot and should not pay for those who can afford to pay. We are not immortal and our final departure may not be abrupt—we may linger. Medical and custodial inflation will not abate or change direction.

Insurance has been, is now and forever shall be the answer.

I may not know exactly what the insurance answer will look like or what it will cost in the future. I will, however, lay my head down tonight safe and secure in the knowledge that in the morning I will have an insurance product available that insulates my client from the grasp of government dependence—one that will always cost less than paying a catastrophic claim on their own.

Other than that I have no opinions on the subject.