There is an unavoidable and immutable truth throughout the known universe concerning the relationship between what things cost and how many people buy them. LIMRA numbers over the last ten years demonstrate this direct yet inverted “metaphysical law” better than any economics textbook. As the cost of standalone policies began to increase dramatically, sales began to fall just as rapidly. Two thirds of sales take place within less than 10 percent of the available market. If we do not readjust our sights we simply have no future. The SOA defines the ”mass middle” market as those Americans between 55 and 64 with about $75,000 in income and $100,000 in assets. This should represent over 80 percent of our target market. According to a recent Genworth analysis of the 2012 Census: If the price were reduced by half to $1,200 annual we would have 10 times the available buyers and 5 times as many sales. There is absolute consensus when viewed from 30,000 feet as to what needs to be done to increase sales among those most in need of protection: simplify the product, reduce premiums, reduce/broaden underwriting as well as provide some reassurances in terms of premium stability and the flexibility to “cash-out” to some degree. Now you need to flavor the easily identifiable structural concerns with the reality of the situation on the ground. The Bipartisan Commission this spring began its report with the obvious: “LTCI take up is stalling because policies are too expensive, distribution is too limited and the traditional product is not sustainable for the carriers.”
Let’s begin with affordability. Cheaper is probably better but where do you attack the pricing? If you streamline benefits, which ones are the most vulnerable to reduction or omission? Popularity with consumers must be balanced with the reality of our current knowledge of the claim. What is more important—“zero” day elimination for home health care or assisted living facility paid exactly the same as nursing home? Where should premium do the most good—on the front or the back end of the claim? Is waiver of premium really that important? Does the mass middle only need short and fat benefit structure and the affluent simply more flexible stop loss options? And we simply cannot continue to ignore legitimate concerns over “use it or lose it”. Some consumer “cash-out” provision must be available, even if it’s only an aggressive return of premium.
Even the politicians in Washington recognize something must be done. Again the Bipartisan Committee recently said: “The LTCI market could be stabilized and expanded to include more middle income Americans if a new form of lower cost, streamlined policies were available.”
For many years there has been a cry for simplification. The question is, can we amend what we have or do we just need to start over? The market is shifting beneath our feet toward more combo sales, and the only real planning question for the foreseeable future is: “Where are you addressing the risk each time?” Life with some LTCI, or LTCI with some life? There are also voices that are suggesting that we are all attacking the problem from the wrong direction and that we should just find a way to “marry” this risk with other retirement/investment strategies.
Enough rambling speculation which somehow never seems to produce sufficient direct action. The really hard question, however, does need to be asked one more time: If price matters and we know that most claims are manageable, do we really only need new product, new creative ways of selling or maybe just new people selling the product?
Other than that I have no opinion on the subject.
