Thursday, March 28, 2024

2023 Milliman Long Term Care Insurance Survey

The 2023 Milliman Long Term Care Insurance Survey is the 25th consecutive annual review of stand-alone long-term care insurance (LTCI) published by Broker World magazine. It analyzes the marketplace, reports sales distributions, and describes available products.

More discussion of worksite sales, including a comparison of worksite sales distributions vs. non-worksite sales distributions will be in Broker World magazine’s August issue.

Unless otherwise indicated, references are solely to U.S. stand-alone LTCI sales, excluding exercised future purchase options (FPOs) or other changes to existing coverage. “Stand-alone” refers to LTCI policies that do not include death benefits (other than returning premiums upon death or waiving a surviving spouse’s premiums) or annuity or disability income benefits. Where referenced, “combo” or “combination” products provide LTCI combined with life insurance or annuity coverage. “Linked benefit” policies are combo policies which can allow more than the death benefit or annuity account value to be used as LTCI.

All references to sales in terms of “premium” refer to “annualized” premium (1 x annual; 2 x semi-annual; 4 x quarterly; 12 x monthly), even if only one monthly premium was received before year-end. All references to “Washington” or “WA” refer to the state of Washington. “WCF” refers to the “WA Cares Fund,” explained in the Market Perspective section.

Highlights from this year’s survey

As reported last year, the WCF stimulated tremendous market demand in the state of Washington, causing sales distributions to vary greatly from recent history. Although the industry largely stopped accepting Washington applications in August 2021, a backlog resulted in some policies being issued in 2022. To get a better understanding of the impact of the backlog, we asked insurers to reclassify 2022 sales to 2021 if they were issued in 2022 due to the unusual lag. For the purpose of compiling results for this article, figures that display industry sales levels reflect our adjustments because of the backlog. However, all insurer-specific sales data ignores any backlog adjustment. In the sales distributions section of our report, some insurers’ data reflect the sales backlog (i.e., 2021 sales that lagged into 2022) while other insurers were able to remove them. For that reason, we generally anticipate that 2022 sales distributions are likely to differ from 2023 sales distributions.

Participants
Seven insurers (Bankers Life, Knights of Columbus, Mutual of Omaha, National Guardian Life, New York Life, Northwestern, and Thrivent) contributed broadly to stand-alone sales distributions reported herein. Total 2022 sales data includes one additional insurer and 2022 inforce data includes two additional organizations.

Our worksite sales distributions do not reflect low-price worksite programs; however, the gap in average premiums was smaller than usual. Carriers that provided 2022 distributions had an average worksite annual premium of $2,565, whereas the insurers that provided sales, but not distributions, had an average worksite premium of $1,876 annually.

In 2021, we collected data on combination sales (life insurance with LTCI or Chronic Illness benefits) for the first time to evaluate the impact of the WCF exemption on sales. This year, we did so again. The following eleven insurers contributed to our combination sales data: AFLAC, John Hancock, Mass Mutual, New York Life, Nationwide, Northwestern Mutual (Northwestern), OneAmerica, Pacific Life (2021 data only), Securian, Trustmark and United of Omaha.

Sales Summary

  • We estimate total stand-alone LTCI annualized new premium sales of nearly $124 million in 2022 (including exercised FPOs except FPOs for insurers no longer selling LTCI and counting 10 percent of single premium), compared to $200 million in 2021 (same basis). The 2021 sales are influenced by the higher Washington sales and include estimated sales for one insurer for which we did not estimate sales this year. In addition, there was a $7 million drop in 2022 in new premium from FPOs.
  • Outside-of-Washington sales trends are likely to be more reflective of the future. Our participants’ outside-of-Washington 2022 premium (including FPOs) was eight percent higher than their outside-of-Washington 2021 new premium. However, compared to 2020 sales including insurers which have left the market, the sales dropped 23 percent. The continuing insurers have been able to maintain their own sales levels (2022 premium was 99 percent of 2020) but not replace the sales of departing insurers. On a lives basis, the 2022 sales data was roughly 88 percent of 2020 for continuing insurers (versus the 99 percent on a premium basis), reflective of the higher prices of today’s stand-alone LTCI policies.
  • Worksite sales receded significantly from their higher, Washington-impacted 2021 sales. All participants reported worksite sales of 2,213 lives and $8.7 million in premium, compared to pandemic-influenced 2020 sales of 2,124 lives and $7.2 million of premium. Transamerica, which produced more 2020 worksite sales than all our participants combined, stopped selling in the first half of 2021, depressing product availability, and is not included in the sales in this paragraph. Thus, our participants did not absorb Transamerica’s share of the worksite market.
  • Northwestern led in annualized new premium including FPO elections, selling 13 percent more than the #2 and #3 insurers combined (Mutual of Omaha and New York Life). Northwestern edged ahead of Mutual of Omaha in annualized premium from new policies although Mutual of Omaha still sold more new policies.

Reflecting nine entities’ data, the inforce number of cases dropped 1.4 percent while annualized premium increased 3.5 percent. Inforce premium rises due to sales, price increases, and benefit increases (including FPOs), and falls from lapses, reductions in coverage, deaths, and shifts to paid-up status. The number of people with stand-alone coverage increased through 2014, but, as shown in Table 1, has decreased annually since then except for the 2021 aberration. However, the inforce premium has increased each year because of inforce price increases and higher prices for new policies.

Collectively, eight participants paid five percent more in claims in 2022 than in 2021. Overall, the stand-alone LTCI industry incurred $13.6 billion in claims in 2021 based on companies’ statutory annual filings, a 5.4 percent increase over 2020, which raises the running total of incurred claims since 1991 to $180.9 billion (2021 claims of $13.6 billion plus total of $167.3 billion from our prior year’s article). Most of these claims were incurred by insurers that no longer sell LTCI.

About the Survey
This article is arranged in the following sections:

  • Highlights provides a high-level view of results.
  • Market Perspective provides insights into the LTCI market.
  • Claims presents industry-level claims data.
  • Sales Statistical Analysis presents industry-level sales distributions reflecting data from 8 insurers.
  • Partnership Programs discusses the impact of the state partnerships for LTCI.

ONLY AVAILABLE AT WWW.BROKERWORLDMAG.COM:

  • Product Exhibit shows, for 6 insurers: financial ratings, LTCI sales and inforce policies, and product details.
  • Product Exhibit Details, a row-by-row definition of the product exhibit entries, with some commentary.
  • Premium Exhibit shows lifetime annual premiums for each insurer’s most common underwriting class, for issue ages 40, 50, 60, and 70 for single females, single males, and female/male couples (assuming both buy at the same age), based on $100 per day (or closest equivalent weekly or monthly) benefit, 90-day facility and most common home care elimination period, three-year and five-year benefit periods or $100,000 and $200,000 maximum lifetime buckets, with and without Shared Care and with flat benefits or automatic three or five percent annual compound benefit increases for life. Worksite premiums do not reflect any worksite-specific discount, though some carriers offer this.
  • Premium Adjustments (from our Premium Exhibit prices) by underwriting class for each participant.
  • Distribution by underwriting class for each participant. Depending upon the product shown for an insurer in the Product Exhibit, we sometimes adjust that insurer’s underwriting distribution to provide readers a better expectation of likely results if they submit an application in the coming year and to line up with the prices we display. For example, if the Product Exhibit shows only a new product which has only one underwriting class (hence one price), but the insurer’s data partly or solely reflect an older product with three underwriting classifications, we might choose to show “100 percent” in their best (only) underwriting class.
  • State-by-state results show the percentage of sales by state, average premium by state and percentage of policies qualifying for Partnership by state.

MARKET PERSPECTIVE (more detail in subsequent parts of the article)
Washington State’s “Washington Cares Fund” (WCF) stimulated tremendous demand for private LTCI from individuals and businesses in Washington in 2021. WCF imposes a 0.58 percent payroll tax to fund a $36,500 lifetime pool (intended to inflate according to the Washington consumer price index) for care, as defined in the Revised Code of Washington 50B.04, received in Washington. People who purchased private stand-alone or combination LTCI by November 1, 2021 could file to be exempt from the tax. WCF received approximately 484,000 applications for exemption.1

Partly because the tax applies to all earned income, 2021 LTCI sales in Washington soared to unprecedented levels. Insurers quickly became backlogged with applications and were concerned about early lapses as the law provided a permanent WCF exemption based on only a one-time attestation. Insurers reduced design flexibility, and then discontinued sales in Washington before the November 1 deadline.

(Note: The WCF continues to contemplate further program changes. In particular, a future change may require retention of private LTCI coverage to maintain exemption from the WCF tax and some care outside of Washington might be covered.)

Last year, we estimated that Washington accounted for 75 percent of stand-alone LTCI policies sold in 2021. Of combination life/LTCI business with on-going premium (i.e., excluding single premium), we estimate Washington accounted for 60 percent of policies sold in 2021 but only 20 percent of premium. This year, even after adjusting with data from the NAIC and removing FPOs, the stand-alone policy percentage remains 75 percent. As shown in Table 3, the percentage of 2021 combo policies sold in WA is revised from 60 to 54 percent because we added a carrier with a relatively small percentage of its business in Washington.

Washington continued to account for a high percentage of business issued in 2022 because of delayed processing of third quarter 2021 applications. With participants’ help, we moved 76 percent of 2022 WA stand-alone policies issued (33 percent of premium) and 66 percent of 2022 WA combo policies (26 percent of premium) to 2021. Moving these policies increased 2021 Washington sales only by five percent (4 percent of premium).

(Note: Washington’s share on stand-alone LTCI premiums is generally a bit lower than its share by policy count. We believe that is partly because some insurers have higher prices in other states such as CA, FL, and NY.)

Table 2 reveals that the WCF exemption seems to have stimulated additional sales beginning in 2020, boosting Washington’s market share of stand-alone policies to three percent in 2020 compared to a steady 2.4 to 2.5 percent prior to 2020. Washington’s market share in 2022 returned close to pre-2021 levels on an adjusted basis, both with and without adjusting for the mix of insurers across years. This suggests that our adjusted Washington 2022 market share is at most slightly influenced by the WCF exemption, but we will continue to monitor in future surveys.

Last year, we reported that insurers (including estimates for insurers which did not report sales) sold 90 times as many stand-alone LTCI coverages in Washington in 2021 as in 2020. After reflecting re-classification from 2022 and reviewing the 2020 and 2021 NAIC LTCI Experience Reports, we conclude that the 2021 number of Washington stand-alone LTCI sales remained approximately 90 times 2020 Washington sales. The ratio varies significantly between the worksite (483) and individual markets (26).

Last year, we reported that Life/LTCI combo insurers also sold more than 90 times as many coverages in Washington in 2021 as in 2020. This year’s updated calculation found a similar 89 times the 2020 total. The ratio varies significantly between worksite (578) and individual insurers (21).

Combining both stand-alone and combo polices, 90 times as many coverages were sold in Washington in 2021 as in 2020 but only 12 times as much premium.

Compared to 2020, the 2022 number of Life/LTCi sales in Washington is high but the 2022 premium is low, suggesting that we did not reclassify all of the lag.

In its 2022 report (“The WA Cares Act: Impact on Long Term Care and Hybrid Life Sales”), LIMRA reported the following third- and fourth-quarter increases in WA production in 2021 compared to the same period the previous year.

As dramatic as the LIMRA data is, our data shows much larger increases in Washington sales in 2021. The difference is primarily attributable to our inclusion of insurers focused on the worksite market (including group insurance). There was a huge demand for LTCi-related programs from Washington’s employers. A second, much smaller reason is our re-characterization of delayed sales back to 2021.

Idaho and Oregon also were impacted by the WCF exemption. Because WCF has been amended to allow out-of-state residents who work in Washington to be exempt, those sales may be at higher risk of lapsing as out-of-state residents no longer need to have a qualifying LTCI policy to be exempt. Table 5 shows Idaho and Oregon market share for the past several years. Our Idaho data shows a doubling of sales in 2021, but nearly back to pre-2021 levels for 2022. Our participants’ Oregon sales show little impact. However, as noted above, our statistical distributions do not reflect the worksite insurers. We believe inclusion of their data could show an approximately 50 percent increase in OR in 2021.

LIMRA kindly shared some of its sales findings as shown in table 6 (with some columns we added based on their data). As you can see, linked-benefit policies (“LTC Extension of Benefits”) and stand-alone LTCI (“traditional LTCI”) accounted for 20.2 percent of the policies and 16.6 percent of the premium.

In terms of protecting people against the risk of needing LTC, the contributions of stand-alone LTCI and linked-benefit products compared to acceleration products are likely greater than one might guess from these sales results. Consider:

  1. Linked-Benefit and Stand-alone LTCI policies have lower voluntary termination rates, hence are more likely to be available when care is needed.
  2. Linked-Benefit and Stand-Alone LTCI policies often have benefits that increase over time to help maintain purchasing power. Conversely, the purchasing power of Chronic Illness (CI) and LTC Riders (ADB) dwindles over time. However, purchasing power is a combination of the initial benefit plus increases; a large flat benefit could be sufficient when care is needed.
  3. According to LIMRA, 88 percent of the CI policies have benefits that are not fixed. The insured has to cover the time value of money until death or expected death and sometimes other factors such as foregone premiums.
  4. People are most likely to make LTC-related claims against stand-alone LTCI (it is use-it-or-lose-it) and second-most-likely to do so against linked-benefit products (to access the extension of benefits). Those products are more often purchased with LTC coverage in mind. In contrast, it may be more attractive to wait for the death benefit of acceleration policies, especially if the death benefit would be discounted when accessed to cover a LTC need.

Washington sales influenced the characteristics of 2021 sales significantly, as we reported last year and can be seen in this year’s results. Our sales distributions for 2022 continue to be somewhat influenced by Washington sales due to the backlog of policies that were not issued until 2022. Although we removed some of those backlogged Washington sales from our statistical distributions, we were unable to remove all such sales.

The national placement rate of 58.2 percent in 2022 was lower than the 61.4 percent in 2021 (unusually high due to Washington sales) but 0.4 percent higher than the 57.8 percent placement rate in 2020, as well as 4.1 percent higher than 2021’s 54.1 percent placement rate outside Washington. Our 2022 data includes some delayed young Washington applicants with higher placement rates.

Higher placement ratios are critical to encourage financial advisors to mention LTCI to clients. The following opportunities can improve placement rates.

  • E-applications speed submission and reduce processing time, thus generally increasing placement.
  • Uploading medical records via human application program interface (API) also speeds processing time, generally improving placement.
  • Health pre-qualification effectively and efficiently decreases decline rates.
  • Education of distributors, such as drill-down questions in on-line underwriting guides, tends to improve placement.
  • Requiring cash with the application (CWA) led to about five percent more of the apps being placed according to our 2019 survey.
  • Improved messaging regarding the value of LTCI and of buying now (rather than in the future) typically improves the placement rate by attracting younger and healthier applicants.

Other states are considering state-run LTCI programs. Examples include:

  • During 2023, alternatives identified by a California task force will be priced and recommendations will be made to the legislature for possible 2024 legislation.
  • In New York, SB 9082 was submitted in 2022 and Governor Hochul issued an executive order in November 2022 citing her “vision of a long-term care system that is accessible, effective, and affordable.”2
  • Minnesota, which has twice had bills for a state LTCI program, intends to produce a report in 2023 regarding Minnesota’s options to finance LTC that will be provided to the legislature.
  • There is a proposal in Massachusetts to create a task force to consider alternatives.

Such programs will likely differ from Washington’s program in several respects. For example, draft laws and task force discussions indicate that future laws:

  1. May not leave the window open for people to opt out by buying LTCI after the legislation has been signed.
  2. May require that private LTCI policies remain in force to maintain exemption.
  3. May narrow the range of private LTCI policies that qualify for exemption.

The FPO (future purchase option, a guaranteed, or a non-guaranteed board-approved, option, under specified conditions, to purchase additional coverage without demonstrating good health) election rate dropped from 78.2 percent in 2021 to 69.9 percent in 2022, the decrease being more than explained by one more entity reporting FPO elections in 2022. The same six insurers which reported 78.2 percent in 2021 reported 88.4 percent in 2022.

As both the additional coverage and unit price increase for FPOs as policies age, FPOs become increasingly expensive, even more so with inforce price increases. The high election rate reflects the effectiveness of annual (as opposed to triennial) negative-election FPOs and may reflect the importance of LTCI to policyholders. Negative-election FPOs activate automatically unless the client rejects them. Positive-election FPOs activate only if the client initiates a timely request. Considering such FPOs and other increased coverage provisions, we project a maximum benefit at age 80 of $310/day for an average 57-year-old purchaser in 2022, which is equivalent to an average 2.7 percent compounded benefit increase between 2022 and 2045. In 2020, the average 58-year-old purchaser anticipated an age 80 benefit (in 2042) of $305 (2.9 percent compounding). So, the average 2022 purchaser will have $5 more in coverage at age 80, despite facing 3 more years of inflation in the cost of care. This is the lowest effective rate of compounding that we have seen in the survey, yet inflation appears to be an increasing threat now. Purchasers may be disappointed if the purchasing power of their LTCI policies deteriorates over time.

Current premiums are much more stable than past premiums, partly because today’s premiums reflect much more conservative assumptions based on far more credible data as well as lower assumed investment yields. Two participants have never increased premiums on inforce policies and a third has had no increases on policies issued since 2003. None of the participants have raised rates on policies issued in 2016 or later. Even for new products, pricing changes are becoming rare. There have been no new prices (other than late state approvals) in the past two years. Nonetheless, financial advisors may presume new policies will face steep price increases, hence be reluctant to encourage clients to consider LTCI.

Linked benefit and other combination products’ coverage are attractive to consumers because if the insured never has a LTC claim, their beneficiary will receive a death benefit. They also are more likely to have indemnity benefits and guaranteed premiums and benefits.

However, such policies generally cost more than stand-alone LTCI without a return of premium feature (if there is comparable LTC coverage at age 85), although the difference may be less than in the past. Higher interest rates and competition appear to be driving linked-benefit premiums lower, which are also more available now with on-going premiums. Meanwhile, stand-alone LTCI new business prices have generally increased in recent years, especially for one-of-a-couple sales.

As explained above, stand-alone and linked-benefit products typically provide more LTC protection at age 85 than those combination policies which provide LTCI only through an accelerated death benefit.

All the insurers in our Product Exhibit offer coverage in all U.S. jurisdictions, except that two insurers do not offer policies in New York.

At the suggestion of a reader, we surveyed carriers regarding hospice provisions this year. Eight insurers responded.

  • Five insurers define “hospice services” as being within six months of expected death, while one insurer indicated that their definition varies between 6 and 12 months depending on jurisdiction. Two insurers use a more general definition (e.g., “persons who are in the last phases of life due to terminal illness”), which is more flexible and seems less likely to conflict with potential future changes in general usage or regulations.
  • All insurers cover hospice care at home. Two insurers cover hospice only as part of their home care benefits, six insurers cover hospice services in ALFs and nursing homes, and seven insurers cover hospice services in hospice facilities.
  • None of the insurers cover hospice services provided to the terminally ill person’s family.
  • Four insurers waive the elimination period (EP) for hospice services; the other four insurers require that the EP be satisfied prior to reimbursing for hospice care.
  • Of the four insurers that waive the EP for hospice services, one credits hospice days to the “non-hospice” EP if either the insurer or Medicare pays for such days. The other three do not do so.

CLAIMS
Independent Third-Party Review (IR) is intended to help assure that LTCI claims are paid appropriately. Since 2009 (in some jurisdictions), if an insurer concludes that a claimant is not chronically ill as defined in the LTCI policy, the insurer must inform the claimant of his/her right to appeal to IR, which is binding on insurers.

In many states, IR is not effective, either because the law was not adopted or because regulators have not set up the required panel of independent reviewer organizations (IROs). Nonetheless, a claimant could ask an insurer to agree to IR.

The Product Exhibit shows that most participants extend IR beyond statutory requirements (e.g., to policies issued prior to the effective date of IR). Some insurers utilize IROs as part of the insurer’s internal appeal process.

A very small percentage of claims go to IR. Indeed, of seven insurers which provided claims information this year, at least three have never had a request for IR.

We are not aware of regulators who track IR results, but Steve LaPierre, President of LTCI Independent Eligibility Review Specialists, LLC (LTCIIERS), the largest IR organization, reports that the insurer’s decision was upheld 98 percent of the time in 2022.

For comparison, a National Nurses United study of CA acute health claims3 indicates that half of the denials referred to independent review were overturned. Acute health insurance and LTCI claims are denied for different reasons which likely explains much of the difference in the rate at which the insurers’ decisions are overturned.

  • The LTCI industry’s IR experience indicates that insurers, overall, are paying claims appropriately.
  • Eight participants reported 2022 claims. As some companies are not able to provide complete detailed data, some statistics reported below are more robust than others.
  • The eight insurers’ combined individual and multi-life claim payments were five percent higher than in 2021.
  • The LTCI industry has paid out benefits to policyholders far greater than indicated in the following statistics, because most claims are paid by insurers that do not currently sell LTCI.

LTCI claims paid by insurers no longer selling LTCI may differ significantly from the following statistics as their claimants are more likely to have facility-only coverage, be older, and/or have other different policy or demographic characteristics.

In Tables 7 and 8, one insurer, representing 17 percent of inception-to-date claims, was unable to report the number claims since inception and their distribution by venue. “Since inception” means since the insurer first started selling LTCI or as far back as they can report these results (for example, they may have changed claims administration systems and not be able to go all the way back to when they first processed claims).

Table 7 shows the total dollar and number of reported individual and multi-life (not group) LTCI claims. As noted above, total paid claims were up five percent.

Table 8 shows that, for insurers reporting claims data, claims shifted away from nursing homes to assisted living facilities (ALFs). Different insurers contributing data from one year to another and/or contributing differently makes it harder to identify trends. For example, we learned in 2021 that one insurer previously assigned all of a claimant’s benefits based on the venue in the claimant’s first month of claim. Their 2021 and 2022 data is based on the venue for each claim payment, pushing Table 8 toward nursing homes, which implies that the shift from NH to ALF since 2020 and prior years is greater than the table indicates.

In the distribution based on number of claims, a person who received care in more than one venue is counted once for each venue, but not double-counted in the total line. The average claimant is in 1.5 types of venues during the course of the claim; this does not recognize multiple providers within a single type of revenue (e.g., two nursing homes).

Five carriers reported open individual claims at year-end, averaging 70 percent of paid claims, the same as last year.

Table 9 shows average size individual claims since inception: that is, including older claims and reflecting all years of payment. Assisted Living Facility (ALF) claims and Home Care claims showed lower average sizes this year, related to the change in reporting mentioned above. Because 48 percent of claimants since inception have submitted claims from more than one type of venue, the average total claim might be expected to exceed the average claim paid for any particular venue. Individual ALF claims stand out as high each year (albeit not as much this year), probably because:

a) ALF claims appear to have a longer duration compared with other venues.

b) Nursing home costs are most likely to exceed the policy daily/monthly maximum, hence nursing home claims are most likely to understate the cost of care.

c) People who maximize the use of their maximum monthly benefits can generally spend as much in an ALF as in a nursing home.

d) Although some surveys report that on average ALFs cost about half as much as nursing homes, ALFs may have an extra charge for a memory unit or for levels of assistance that align more closely with nursing home care.

Several insurers extend ALF coverage to policies which originally did not include ALF coverage, providing policyholders with significant flexibility at the time of claim but contributing to the insurers’ need for rate increases.

The following factors contribute to a large range of average claim by insurer (see Table 9):

  1. Different markets (by affluence; worksite vs. individual; geography; etc.)
  2. Demographic differences (distribution by gender and age)
  3. Distribution by benefit period, benefit increase feature, shared care, and elimination period. For example, one carrier has a higher average home care claim than its average facility claims because home care was a rider and people who added the home care rider were more likely to add compound inflation also.
  4. Distribution by facility-only policies vs. 50 percent home care vs. 100 percent home care vs. home care only.
  5. Different lengths of time in the business.
  6. Differences in the ways insurers report claims.

*The following factors cause our average claim sizes to be understated.

  1. Approximately 16 percent of inception-to-date individual claims are still open and our data does not include reserve estimates for future payments on open claims.
  2. People who recover, then go on claim again, are counted as multiple insureds, rather than adding their various claims together.
  3. Some of our insurers are unable to report how many claimants were paid for care in multiple venues. Because we therefore overstate their number of claimants, we estimate that our overall average claim is understated by roughly $7,000. That is, the average claim has likely been closer to $61,000 than the $54,000 shown in the table above.

Besides being understated, average claim data does not reflect the value of LTCI benefits from some purchasers’ perspectives, because the many small claims drive down the average claim. LTCI provides significant financial yield for most people who need care one year or longer. A primary purpose of insurance is to protect against adverse results, so the amount of protection, as well as average claim, is important.

Six insurers provided their current individual monthly LTCI claim exposure (note: reflects only initial monthly maximum for one insurer). As shown in Table 10, this figure is 29 times their corresponding monthly LTCI premium income and 46.5 times their 2022 LTCI monthly paid claims. Eight insurers contributed data regarding their inforce distribution by benefit period. Treating endless (lifetime benefit periods) as a 15-year benefit period, we found that their average inforce benefit period has reduced to 6.44 years Increasing the assigned value of the endless benefit period by one year has an impact of approximately 0.22 years on the average inforce benefit period. With annual exposure 29 times annual premium and assuming an average benefit period of 6.44 years, we estimate that total exposure is 184 times annual premium. The average benefit period dropped from 7.14 last year to 6.44 this year because one more insurer contributed data and it has by far the lowest average benefit period.

Five insurers reported their current average individual maximum monthly maximum benefit for claimants, with results ranging from $5,393 to $8,309.

Nursing home (NH) claims are more likely to use the policy’s maximum daily/monthly benefit than ALF claims because ALF daily/monthly costs are generally lower and because policies sometimes have lower maximums for ALFs. ALF claims correspondingly are more likely to use the policy maximum than are adult day care and home care claims.

SALES STATISTICAL ANALYSIS
Bankers Life, Knights of Columbus, Mutual of Omaha, National Guardian, New York Life, Northwestern and Thrivent contributed significant background stand-alone LTCI sales data, but some were unable to contribute some data. LifeSecure provided only total stand-alone sales, not distributions.

Sales characteristics vary significantly among insurers based on market differences (individual vs. worksite, affluence, gender distribution, etc.). Year-to-year variations in policy feature distributions may reflect industry trends but may also reflect changes in participants, participant practices and designs, participant or worksite market shares, etc. In 2021, we had major variance from historical results, and we still have some distortion in 2022 as some participants’ distributions include delayed Washington sales from 2021. Statistical differences between the worksite and non-worksite sales will be reported in the August issue of Broker World.

Market Share
We include purchased increases on existing policies as new premium because new coverage is being issued. Table 11 shows 2022 new premium, both including and excluding FPOs. In Table 11, no sales were re-characterized from 2022 to 2021. Total sales levels are remarkably similar to 2020.

Northwestern ranks #1 in new premium both when including FPOs and, for the first time, when excluding FPOs. Mutual of Omaha still ranks #1 in the number of new policies (see Policy Exhibit). Together, Northwestern and Mutual of Omaha account for 65 percent of the market, in terms of premium. When paired with New York Life’s growth, the three top carriers represent 81 percent of the market. The premium below includes 100 percent of recurring premiums plus 10 percent of single premiums.

Worksite Market Share
After a high year in 2021 due to the WCF exemption, worksite sales dropped in 2022 as shown in Table 12.

Worksite sales normally consist of three different markets as outlined below, the first two of which produce a higher percentage of new insureds than of new premiums. Worksite 2021 sales were largely voluntary but had the age and premium characteristics of core/buy-up due to Washington sales.

  • Voluntary group coverage generally is less robust than individual coverage.
  • Core/Buy-Up programs have particularly young age distributions and modest coverage because a lot of people do not buy-up and are less likely to insure spouses.
  • Executive carve-out programs generally provide the most robust coverage. One-or two-couple executive carve-out sales may not qualify for a multi-life discount with some insurers, hence may not be labeled as worksite sales in submissions to our survey.

The amount of worksite sales reported and its distribution among the sub-markets significantly impact sales characteristics. Unfortunately, our sales distributions do not reflect the insurers focusing in the group voluntary and core/buy-up markets. More information about worksite sales will appear in the August issue of Broker World magazine.

We noted last year that the future of the non-executive carve-out LTCI market is unpredictable with Transamerica’s departure. Other insurers with stand-alone LTCI products did not absorb Transamerica’s market share. It seems likely that combination worksite products are picking up market share.

Affinity Market Share
Affinity groups (non-employers such as associations) produced 5.0 percent of 2022 premium (a relatively low percentage as shown in Table 13) and 7.6 percent of 2022 policies. The percentages in Table 13 reflect only participants’ sales.

Characteristics of Policies Sold
Average Premium Per Sale
To determine the average premium for new sales, we exclude FPOs. As shown in Table 14, the average premium per new insured and per new buying unit increased substantially over 2020 and prior averages. The key contributor was the reduced percentage of small worksite policies resulting from Transamerica’s departure. Higher prices instituted in late 2020 and early 2021 also contributed to the increase.

The influence of small worksite policies is greatly reduced now. Removing the primary insurer in that market produces an average premium per insured of $3,618, as shown in table 14. Including this carrier produces an average premium of $3,556.

The jurisdiction with the lowest average new premium for participants in 2022 (including FPOs and counting 10 percent of single premiums) was Puerto Rico ($1,270), followed by Alaska ($2,759), which in turn was significantly lower than the third-lowest (Kansas, $3,224). The jurisdiction with the highest average premium was West Virginia ($7,497, a spike caused by two single premium sales; with those removed, West Virginia average would have been $4,952). West Virginia was followed by New England states (which typically have high average premiums)—Connecticut ($5,865), Massachusetts ($5,850), Rhode Island ($5,755), and New Hampshire ($5,611).

Data for 2017 and earlier years included FPOs in these calculations, overstating the average premium per new insured and buying unit.

Issue Age
Table 15 shows that 5.8 percent of 2022’s policies were sold to people under age 40, which reflects that delayed Washington sales likely affected our distribution of business when comparing to 2020 levels. The reduction in worksite business does not impact this distribution because starting in 2017, we stopped getting sales distributions from insurers focused on the worksite market.

Last year, we estimated that our participants’ average issue age in Washington was about 15 years lower than outside Washington.

Note: one survey participant has a minimum issue age of 40, one will not issue below 30, and one will not issue below 25.

Benefit Period
Table 16 summarizes the distribution of sales by benefit period. The average benefit period rebounded to near 2020 levels but there were still more policies issued with 3-year or shorter benefit periods than any year prior to 2021. Delayed Washington sales likely had some impact here; although, insurers instituted minimum premium rules in Washington in 2021 that likely avoided some short benefit period sales.

Monthly Benefit
Monthly determination rebounded to 78 percent of policies sold (Table 17). With monthly determination, low-expense days leave more benefits to cover high-expense days, offering more flexibility for insureds. One insurer offers only daily determination; one insurer offers a choice; and the other insurers automatically have monthly (or weekly) determination.

Despite including some delayed Washington policies, the 2022 sales set the record for the highest average maximum monthly benefit ($5,028) (as shown in Table 18). Sales with an initial monthly maximum less than $3,000 ranged from 2.4 percent of an insurer’s sales to 14.7 percent.

Benefit Increase Features
Perhaps because of the reduced amount of worksite business or perhaps because general inflation increased, Table 19 shows that there was an increase in the percentage of policies with 4.5+ percent compounding of benefits. However, despite the general inflation experienced in 2022, protection against future inflation generally decreased, compared to 2020, except for the bounce at 4.5+ percent compounding.

“Indexed Level Premium” policies are priced to have a level premium, but the benefit increase is tied to an index such as the consumer price index (CPI).

As shown in Table 20, we project the age 80 maximum daily benefit by increasing the average initial daily benefit from the average issue age to age 80, according to the distribution of benefit increase features, using current future purchase option (FPO) election rates and a five percent per year offer for fixed FPOs. The maximum benefit at age 80 (in 2045) for our 2022 average 57-year-old purchaser projects to $310/day (equivalent to 2.7 percent compounding). Had our average buyer bought an average 2020 policy two years ago at age 55, her/his age 80 benefit would have been $335/day.

In Table 20, the 2022 figure of $310 might look comparable to the 2020 ($305) and 2019 ($306) figures but note that the 2020 and 2019 projections were to 2042 and 2041, respectively. We project only $4 to $5 more daily benefit to offset inflation to 2045 (3 or 4 more years).

Pandemic protocols are likely to increase facility costs and there are a variety of inflationary pressures which apply to LTC staff salaries at all types of venue. Yet, despite greater awareness of inflation, 2022 purchasers, on average, will have 7.5 percent less coverage at age 80 than would have been the case if they had bought an average 2020 policy in 2020. People are likely to be disappointed by the purchasing power of their policies when they need care if actual cost of care trends exceed the protection built into policies. Policies with flat benefits will experience even greater erosion of purchasing power.

FPOs (Table 21) are important to insureds in order to maintain purchasing power, and 70 percent of our participants’ 2022 FPOs were exercised. The high election rate is noteworthy, considering that the cost increases each year due to larger coverage increases each year, increasing unit prices due to age, and additional price increases due to rate increases.

One participant had an election rate of 96 percent, two had 63 to 68 percent, two had 42 to 51 percent, and one had 12.5 percent. The company with the lowest election rate did not contribute data last year. Participants that reported FPO election rates in both 2021 and 2022 had an increase in election rate from 78.2 percent in 2021 to 88.4 percent in 2022, but the average new premium per FPO election dropped.

Higher election rates occur if FPOs are more frequent (i.e., every year vs. every three years), if elections are “negative-election” (i.e., activate automatically unless the client rejects them) as opposed to “positive-election” (i.e., which activate only if the client makes a request), and if policyholders must exercise FPOs to continue to receive future offers.

FPOs can also be important to insurers. Two insurers got a large percentage of their new premium (42 percent for one; 39 percent for the other) from FPO elections.

Elimination Period
Table 22 summarizes the distribution of sales by facility elimination period (EP). The percentage of people buying 84-100 day EP rebounded to more than 91 percent. Two insurers saw 9.6 and 12.2 percent of their buyers choose EPs of longer than 100 days.

Table 23 shows the percentage of participant policies with zero-day home care elimination period (but a longer facility elimination period). The purchase rate of an additional-cost zero-day home care EP option is sensitive to the price. Table 23 shows a drop in 0-day home care EP influenced by Transamerica’s departure from the market.

Table 23 also shows the percentage of participant policies with a calendar-day EP. It is important to understand that most calendar-day EP provisions do not start counting until a paid-service day has occurred. The drop in calendar-day EP results from a change in distribution between carriers.

Sales to Couples and Gender Distribution
As shown in Table 24, which summarizes the distribution of sales by gender and partner status, a majority of 2022 purchasers (54.1 percent) were once again female, reversing from 2021.

The percentage of accepted applicants who purchase coverage when their partner is declined dropped below 80 percent for the first time since 2018. It varies significantly by insurer based on their couples pricing and their distribution system. Only two insurers were able to report this data. Their results were similar (77 and 80 percent, respectively) for the percentage of accepted applicants who purchased coverage after a partner’s denial.

Shared Care and Other Couples’ Features
Table 25 summarizes sales of Shared Care and other couples’ features.

  • Shared Care allows one spouse/partner to use the other’s available benefits if their own coverage has been depleted or offers a third independent pool the couple can share.
  • Survivorship waives a survivor’s premium after the first death if specified conditions are met (such as having been inforce for 10 or more years).
  • Joint waiver of premium (WP) waives both insureds’ premiums if either insured qualifies for benefits.

Changes in distribution by carrier can greatly impact year-to-year comparisons (Table 25). Some insurers embed survivorship or joint waiver automatically (sometimes only for particular circumstances such as if Shared Care is purchased), while others offer it for an extra premium or do not offer the feature.

In the top half of Table 25, percentages are based on the number of policies sold to couples who both buy (only limited benefit, for Shared Care). The bottom half of Table 25 shows the percentage of policies that results from dividing by sales of insurers that offer the outlined feature. Joint WP and Survivorship had high election rates this year but Shared Care lagged.
For insurers reporting Shared Care sales, the percentage of both-buying couples who opted for Shared Care varied from four to 77 percent. The corresponding percentage of couples with Joint WP varied from 10 to 100 percent and for Survivorship ranged from 2.4 to 12.5 percent.
Tables 26 and 27 provide additional breakdown on the characteristics of Shared Care sales. Table 26 shows that, for every benefit period except two year, Shared Care was less common than in 2020. The “other” category represents two insurers which reported a few Shared Care sales with benefit periods shorter than two years.

Table 27 looks only at Shared Care policies and reports their distribution across benefit period, so the percentages must total 100 percent. As most policies have three-year benefit periods, most Shared Care policies had a three-year benefit period (Table 27).

Table 26 shows a low percentage of policies having Shared Care, partly because its denominator includes all policies, even those sold to single people or one of a couple. Table 26 denominators are couples who both bought coverage with the particular benefit period. Table 27’s denominator is the number of Shared Care policies.

Shared Care is generally more concentrated in two- to four-year benefit periods than are all sales. Couples are likely to buy shorter benefit periods because couples plan to help provide care to each other and expect the male partner to not need care for a long time. If the female provides care and the male does not need LTC for a long time, more coverage is available for the surviving female when she needs care. As shown in Table 24, single buyers are more likely to be female and females are more likely to opt for a longer benefit period.

Existence and Type of Home Care Coverage
Three participants reported sales of facility-only policies, which accounted for 0.3 percent of total sales. One insurer was responsible for 89 percent of such sales. Nearly 96 percent of the comprehensive policies included home care benefits equal to the facility benefit. The other sales all had a home care benefit of at least 50 percent of the nursing home benefit. The last home-care-only sale in our survey was sold in 2018.

Other Characteristics
As shown in Table 28, partial cash alternative features (which allowed claimants, in lieu of any other benefit that month, to use between 10 and 40 percent of their benefits for whatever purpose they wish) were included in fewer of our participants’ policies due to a change in market share among participants. One insurer sold 89 percent of such features, which demonstrates how a shift in distribution between insurers can change sales distributions.

Return of premium (ROP) features were included in 7.6 percent of policies. ROP returns some or all premiums (usually reduced by paid LTCI benefits) when a policyholder dies. Roughly 69 percent of ROP features were embedded automatically in the product. Embedded features are designed to raise premiums minimally, typically decreasing the ROP benefit to $0 by age 75. Table 28 shows a large drop in sales with ROP from historical percentages, which reflects not only a change of distribution between insurers but also a change in distribution between products within an insurer. Correspondingly, the percentage of ROP features that were automatically embedded dropped from nearly 90 percent in 2021. The drop is entirely due to one insurer. Collectively, the other insurers had approximately the same percentage as last year.

Restoration of Benefits (ROB), which restores used benefits when the insured has not needed services for, typically at least six months, was included in 17.6 percent of policies with limited benefit periods. Roughly 90 percent of ROB features were automatically embedded.

Insurers must offer shortened benefit period (SBP) coverage, which makes limited future LTCI benefits available to people who stop paying premiums after three or more years. The insurers able to report SBP sales, sold SBP to 4.1 percent of buyers.

Only one insurer issued non-tax-qualified (NTQ) policies, which accounted for 0.1 percent of total industry sales.

“Captive” (dedicated to one insurer) agents produced 58.8 percent of the sales, a large drop from last year’s Washington-driven share (68.6 percent). Brokers produced the balance. Some direct-to-consumer sales were made but not by our participants. At one time, “captive” agents who sold LTCI tended to specialize in LTCI. Now many are agents of mutual companies.

Sales distribution by jurisdiction is posted on the Broker World website.

Limited Pay and Paid-Up Policies
In 2022, two insurers in the survey sold policies that become paid-up in 10 years or less, accounting for 1.2 percent of sales.

Because today’s premiums are more stable compared to policies sold years ago, premium increases are less likely. One of the key reasons for buying 10-year-pay (avoidance of rate increases after the 10th year) is greatly reduced, while the cost of 10-year-pay has increased, making it less attractive for consumers than in the past. Nonetheless, limited-pay and single-pay policies are attractive to minimize post-retirement outflow and to accommodate §1035 exchanges. Limited pay sales have been increasing slowly as a percentage of total sales since 2019.

Seven participants reported that 3.6 percent of their inforce policies are paid-up, an increasing percentage as the number of paid-up policies is increasing while the total number of policies is decreasing.

PARTNERSHIP PROGRAM BACKGROUND
When someone applies to Medicaid for long-term care services, most states with Partnership programs disregard assets up to the amount of benefits received from a Partnership-qualified policy (some Indiana and New York policies disregard all assets). Except for California, states with Partnership programs grant reciprocity to Partnership policies issued in other jurisdictions. Partnership programs are approved in 44 jurisdictions, all but AK, DC, HI, MA, MS, UT, and VT. However, MA has a similar program (MassHealth).

Four states (CA, CT, IN and NY) blazed the trail for Partnership programs in the early 1990s. Other states were allowed to adopt simplified and more standardized Partnership regulations as a result of the Deficit Reduction Act of 2005 (DRA).

Approximately 60 percent of Partnership states now allow one percent compounding to qualify for Partnership, which can help low-budget buyers qualify for Partnership and also enable worksite core programs to be Partnership-qualified. A higher percentage of policies will qualify for Partnership in the future if insurers and advisors leverage these opportunities. However, currently only three insurers offer one percent compounding.

Partnership programs could be more successful if:

  1. Advisors offer small maximum monthly benefits more frequently to middle-income individuals. For example, a $1,500 initial maximum monthly benefit covers about four hours of home care every two days and, with compound benefit increases, may maintain buying power. Many middle-income individuals would like LTCI to help them stay at home while not “burning out” family caregivers and could be motivated further by Partnership asset disregard. (This approach does not work in CA, CT, IN and NY because of their high Partnership minimum daily benefit requirements.)
  2. Middle-income prospects were better educated about the importance of benefit increases to maintain LTCI purchasing power and qualify for Partnership asset disregard.
  3. The four original Partnership states migrate to DRA rules.
  4. More jurisdictions adopt Partnership programs.
  5. Programs that privately finance direct mail educational LTCI content from public agencies were adopted more broadly.
  6. Financial advisors were to press reluctant insurers to certify their products and offer one percent compounding.
  7. More financial advisors were certified. Some people argue that certification requirements should be loosened. At a minimum, the renewal certification process could be improved.
  8. Linked benefit products became Partnership-qualified.

PARTNERSHIP PROGRAM SALES
Participants reported Partnership sales in 41 states, all authorized states except CA, CT and NY. One carrier sold a Partnership policy in each of the 41 states. One has chosen not to certify Partnership conformance.

Insurance brokers do not have access to Partnership policies in CA, CT and NY and from only one insurer in IN. However, consumers may be able to purchase Partnership-qualified coverage from another entity.

Participants’ Partnership-qualified policies in DRA states rose from 34.6 to 49.9 percent, short of 2020’s 55 percent, presumably influenced by benefit increase provisions being less popular. Minnesota (83.5 percent) leads each year. Wyoming was second (79.5 percent), followed by Maine (73.7 percent) and Wisconsin (70.2 percent). Ten states had between 60 and 70 percent and 23 had at least 50 percent of their policies qualify. Once again, Indiana (5.9 percent) and New Mexico (14.7 percent) were the only states with participant Partnership sales in which fewer than 20 percent qualified.

UNDERWRITING DATA
Case Disposition
Five insurers contributed application case disposition data to the survey (Table 30). Case resolutions in 2022 were similar to 2020. In 2022, 58.2 percent of applications were placed. One insurer placed 74 percent of its cases; the others placed 50 to 56 percent.

Of cases which were resolved, 28.7 percent were declined or deferred, with the percentage varying from 14.6 to 32.7 percent, depending on insurer. To the degree that a declined applicant got coverage elsewhere or a deferred applicant was ultimately approved, the eventual placement rate for applicants is higher than our data indicates.

Overall, 16.1 percent of cases were suspended or withdrawn during underwriting or not accepted or dropped during the free look period. That is the lowest percentage since 2019.
Factors such as age distribution, distribution system, market, underwriting requirements, and underwriting standards affect these results.

Table 31 shows the placement rate by applicant age. This data is a subset of the placement data in Table 30 as some carriers cannot provide this data by age.

Low placement rates increase insurers’ cost per placed policy. More importantly, low placement rates discourage advisors from discussing LTCI with clients. In addition to not wanting to waste time and effort, advisors may fear that declined clients will be dissatisfied. In the Market Perspective section, we listed ways to improve placement rates. This is a critical issue for the industry. If readers have suggestions, they are invited to contact the authors.

Underwriting Tools
Five insurers contributed data to Table 32, which divides the number of uses of each underwriting tool by the number of applications processed. For example, the count of instances where medical records were requested was 88 percent of the number of applications. That does not mean that 88 percent of the applications involved medical records, because some applications resulted in more than one set of medical records being requested.

Year-to-year changes in distribution of sales among insurers significantly impact results. Lower maximum ages result in fewer face-to-face exams. Insurers might underreport the use of an underwriting tool because they may lack a good source for that statistic. For example, an insurer might not be able to split phone interviews by whether or not they include cognitive testing.

Underwriting Time
Table 33 shows that for six insurers, the average processing time, from receipt of application to mailing the policy, was 49 days. As with other statistics, we believe that our underwriting data overstates the percentage of policies with long underwriting periods because of Washington cases.

Rating Classification
Table 34 shows that more than half of 2022 policies were issued in the most favorable rating classification. The table suggests that the percentage of decisions that are either declined or placed in the 3rd or less-attractive classification is reducing slowly, but Table 36 shows that the decline rate was higher in 2022 than in 2020 for each age group. The discrepancy is related to different carriers contributing to the two tables and changing distributions of business.

Tables 35 and 36 show the 2022 percentages of policies issued in the most favorable category and decline decisions by issue age. These tables do not exactly match Table 34 because some participants provide all-age data, rather than separating it by age. The percentage placed in the most favorable classification increased for all ages from 2020 to 2022, at least partly due to changing distribution by age.

The decline rate was higher in 2022 than in 2020 for each age group, even though the younger ages still reflect some 2021 lagged sales. For the past 3 years, the percentage placed in the most favorable classification has been higher for ages 75+ than for ages 70-74 and the decline rate has been lower. The age 75+ block is the smallest and most susceptible to statistical fluctuation, but the primary cause appears to be different distribution of insurers by age. For example, some insurers do not have a “preferred” health discount; the bulk of their policies are issued in their “most favorable” class.

MORE INFORMATION AT WWW.BROKERWORLDMAG.COM
Only available at www.BrokerWorldMag.com:

  • Product Exhibit shows, for 6 insurers: financial ratings, LTCI sales and inforce policies, and product details.
  • Product Details, a row-by-row definition of the product exhibit entries, with commentary.
  • Premium Exhibit, which shows lifetime annual premiums for each insurer’s most common underwriting class, for issue ages 40, 50, 60, and 70 for single females, single males, and female/male couples (assuming both are the same age), based on $100 per day (or closest equivalent monthly) benefit, 90-day facility and default home care elimination period (other aspects vary), three-year and five-year benefit periods or $100,000 and $200,000 maximum lifetime buckets, with and without Shared Care and with flat benefits or automatic three and five percent annual compound benefit increases for life. The exhibit includes facility-only policies, as well as comprehensive policies. Worksite products do not reflect any worksite-specific discount.
  • Premium Adjustments (from our published prices) by underwriting class for each participant.
  • Distribution by underwriting class for each participant.
  • State-by-state results: percentage of sales by state, average premium by state and percentage of policies qualifying for Partnership by state.

CLOSING
We thank insurance company staff for submitting the data and responding to questions promptly. We thank our reader, Ellen Atkins, who suggested we explore the differences in hospice benefits among our participants. We also thank Sophia Fosdick and Quentin Clemens of Milliman for managing the data expertly.

We reviewed data for reasonableness and insurers reviewed their product exhibit displays. Nonetheless, we cannot assure that all data is accurate.

If you have suggestions for improving this survey (including new entrants in the market), please contact one of the authors.

Footnotes:

2022 Milliman Long Term Care Insurance Survey

The 2022 Milliman Long Term Care Insurance Survey is the 24th consecutive annual review of stand-alone long-term care insurance (LTCI) published by Broker World magazine. It analyzes the marketplace, reports sales distributions, and describes available products.

More discussion of worksite sales, including a comparison of worksite sales distributions vs. non-worksite sales distributions will be in Broker World magazine’s August issue.

Unless otherwise indicated, references are solely to U.S. stand-alone LTCI sales, excluding exercised future purchase options (FPOs) or other changes to existing coverage. “Stand-alone” refers to LTCI policies that do not include death benefits (other than returning premiums upon death or waiving a surviving spouse’s premiums) or annuity or disability income benefits. Where referenced, “combo” products provide LTCI combined with life insurance or annuity coverage. “Linked benefit” policies are combo policies which can allow more than the death benefit or annuity account value to be used as LTCI.

All references to sales in terms of “premium” refer to “annualized” premium (1 x annual; 2 x semi-annual; 4 x quarterly; 12 x monthly), even if only one monthly premium was received before year-end. All references to “Washington” or “WA” refer to the state of Washington. “WCF” refers to the “WA Cares Fund,” explained in the Market Perspective section.

Highlights from this year’s survey

Participants
Seven insurers (Bankers Life, Knights of Columbus, Mutual of Omaha, National Guardian Life, New York Life, Northwestern, and Thrivent) contributed broadly to the stand-alone sales distributions reported herein. Total industry sales include, for seven additional companies, either reported sales (without sales distribution data) or the authors’ estimates of sales.

Our statistical distributions reflect non-worksite LTCI sales well. However, our worksite sales distributions do not reflect low-price worksite programs. Carriers that provided 2021 distributions had an average worksite annual premium of $2,077, whereas the insurers that provided sales, but not distributions, had an average worksite premium of $674 annually.
Auto-Owners, MassMutual and Transamerica all stopped selling stand-alone LTCI in 2021.
The following ten insurers contributed to our combination sales data: AFLAC, John Hancock, Mass Mutual, New York Life, Nationwide, Northwestern Mutual (Northwestern), OneAmerica, Pacific Life, Securian, and Trustmark.

Sales Summary

  • We estimate total stand-alone LTCI annualized new premium sales of nearly $200 million1 in 2021 (including exercised FPOs, except FPOs for insurers no longer selling LTCI), almost 1/3 more than our 2020 estimate of $150 million.1 However, premium outside the state of Washington decreased 6.0 percent, based on the insurers that reported sales.
  • We estimate that 140,000 to 150,000 people purchased stand-alone LTCI coverage in 2021, more than triple the 2020 numbers. Outside of WA, the number of new insureds dropped 9.4 percent based on the insurers that reported sales.
  • Worksite sales soared. We estimate that new annualized premium from worksite sales tripled in 2021, while non-work-site premium increased by 6.0 percent. We estimate that there were about 9.3 times as many worksite sales in 2021 compared to 2020, while non-worksite sales increased 47 percent.
  • Insurers providing sales information to this survey reported approximately $155 million1 in 2021 annualized new premium sales (including exercised FPOs) and 75,162 new policies, 25 percent more premium and 2.18 times more policies than the same insurers sold in 2020. The balance of the new premium sales in the previous bullets reflects our estimates for insurers not providing sales information.
  • For the first time ever in our survey, more males purchased LTCI than females, which appears to have been driven by the WCF exemption.
  • As noted in the Market Perspective section, the number of policies sold combining life insurance with LTCI or Chronic Illness benefits soared. Premium increased significantly as well, but because WA sales had a young average age and a small average face amount, the second half of 2021 average size combination life premium was only about one-quarter of the corresponding 2020 average premium.
  • Among carriers currently issuing LTCI, Northwestern had a large lead in annualized new premium including FPO elections, selling slightly more than the #2 and #3 insurers combined (Mutual of Omaha and New York Life, respectively). However, similar to last year’s survey, Mutual of Omaha led Northwestern in annual­ized premium from new policies sold.

Reflecting nine companies’ data, the inforce number of cases increased for the first time since 2014, by 3.6 percent, because of WA sales. Annu­alized premium rose 6.7 percent. Inforce premium rises due to sales, price increases, and benefit increases (including FPOs), and falls from lapses, reductions in coverage, deaths, and shifts to paid-up status.

Collectively, seven participants paid about one percent less in claims in 2021 than in 2020, despite having about 15 percent more claimants.

Overall, the stand-alone LTCI industry incurred $12.9 billion in claims in 2020 (essentially the same as 2019) based on companies’ statutory annual filings, raising total incurred claims from 1991 through 2020 to $167.3 billion. (Note: 2020 was the most recent year available from statutory filings when this article was written.) Most of these claims were incurred by insurers that no longer sell LTCI.

About the Survey
This article is arranged in the following sections:

  • Highlights provides a high-level view of results.
  • Market Perspective provides insights into the LTCI market.
  • Claims presents industry-level claims data.
  • Sales Statistical Analysis presents industry-level sales distributions reflecting data from 8 insurers.
  • Partnership Programs discusses the impact of the state partnerships for LTCI.

Available only online:

  • Product Exhibit shows, for 6 insurers: financial ratings, LTCI sales and inforce business, and product details.
  • Product Exhibit Details, a row-by-row definition of the product exhibit entries, with some commentary.
  • Premium Exhibit shows lifetime annual premiums for each insurer’s most common underwriting class, for issue ages 40, 50, 60, and 70 for single females, single males, and female/male couples (assuming both buy at the same age), based on $100 per day (or closest equivalent weekly or monthly) benefit, 90-day facility and most common home care elimination period, three-year and five-year benefit periods or $100,000 and $200,000 maximum lifetime buckets, with and without Shared Care and with flat benefits or automatic three or five percent annual compound benefit increases for life. Worksite premiums do not reflect any worksite-specific discount, though some carriers offer this.
  • Premium Adjustments (from our Premium Exhibit prices) by underwriting class for each participant.
  • Distribution by underwriting class for each participant. Depending upon the product shown for an insurer in the Product Exhibit, we sometimes adjust that insurer’s underwriting distribution to provide readers a better expectation of likely results if they submit an application in the coming year and to line up with the prices we display. For example, if the Product Exhibit shows only a new product which has only one underwriting class (hence one price), but the insurer’s data partly or solely reflect an older product with three underwriting classifications, we might choose to show “100 percent” in their best (only) underwriting class.
  • State-by-state results show the percentage of sales by state, average premium by state and percentage of policies qualifying for Partnership by state.

MARKET PERSPECTIVE (more detail in subsequent parts of the article)
Washington State’s “Washington Cares Fund” (WCF) stimulated a tremendous demand for private LTCI from individuals and businesses within WA. WCF imposes a 0.58 percent payroll tax to fund a $36,500 lifetime pool (intended to inflate according to the Washington consumer price index) for care received in WA as defined in the Revised Code of Washington 50B.04. However, people who purchased qualifying private stand-alone or combination LTCI by November 1, 2021 could file to be exempt from the tax. Partly because the tax applies to all earned income, LTCI sales in Washington soared to unprecedented levels. Insurers quickly became backlogged with applications and were concerned about early lapses as the law provided a permanent WCF exemption based on only a one-time attestation. Insurers reduced design flexibility, and then discontinued sales in WA before the November 1 deadline. Nonetheless, as shown in the WA table, WA accounted for 60 percent of reported stand-alone LTCI policies sold and 60 percent of combination life/LTCI on-going premium (i.e., excluding single premium) policies sold in 2021 after having accounted for 3.0 percent of stand-alone LTCI sales in 2020 and only 1.6 percent of combination life/LTCI sales in 2020. Including estimated sales, we think more than 70 percent of the stand-alone policies sold in 2021 were sold in WA. (Note: WA had received 470,000 applications for exemption as of March 2022.)

As shown in the WA Table, insurers reported 44 times as many stand-alone policies sold in WA in 2021 as in 2020 but only 12 times as much new annualized premium. The WA table also shows the highest and lowest insurer results for the statistics in this and following bullets. Outside WA, insurers reported 6.0 percent less premium and 9.4 percent fewer policies in 2021 than in 2020. As mentioned earlier, our participants sold 2.18 times as many policies but only 25 percent more premium in 2021 than the same insurers sold in 2020. Total industry growth was higher than participant growth because the worksite market is substantially under-represented in the sales reported in the survey.

As shown in the WA Table, insurers reported 92 times as many combination on-going premium policies sold in WA in 2021 as in 2020 but only 9.8 times as much new annualized premium. Outside WA, insurers reported 0.6 percent more policies and 18 percent more premium in 2021 than in 2020. As a result, our national data for such combination policies shows 2.5 times as many new policies and 1.4 times as much annualized new premium. We collected single premium information as well, but we are reporting only the on-going premium results as WA sales had a much smaller impact in the single premium market.

As reflected in the table, reported data suggested that combination policies grew much faster in WA than stand-alone LTCI. However, including our estimates, the stand-alone sales grew a little more than the reported combination sales, and full-market combination sales may have grown less than 92 times as our data may reflect a higher percentage of the worksite combination market than of the individual combination market.

The bottom row in the combination portion of the table reflects a statistical “anomaly.” Combining data for the 10 combination insurers, the 2021 average premium was 10.6 percent of the 2020 average premium. However, the insurer with the minimum ratio had a 2021 average premium equal to 26.1 percent of its 2020 average premium. That is, the overall ratio was 10.6 percent but no insurer had a ratio less than 26.1 percent. That happened because the distribution of the business among insurers shifted significantly between 2020 and 2021. The company with the 88.5 percent ratio had low average premiums in both 2020 and 2021 and had a much bigger market share in 2021, driving down the average premium. If that company is removed from the data, the combined ratio of 2021 average size to 2020 average size would increase from 10.6 to 22.4 percent which would fall within the range of the minimum (26.1 percent) and the revised maximum (48.5 percent).

LIMRA’s U.S. Life Combination Products Sale Survey, 2020 (above we cited 2021 results) saw seven percent fewer policies and 23 percent less annualized new premium combined across whole life, universal life, variable universal life and term, with variable life performing the best (four percent more policies than in 2019 but two percent less new premium). The stand-alone LTCI industry performed better during that time period, as we estimated last year, with 13 percent less premium than in 2019.

However, LIMRA reports that the combination market rebounded in the first six months of 2021, enjoying 10 percent growth in policies and nine percent growth in premium, before significant increases driven largely by the WCF exemption. Based on 17 insurers’ contributions, LIMRA reports the following quarterly nationwide gains in 2021 over 2020. Note that a growth of 3,813 percent means that 39.13 times as many policies were sold. It is hard to compare LIMRA data to our survey data. LIMRA had more contributors than we did and a different representation of the individual market vs. worksite. We reported year-over-year results compared to LIMRA’s quarterly results below. Our data seems to show more growth but lower average premium, probably due to different data contributors and our inclusion of more worksite business in the estimates.

WA sales distorted the characteristics of sales significantly, as will be explained throughout this report. Given the observed sales in WA, it appears likely consumers generally sought the least expensive way to opt out of WCF.

The national placement rate increased from 57.8 percent in 2020 to 61.7 percent in 2021 (as shown in Table 24), driven by WA sales. WA had a 72.7 percent placement rate, which appears to be influenced by healthy and young applicants. Outside WA, the placement rate was 54.1 percent. Only 13.3 percent of WA business was declined (27.4 percent elsewhere) and declines were lower in WA for all age bands. Only 14.1 percent of WA business was incomplete, suspended, not taken out or returned during the free look period (18.5 percent elsewhere). Our surveys have never found placement rates parallel to 2021 WA experience. (Note: One survey participant sold a short-term care policy that they stated qualified for WCF exemption. Had we included it in this paragraph’s statistics, the WA placement ratio would have been even higher)

Higher placement ratios are critical to encourage more financial advisors to mention LTCI to clients. The following opportunities can improve placement rates.

  • E-applications speed submission and reduce processing time, thus generally increasing placement.
  • Health pre-qualification effectively and efficiently decreases decline rates.
  • Education of distributors, such as drill-down questions in on-line underwriting guides, tends to improves placement.
  • Requiring cash with the application (CWA) led to about five percent more of the apps being placed according to our 2019 survey.
  • Improved messaging regarding the value of LTCI and of buying now (rather than in the future) typically improves the placement rate by attracting younger and healthier applicants.

Future private LTCI sales in WA will be watched closely to determine the impact of WCF. For example:

  • Will WCF cause consumers to become more attentive to their potential LTC needs?
  • Will consumers feel a need to supplement WCF coverage? If so, what products and designs will consumers favor to supplement WCF?
  • Will WCF messaging promote private LTCI purchases?
  • How will explaining WCF and its differences from private LTCI (such as different claim triggers, lack of portability outside WA, and/or lack of Partnership qualification) impact the sales process and attitudes regarding selling and buying LTCI?
  • Will the insurance industry develop new products to fit a market with WCF coverage?
  • Will the rush of 2021 private LTCI sales dry up future demand for private LTCI in WA?
  • Will future legislation modify WCF? If so, how will that impact private LTCI sales?
  • Will consumer, insurance agent, and/or insurer attitudes be affected by the possible perception that WCF benefits will be made more generous in the future?

Other states are considering state-run LTCI programs. For example, California has completed an initial feasibility study and established a task force to explore the possibility of a state LTCI program.

  • Will insurers be interested in complementing state programs if those programs vary by jurisdiction?
  • Will brokers consider such complexity worth their effort?
  • Will employers and employee benefit advisors consider LTCI programs if they must vary by employee resident state?
  • What will happen to individuals who move from one state to another?
  • Will inconsistencies increase pressure for a uniform national program?
  • Will consumers, employers, brokers and insurers sit on the sidelines in what they might view as a turbulent short-term market?
  • How might reactions parallel or contrast with reactions to the original Robert Woods Johnson Partnerships and the partnership provisions of the Deficit Reduction Act of 2005?

The COVID-19 (COVID) pandemic may have driven increased consumer interest in life insurance. LIMRA reported a five percent increase in life insurance policies sold in 2021 over 2020 with a 20 percent increase in annualized premium and projects a 10 percent premium increase for whole life policies in 2022, with an additional increase in 2023.2 Thirty percent of survey responders say they are more likely to buy life insurance as a result of the pandemic2.

Above, we reported much larger increases because we focused on LTC-related policies, whereas these results include life insurance policies that lack LTC-related features.

Last year, we published (in a separate article in the June issue of Broker World) our survey participants’ reaction to the pandemic. This year, we asked for updated responses.

Insurers still do not anticipate any change in LTCI pricing due to the pandemic. It remains to be seen whether having had COVID will impact the future incidence, length, or severity of LTCI claims.

Insurers also do not anticipate permanent changes to procedures due to the COVID pandemic. Some insurers temporarily liberalized claims adjudication (e.g., waiving face-to-face assessments, broadening alternative plan of care) and underwriting (e.g., waiving face-to-face assessments, less insistence on current medical records) but anticipate restoration of previous protocols.

Having had COVID without being hospitalized generally seems to require a 30-to-60 day wait after full recovery before an application will be considered. With hospitalization, a 180-day wait is typically imposed from the date of recovery. Having been in contact with someone who had COVID or having travelled abroad is generally a non-issue, although one insurer mentioned a 14-day wait for contact (without having to supply a new application) and one insurer mentioned a 30-day wait for having traveled abroad.

The FPO (future purchase option, a guaranteed, or a non-guaranteed board-approved, option, under specified conditions, to purchase additional coverage without demonstrating good health) election rate dipped from 81.8 to 78.2 percent in 2021. As both the additional coverage and unit price increase for FPOs as policies age, FPOs become increasingly expensive, even more so with inforce price increases. The high election rate may reflect the importance of LTCI to policyholders and the effectiveness of annual (as opposed to triennial) negative-election FPOs. Negative-election FPOs activate automatically unless the client rejects them. Positive-election FPOs activate only if the client initiates a timely request. Considering such FPOs and other increased coverage provisions, we project a maximum benefit at age 80 of $292/day for an average 51-year-old purchaser in 2021, which is equivalent to an average 2.7 percent compounded benefit increase between 2021 and 2050. In 2020, the average 58-year-old purchaser anticipated an age 80 benefit (in 2042) of $305. So, the average 2021 purchaser will have four percent less coverage, despite facing eight more years of inflation in the cost of care. WA sales’ lower initial monthly maximum benefit and less robust compounding contributed to this reduction in estimated coverage. This is the lowest effective rate of compounding that we’ve seen in the survey, yet inflation appears to be an increasing threat now. As noted in the initial monthly maximum and benefit increase feature discussions below, 2021 WA sales might be more exposed to voluntary reductions, which could drop future coverage from 2021 sales even lower. Purchasers may be disappointed if the purchasing power of their LTCI policies deteriorates over time.

Current premiums are much more stable than past premiums, partly because today’s premiums reflect much more conservative assumptions based on far more credible data3 and lower assumed investment yields. Three participants have never increased premiums on policies issued under “rate stabilization” laws, one of whom has had no increases on policies issued since 2003. Four other participating insurance companies have not raised rates on policies issued since 2015 (going back to 2013 for a couple of them). A financial advisor who is not aware of the price stability of new policies may be reluctant to encourage clients to consider LTCI.

Stand-alone LTCI without a return of premium feature can be sold for a lower premium than a linked-benefit product that adds a death benefit. However, that price advantage of stand-alone LTCI has reduced for partnered individuals. Not long ago, partnered people buying alone typically got a 15 percent discount compared to the single-person price of stand-alone LTCI, which was a bigger percentage discount than the typical linked-benefit product savings for partnered individuals. Now, partnered people buying alone typically get only a five percent discount with stand-alone LTCI, which is lower than the typical linked-benefit savings. Both-buy couples’ discounts typically provide more of an advantage for stand-alone LTCI as the linked-benefit price saving for married people is often the same whether or not the spouse purchases. However, that advantage has also reduced because both-buy discounts for stand-alone LTCI have dropped.

Linked benefit products tend to be attractive to consumers because if the insured never has a LTC claim, their beneficiary will receive a death benefit and because they often have guaranteed premiums and benefits. As noted above, stand-alone LTCI’s price advantage for couples has reduced. Furthermore, in an increasing interest rate environment, products with the ability to reflect higher non-guaranteed interest rates are likely to have a cost advantage.

However, it is important to remember that typical stand-alone and linked-benefit products provide much more significant LTC protection than combination policies which provide LTCI only through an accelerated death benefit.

  1. Accelerated Death Benefit (ADB) provisions do not increase over time. By the time claim payments are made, stand-alone and linked-benefit policies’ maximum monthly benefit (on policies with benefit increase features) will have risen significantly.
  2. Stand-alone and linked-benefit policies have lower renewal termination rates than policies with ADB. Thus, they are much more likely to pay LTCI benefits.
  3. Because stand-alone policies are usually “use-it-or-lose it,” stand-alone policies might be more likely to be used to pay for care, whereas policies with ADB features might be held for the death benefit. On the other hand, ADB features are more likely to be cash benefits and fully paid.

Four participants offer coverage in all U.S. jurisdictions, but only two participants issued in all 50 states plus the District of Columbia. Insurers are reluctant to sell in jurisdictions which have unfavorable legislation or regulations, restrict rate increases, or are slow to approve new products. Lack of product availability in a jurisdiction can complicate or thwart a worksite case.

Life insurers generally have a retention limit (i.e., how much risk they’ll retain for a particular individual), an issue limit (i.e., their retention limit plus the amount of reinsurance they have arranged) and a participation limit. Even if an application requests coverage below their issue limit, insurers don’t typically issue coverage that causes a client’s total coverage to exceed their participation limit. Insurers are concerned when total coverage exceeds the apparent need for insurance.

A large death claim hits earnings soon after the insurer learns about the death. In contrast, a LTCI claim is often large because it lasts a long time. In the year of death, a typical LTCI claim reserve is established, so there is not a sudden “hit” to earnings. Over time, the claim reserve may turn out to be insufficient, which can result in spreading the impact of the large claim over multiple years. Thus, LTCI carriers may be less concerned about the impact of a single claim on current earnings. However, LTCI carriers have strong reasons to be concerned about over-insurance, especially if clients can profit from being on claim. So, we queried about participation limits this year and got seven responses.

Three insurers lower their LTCI issue limit to offset other inforce or applied-for stand-alone LTCI, considering current coverage not future increases. Two of those insurers adjust for LTCI that is issued as part of a combination product and one of them lowers its issue limit if other coverage including Chronic Illness riders exceeds $50,000/month or $2,000,000/lifetime. The other four respondents have no participation limit.

CLAIMS
Independent Third-Party Review (IR) is intended to help assure that LTCI claims are paid appropriately.

Since 2009 (in some jurisdictions), if an insurer concludes that a claimant is not chronically ill as defined in the LTCI policy, the insurer must inform the claimant of his/her right to appeal to IR, which is binding on insurers. As shown in our Product Exhibit, most participants have extended IR beyond statutory requirements, most commonly to policies issued prior to the effective date of IR.

In some states, regulators have not set up the required panel of independent reviewer organizations (IROs), and there has been no consumer pressure for those states to do so, which may suggest that insurers are doing a good job.

Indeed, of seven insurers which provided claims information this year, three have never had a request for IR and a fourth does not seem to track IR.

We are not aware of regulators who track IR results, but Steve LaPierre, President of LTCI Independent Eligibility Review Specialists, LLC (LTCIIERS), the largest IR organization, reports a moderate volume of IRs in 2021, with fewer than three percent of insurer denials being partially or fully reversed. LTCIIERS’ data, which include information from insurers that no longer sell LTCI and insurers that offer IR even in the absence of an implemented state IR requirement, appears to demonstrate that insurers are not inappropriately denying claims.
Seven participants reported 2021 claims. As some companies are not able to provide detailed data, some statistics are more robust than others.

Those seven insurers’ combined claim payments were about one percent lower in 2021 than in 2020. However, insurers reported 15 percent more claimants, so the average number of dollars paid per claimant in 2021 dropped about 16 percent from the previous year. This drop could reflect:

  • A shift from facility claims to less expensive home care claims (or family care), perhaps triggered by the pandemic.
  • An unusually high number of claim terminations, possibly due to the pandemic.
  • An unusual distribution of new claims weighted toward the end of the year and/or terminated claims weighted more toward the beginning of the year, either of which would cause fewer claim payments to be made on average in a particular year.

The LTCI industry has paid out benefits to policyholders far greater than indicated in the results of our survey, because many claims are paid by insurers that do not currently sell LTCI or did not submit claims data to us.

LTCI claims paid by insurers no longer selling LTCI may differ significantly from the following statistics as their claimants are more likely to have facility-only coverage, be older, and/or have other different policy or demographic characteristics.

Table 1 shows the total dollar and number of reported individual and multi-life (not group) LTCI claims. It reflects the same carriers for both years. As noted above, total paid claims were down one percent, although the number of claimants rose 15 percent.

The pandemic likely contributed to the lower average 2021 expenditure per claim by reducing the number of facility claims. A reduced payout per claim could also result from new claims being more weighted toward the end of the year or claim terminations being more weighted toward the beginning of the year.

As mentioned above, Table 2 shows that, for insurers reporting claims data, claims shifted away from assisted living facilities (ALFs) and to a lesser degree away from home care, dramatically so on an inception-to-date basis. Different insurers contributing data from one year to another and/or contributing differently makes it harder to identify trends. The Table 2 dollars of claims data include one additional company this year. Another insurer previously assigned all of a claimant’s benefits based on the venue in the claimant’s first month of claim. This year, they reported based on the venue for each claim payment, pushing Table 2 toward nursing homes. “Since inception” means since the insurer first started selling LTCI or as far back as they can report these results (for example, they may have changed claims administration systems and not be able to go all the way back to inception easily).

In the distribution based on number of claims, a person who received care in more than one venue is counted once for each venue, but not double-counted in the total line.

Four carriers reported open individual claims at year-end ranging between 53 percent and 81 percent of the number of claims paid during the year, averaging 70 percent overall.

Table 3 shows average size individual claims since inception: that is, including older claims and reflecting all years of payment. Assisted Living Facility (ALF) claims and Home Care claims showed lower average sizes this year, related to the change in reporting mentioned above. Because 40 percent of claimants since inception have submitted claims from more than one type of venue, the average total claim might be expected to exceed the average claim paid for any particular venue. Individual Assisted Living Facility (ALF) claims stand out as high each year (albeit not as much this year), probably because:

a) ALF claims appear to have a longer duration compared with other venues.

b) Nursing home costs are most likely to exceed the policy daily/monthly maximum, hence nursing home claims are most likely to understate the cost of care.

c) People who maximize the use of their maximum monthly benefits can generally spend as much in an ALF as in a nursing home.

d) Although some surveys report that ALFs cost about half as much as nursing homes on average, ALFs may charge more for a memory unit or for levels of assistance that align more closely with nursing home care.

Several insurers extend ALF coverage to policies which originally did not include ALF coverage, providing policyholders with significant flexibility at the time of claim but contributing to the insurers’ need for rate increases.

The following factors contribute to a large range of average claim by insurer (see Table 3):

  1. Different markets (by affluence; worksite vs. individual; geography; etc.)
  2. Demographic differences (distribution by gender and age)
  3. Distribution by benefit period, benefit increase feature, shared care, and elimination period. For example, one carrier has a higher average home care claim than its average facility claims because home care was a rider and people who added the home care rider were more likely to add compound inflation also.
  4. Distribution by facility-only policies vs. 50 percent home care vs. 100 percent home care vs. home care only.
  5. Different lengths of time in the business.
  6. Differences in the ways insurers report claims.

The following factors cause our average claim sizes to be understated.

  1. For insurers reporting claims this year, 16.0 percent of inception-to-date individual claims are still open. Our data does not include reserve estimates for future payments on open claims.
  2. People who recover, then claim again, are counted as multiple insureds, rather than adding their various claims together.

Besides being understated, average claim data does not reflect the value of LTCI benefits from some purchasers’ perspectives, because the many small claims drive down the average claim. LTCI provides significant financial yield for most people who need care one year or longer. A primary purpose of insurance is to protect against adverse results, so the amount of protection, as well as average claim, is important.

Four insurers provided their current individual (excludes group) monthly LTCI claim exposure, which increased by nine percent in 2021 (note: reflects only initial monthly maximum for one insurer). As shown in Table 4, this figure is 29 times their corresponding monthly LTCI premium income and 37 times their 2021 LTCI monthly paid claims. Seven insurers contributed data regarding their inforce distribution by benefit period. Treating endless (lifetime benefit periods) as a 15-year benefit period, we found that their average inforce benefit period is 7.14 years. Changing the assigned value of the endless benefit period by one year has an impact of approximately 0.27 years on the average inforce benefit period. With annual exposure 29 times annual premium and assuming an average benefit period of 7.14 years, we estimate that total exposure is 206 times annual premium.

Four insurers reported their current average individual maximum monthly maximum benefit for claimants, with results ranging from $5,928 to $7,982.

Nursing home (NH) claims are more likely to use the policy’s maximum daily/monthly benefit than ALF claims because ALF daily/monthly costs are generally lower and because policies sometimes have lower maximums for ALFs. ALF claims correspondingly are more likely to use the policy maximum than are adult day care and home care claims.

SALES STATISTICAL ANALYSIS
Bankers Life, Knights of Columbus, Mutual of Omaha, National Guardian, New York Life, Northwestern and Thrivent contributed significant background statistical data, but some were unable to contribute some data.

Sales characteristics vary significantly among insurers based on market differences (individual vs. worksite, affluence, gender distribution, etc.) and this year, with the concentration of LTCI sales in WA. Year-to-year variations in policy feature distributions may reflect industry trends but may also reflect changes in participants, participant practices and designs, participant or worksite market shares, etc. and this year, the WCF. The statistical differences between the worksite and non-worksite sales will be reported in the August issue of Broker World.

Market Share
We include purchased increases on existing policies as new premium because new coverage is being issued. Table 5 lists the eight insurers that reported the most 2021 new premium, both including and excluding FPOs. Seven of the eight insurers had increases in annualized premium of 12 percent or more due to WA sales. Northwestern ranks #1 including FPOs and Mutual of Omaha ranks #1 when looking only at new policies, but Northwestern has reduced Mutual of Omaha’s lead. Together, they account for 60 percent of the market, which, when paired with New York Life’s strong growth, resulted in a 74 percent market share for the top three insurers. The premium below includes 100 percent of recurring premiums plus 10 percent of single premiums.

Worksite Market Share
As demonstrated by LifeSecure (see Table 5), worksite sales soared in 2021 due to WA sales. Overall, we estimate that worksite annualized premium tripled in 2021, contributing 30 percent of total new annualized premium. Worksite sales were approximately 9.3 times those recorded in 2020, accounting for more than 60 percent of coverages sold.

Worksite sales normally consist of three different markets as outlined below, the first two of which produce a higher percentage of new insureds than of new premiums. Worksite 2021 sales were largely voluntary but had the age and premium characteristics of core/buy-up due to WA sales.

  • Voluntary group coverage generally is less robust than individual coverage.
  • Core/Buy-Up programs have particularly young age distributions and modest coverage because a lot of people do not buy-up and are less likely to insure spouses.
  • Executive carve-out programs generally provide the most robust coverage. One- or two-couple executive carve-out sales may not qualify for a multi-life discount with some insurers, hence may not be labeled as worksite sales in submissions to our survey.

The amount of worksite sales reported and its distribution among the sub-markets significantly impact sales characteristics. Table 6 is indicative of the full market (including our estimates for insurers that did not report sales), but this year’s sales distributions do not reflect the insurers focusing in the group voluntary and core/buy-up markets. More information about worksite sales will appear in the August issue of Broker World magazine.

As we noted last year, the future of the non-executive carve-out LTCI market is unpredictable with Transamerica’s departure. LifeSecure, Mutual of Omaha, and National Guardian may pick up market share; combination worksite products are likely to pick up market share; and/or worksite LTCI-related sales might drop.

Affinity Market Share
Affinity groups (non-employers such as associations) produced $7.51 million in new annualized premium based on 2,494 new policies (average premium of $3,011) compared to $7.47 million on 2,762 policies (average premium: $2,706). We do not have WA-specific data for affinity coverage, but the decrease in the number of policies suggests that affinity group sales were not influenced much by the WCF exemption given the sales increases observed for other coverage. The higher average premium reflects price increases for new sales. The percentages in Table 7 reflect only participants’ sales.

Characteristics of Policies Sold
Average Premium Per Sale
To determine the average premium for new sales, we exclude FPOs. Due to WA sales, our participants’ average new business (NB) premium per insured and per buying unit (a couple comprise a single buying unit) each plunged 25 percent in 2021, as shown in Table 8.

Participants’ combined average premium per insured outside WA was $3,785, a five percent increase over 2020’s $3,646 because some carriers raised prices in late 2020 and early 2021. (These numbers are slightly overstated because they do include FPOs.)

Three participants had average WA premiums ranging from $522 to $762 per year. On the other hand, one insurer had an average premium of more than $2,000 per year.

Average WA premium ranged, by insurer, from 21 to 80 percent of average premium outside WA. The two insurers for whom the ratio exceeded 36 percent both doubled their minimum size and required three percent compound inflation in WA, which kept their WA premium from dropping as much as for other insurers. One insurer also raised their minimum issue age in WA significantly. At least one other insurer took all three steps, yet still had a much lower average premium in WA than outside WA.

The jurisdiction with the lowest average new premium for participants in 2021 (including FPOs and counting 100 percent of single premiums) was Washington ($1,089), followed by Puerto Rico ($1,349), and Idaho ($2,137). Indiana and Oregon followed with a more typical $2,912 annual premium. The jurisdiction with the highest average premium was Maine ($5,722), followed by Connecticut ($5,174), New Hampshire ($5,039) and Massachusetts ($5,009).

If we include data from, and estimates for, non-participants, the average premium per insured was $2,557 in the non-worksite market, $661 in the worksite market, and $1,371 overall.

Data for 2017 and earlier years included FPOs in these calculations, overstating the average premium per new insured and buying unit.

Issue Age
Table 9 shows that WA sales dropped our participants’ average age from 57.7 to 50.6, as 31.1 percent of buyers were below age 45 compared to 7.2 percent in 2020.

The shift to younger ages seems understated because some major worksite carriers did not provide age distribution. Some insurers raised their minimum issue age in WA to 40. That shifted young age business to other insurers and to combination products.

A special column in this table shows the percentage of participants’ placed policies that came from WA, based on age. Not surprisingly, 88.9 percent of the policies for people ages 18-29 came from WA, dropping to 87.8 percent for ages 30-39 and 76.3 percent for ages 40-49. At higher ages, the percentage in WA was much lower, but in each age group it exceeded WA’s 2020 three percent market share.

We estimate that our participants’ average issue age in WA was about 15 years lower than outside WA.

The age distributions for 2016 and earlier had more worksite participants than recent years. Note: one survey participant has a minimum issue age of 40, one will not issue below 30, and one will not issue below 25.

Benefit Period
Table 10 summarizes the distribution of sales by benefit period. The average benefit period for limited benefit period policies dropped more than half a year from 3.75 to 3.23. The reduction in length of coverage is even larger; WA sales were less likely to include Shared Care because there were a lot of single and one-of-a-couple sales and because couples trying to minimize cost were less likely to buy Shared Care. Two-year benefit periods accounted for 21.2 percent of the sales, despite not reflecting the major worksite carriers.

Monthly Benefit
A change in distribution by carrier led to the reduction in policies sold with monthly determination (Table 11). With monthly determination, low-expense days leave more benefits to cover high-expense days. One insurer offers only daily determination; one insurer offers a choice; and the other insurers automatically have monthly (or weekly) determination.
WA sales included a significant number of small policies, causing the average initial maximum monthly benefit to drop to $4,045 (as shown in Table 12), the lowest in the history of our survey despite increasing costs for care. Two insurers accounted for 87.4 percent of the sales that had an initial monthly maximum less than $3,000.

Benefit Increase Features
Table 13 summarizes the distribution of sales by benefit increase feature. WCF permitted policies to qualify for exemption even if there were no benefit increases. This contributed to a rise in the percentage of policies nationwide with no benefit increases, from 14.6 to 24.3 percent. Also, the percentage of FPO sales increased from 34.6 to 41.7 percent, presumably because FPOs do not require first-year premium outlay. Future FPO election rates might drop if a meaningful percentage of these buyers have no intention of exercising such options.

“Indexed Level Premium” policies are priced to have a level premium, but the benefit increase is tied to an index such as the consumer price index (CPI).

As shown in Table 14, we project the age 80 maximum daily benefit by increasing the average initial daily benefit from the average issue age to age 80, according to the distribution of benefit increase features, using current future purchase option (FPO) election rates and a five percent per year offer for fixed FPOs. The maximum benefit at age 80 (in 2050) for our 2021 average 51-year-old purchaser projects to $292/day (equivalent to 2.7 percent compounding). Had our average buyer bought an average 2020 policy a year ago at age 50, her/his age 80 benefit would be $394/day. The lower initial maximums and reduced benefit increases driven by WA sales caused this drop in coverage. It is even more striking considering that the 2021 buyers are less likely to exercise FPO options and more likely to reduce the monthly maximum or drop the benefit increase feature and that inflation is a growing concern. Pandemic protocols are likely to increase facility costs and there are a variety of inflationary pressures which apply to LTC staff salaries at all types of venue. Most policyholders seem likely to experience eroding purchasing power over time if cost of care trends exceed three percent.

FPOs are important to insureds in order to maintain purchasing power, and 78.2 percent of our participants’ 2021 FPOs were exercised. The high election rate is noteworthy, considering that the cost increases each year due to larger coverage increases each year, increasing unit prices due to age, and additional price increases due to rate increases.

One insurer had an election rate of 88 percent, two insurers had 67 to 68 percent, one insurer had 47 percent, and two insurers had 25 to 29 percent. It seems clear that higher election rates occur if FPOs are more frequent (i.e., every year vs. every three years) and are “negative-election” (i.e., activate automatically unless the client rejects them) as opposed to “positive-election” (i.e., which activate only if the client makes a request). At least some blocks of business demonstrate that policyholders will exercise FPOs if they must do so to continue to receive future offers.

FPOs can also be important to insurers. Two insurers got a large percentage of their new premium (42 percent for one; 51 percent for the other) from FPO elections.

Elimination Period
Table 16 summarizes the distribution of sales by facility elimination period (EP). The percentage of people buying 84-100day EP dropped arithmetically by 2.2 percent, nearly evenly divided between people opting for shorter EPs and those opting for longer EPs. Five insurers saw between 2.75 and six percent of their new buyers opt for roughly six-month EPs and two of those insurers saw between eight and 11 percent of their new buyers opt for one-year EPs. One insurer mentioned that 20 percent of WA purchasers selected a one-year EP.

Table 17 shows the percentage of participant policies with zero-day home care elimination period (but a longer facility elimination period). For insurers offering an additional-cost zero-day home care EP option, the purchase rate is sensitive to the cost. Table 17 shows a shift away from the zero-day home care EP option due to WA sales, as individuals generally sought out lower cost coverage to qualify for the WCF exemption.

Table 17 also shows the percentage of participant policies with a calendar-day EP. It is important to understand that most calendar-day EP provisions do not start counting until a paid-service day has occurred. A significant part of the drop in calendar-day EP is a change in distribution between carriers.

Sales to Couples and Gender Distribution
Since inception, the LTCI industry has struggled to attract the attention of male consumers. As shown in Table 18, which summarizes the distribution of sales by gender and single/couple status, a majority of 2021 purchasers (51.4 percent) were male, largely influenced by WA sales. Among single purchasers, the male percentage increased from 34.4 to 44.5 percent.

WA sales also spurred an increase in the percentage of one-of-a-couple sales, from 23.9 to 27.5 percent in 2021. The percentage of one-of-a-couple sales to men increased from 44.3 to 58.7 percent in 2021.

The percentage of accepted applicants who purchase coverage when their partners are declined dropped slightly. It varies significantly by insurer based on their couples pricing and their distribution system. Only two insurers (both large and active in WA) were able to report this data. Their results were almost identical (80.3 and 80.9 percent, respectively) for the percentage of accepted applicants who purchased coverage after a partner’s denial.

Shared Care and Other Couples’ Features
Table 19 summarizes sales of Shared Care and other couples features.

  • Shared Care allows one spouse/partner to use the other’s available benefits if their own coverage has been depleted or offers a third independent pool the couple can share.
  • Survivorship waives a survivor’s premium after the first death if specified conditions are met.
  • Joint waiver of premium (WP) waives both insureds’ premiums if either insured qualifies for benefits.

Changes in distribution by carrier can greatly impact year-to-year comparisons (Table 19), as some insurers embed survivorship or joint waiver automatically (sometimes only for particular circumstances. For example, joint waiver of premium might be automatic if Shared Care is purchased) while others offer it for an extra premium, offer it only under some circumstances, or do not offer the feature.

In the top half of Table 19, percentages are based on the number of policies sold to couples who both buy (only limited benefit, for Shared Care). The bottom half of Table 19 shows the percentage of policies that results from dividing by sales of insurers that offer the outlined feature.

Because WA buyers appeared to minimize their cost (as observed by lower reported average premiums), these features were less popular in 2021. Of couples who both bought limited benefit period, only 22.6 percent added Shared Care, compared to previous percentages of 33.4 to 43.0 percent.

For insurers reporting Shared Care sales, the percentage of both-buying couples who opted for Shared Care varied from four percent to 64 percent. The corresponding percentage of couples with Joint WP varied from four to 100 percent and for Survivorship ranged from 2.7 to 9.0 percent.

Tables 20 and 21 provide additional breakdown on the characteristics of Shared Care sales. Table 20 shows that couples buying four-year benefit period policies became the most likely to add Shared Care, presumably because people seeking a minimal premium might buy a 3-year benefit period but without Shared Care. Each benefit period can have anywhere from zero to 100 percent Shared Care among its couples.

Table 21 looks only at Shared Care policies and reports their distribution across benefit period, so the percentages must total 100 percent. As many policies have three-year benefit period, more than half the Shared Care policies had a three-year benefit period (Table 21) even though a higher percentage of four-year benefit period policies had Shared Care (Table 20).

Table 19 shows a low percentage of policies having Shared Care, partly because its denominator includes all policies, even those sold to single people or one of a couple. Table 20 denominators are couples who both bought coverage with the particular benefit period. Table 21’s denominator is the number of Shared Care policies.

Shared Care is generally more concentrated in two- to four-year benefit periods than are all sales. Couples are more likely to buy short benefit periods because couples plan to help provide care to each other and Shared Care makes shorter benefit periods more acceptable. Single buyers are more likely to be female and opt for a longer benefit period.

Existence and Type of Home Care Coverage
Three participants reported sales of facility-only policies, which accounted for 0.4 percent of total sales. One insurer was responsible for 85 percent of such sales. Nearly ninety-six percent of the comprehensive policies included home care benefits equal to the facility benefit. The other sales all had a home care benefit of at least 50 percent of the nursing home benefit. The last home-care-only sale in our survey was sold in 2018.

Other Characteristics
As shown in Table 22, partial cash alternative features (which allowed claimants, in lieu of any other benefit that month, to use between 10 and 40 percent of their benefits for whatever purpose they wish) were included in fewer of our participants’ policies due to a change in market share among participants.

Return of premium (ROP) features were included in 14.2 percent of policies, a surprising increase due to a market share change. ROP returns some or all premiums (usually reduced by paid LTCI benefits) when a policyholder dies. Ninety (90 percent) of ROP features were embedded automatically in the product. Embedded features are designed to raise premiums minimally, typically decreasing the ROP benefit to $0 by age 75.

Due to market share change, 22 percent of policies with limited benefit periods included a restoration of benefits (ROB) provision, which typically restores used benefits when the insured has not needed services for at least six months. Approximately 90 percent of ROB features were automatically embedded.

Insurers must offer shortened benefit period (SBP) coverage, which makes limited future LTCI benefits available to people who stop paying premiums after three or more years. The insurers able to report SBP sales, sold SBP to 4.0 percent of buyers, a small increase due to market share change.

Only one insurer issued non-tax-qualified (NTQ) policies, which accounted for 0.1 percent of total industry sales.

“Captive” (dedicated to one insurer) agents produced 68.6 percent of the sales, their highest percentage since we have been reporting this data. Brokers produced 31.4 percent of the sales. Some direct-to-consumer sales were made but not by our participants. At one time, “captive” agents who sold LTCI tended to specialize in LTCI. Now many are agents of mutual companies.
Sales distribution by jurisdiction is posted on the Broker World website.

Limited Pay and Paid-Up Policies
In 2021, two insurers in the survey sold policies that become paid-up in 10 years or less, accounting for 1.2 percent of sales.

Because today’s premiums are more stable compared to policies sold years ago, premium increases are less likely. One of the key reasons for buying 10-year-pay (avoidance of rate increases after the 10th year) is greatly reduced, while the cost of 10-year-pay has increased, making it less attractive for consumers than in the past. Nonetheless, limited-pay and single-pay policies are attractive to minimize post-retirement outflow and to accommodate §1035 exchanges.

Seven participants reported that 2.9 percent of their inforce policies are paid-up, a lower percentage than last year because an additional insurer participated.

PARTNERSHIP PROGRAM BACKGROUND
When someone applies to Medicaid for long-term care services, most states with Partnership programs disregard assets up to the amount of benefits received from a Partnership-qualified policy (some Indiana and New York policies disregard all assets). Except for California, states with Partnership programs grant reciprocity to Partnership policies issued in other jurisdictions. Partnership programs are approved in 44 jurisdictions, all but AK, DC, HI, MA, MS, UT, and VT, but MA has a similar program (MassHealth).

Four states (CA, CT, IN and NY) blazed the trail for Partnership programs in the early 1990s. Other states were allowed to adopt Partnership regulations (which were simplified and more standardized) as a result of the Deficit Reduction Act of 2005 (DRA).

Approximately 60 percent of Partnership states now allow one percent compounding to qualify for Partnership, which can help low-budget buyers qualify for Partnership and also enables worksite core programs to be Partnership-qualified. A higher percentage of policies would qualify for Partnership in the future if insurers and advisors leverage these opportunities. However, currently only three insurers offer one percent compounding.

Partnership programs could be more successful if:

  1. Advisors offer small maximum monthly benefits more frequently to middle-income individuals. For example, a $1,500 initial maximum monthly benefit covers about four hours of home care every two days and, with compound benefit increases, may maintain buying power. Many middle-income individuals would like LTCI to help them stay at home while not “burning out” family caregivers and could be motivated further by Partnership asset disregard. (This approach does not work in CA, CT, IN and NY because of their high Partnership minimum daily benefit requirements.)
  2. Middle-income prospects were better educated about the importance of benefit increases to maintain LTCI purchasing power and qualify for Partnership asset disregard.
  3. The four original Partnership states migrate to DRA rules.
  4. More jurisdictions adopt Partnership programs.
  5. Programs that privately finance direct mail educational LTCI content from public agencies were adopted more broadly.
  6. Financial advisors were to press reluctant insurers to certify their products and offer one percent compounding.
  7. More financial advisors were certified. Some people argue that certification requirements should be loosened. At a minimum, the renewal certification process could be improved.
  8. Linked benefit products became Partnership-qualified.

PARTNERSHIP PROGRAM SALES
Participants reported Partnership sales in 41 states, all authorized states except CA, CT and NY. One carrier sold a Partnership policy in each of the 41 states. One has chosen not to certify Partnership conformance.

Insurance brokers do not have access to Partnership policies in CA, CT and NY and from only one insurer in IN. However, consumers may be able to purchase Partnership-qualified coverage from another entity.

As only 23.4 percent of participants’ WA policies qualified for the Partnership, participants’ Partnership-qualified policies in DRA states dropped from 55 to 34.6 percent. Other states saw some slippage in Partnership sales, presumably because benefit increase provisions are less popular. Minnesota (76.6 percent, down from 81.4 percent in 2020) leads each year. Wisconsin was second (67.5 percent) and six states had between 60 and 64 percent. Indiana (3.7 percent) and New Mexico (8.3 percent) were the only states with participant Partnership sales in which fewer than 20 percent qualified.

UNDERWRITING DATA
Case Disposition
Seven insurers contributed application case disposition data to the survey (Table 24). In 2021, 61.4 percent of applications were placed due to WA sales. In 2020, 57.8 percent were placed. Two insurers placed 71 to 78 percent of their applications and five insurers placed 45 to 60 percent. One insurer had a lower placement rate than in 2020.

Declines were down in 2021, to 24.6 percent from 29.0 percent in 2020. Decline rates varied by insurer, ranging from 12.0 to 35.1 percent (based on decisions).

The percentage of suspended and withdrawn policies dropped but free look and not-taken (NTO) increased about as much. Our participants experienced between 6.6 and 15.6 percent terminated cases for such reasons. In WA, suspended, withdrawn, and NTOs more often resulted from the applicant finding a less expensive solution, sometimes through their employer. Thus, from a consumer standpoint, the placement rate was likely higher than stated above.

Seven insurers contributed to our WA placement data. They had a 72.7 percent placement rate in WA with a 54.1 percent placement rate outside WA. Their decline rate was 13.3 percent in WA vs. 27.4 percent elsewhere. Their combined withdrawn/suspended/NTO rate was 14.1 percent in WA vs. approximately 18.5 percent outside WA.

The WA placement rate was higher primarily for applicants under age 50.
Factors such as age distribution, distribution system, market, underwriting requirements, and underwriting standards affect these results.

Table 25 shows that the placement rate increased at all ages. The improvements under age 50 resulted from WA sales. One insurer sold a product with a short benefit period that qualifies as LTCI in WA. Had we included that product, placement rates would have been higher at older bands represented in the table.

This data is a subset of the placement data in Table 24.

Low placement rates increase insurers’ cost per placed policy. More importantly, low placement rates discourage advisors from discussing LTCI with clients. In addition to not wanting to waste time and effort, advisors may fear that declined clients will be dissatisfied. In the Market Perspective section, we listed ways to improve placement rates. This is a critical issue for the industry. If readers have suggestions, they are invited to contact the authors.

Underwriting Tools
Four insurers contributed data to Table 26, which divides the number of uses of each underwriting tool by the number of applications processed. For example, the count of instances where medical records were requested was 93 percent of the number of applications. That does not mean that 93 percent of the applications involved medical records, because some applications resulted in more than one set of medical records being requested.

Year-to-year changes in distribution of sales among insurers significantly impact results. Lower maximum ages result in fewer face-to-face exams. Insurers might underreport the use of an underwriting tool because they may lack a good source for that statistic. For example, an insurer might not be able to split phone interviews by whether or not they include cognitive testing.

Medical, phone interviews, and prescription profiles all increased, signs of more thorough underwriting. The 2021 changes all reflect the impact of WA sales, with fewer apps needing face-to-face exams or phone interviews with a cognitive test due to the mix of younger applicants.

Underwriting Time
Table 27 shows an average processing time, from receipt of application to mailing the policy, of 60 days. The increase in sales due to the WCF exemption swamped insurers, adding significantly to processing time. The issue appeared to be significantly more severe for some insurers marketing combination products.

Rating Classification
Table 28 shows that almost two-thirds of 2021 policies were issued in the most favorable rating classification due to WA sales.

Table 28 shows the percentage of decisions which were either declined or placed in the 3rd or less-attractive classification is reducing. We conclude that the industry made more favorable decisions rather than declining applicants in lieu of giving them a substandard rating.

Tables 29 and 30 show the 2020 percentages of policies issued in the most favorable category and decline decisions by issue age. Tables 29 and 30 do not exactly match Table 28 because some participants provide all-age rating or decline data. The percentage placed in the most favorable classification increased for all ages, except 18-29.

The overall decline rate reduced because, as explained earlier, WA sales included younger and likely healthier applicants. The lower decline rate was most noticeable under age 50. Above age 60, where increased WA sales had less impact, the decline rate increased (except for a likely statistical fluctuation at ages 75+).

CLOSING
We thank insurance company staff for submitting the data and responding to questions promptly. We also thank Sophia Fosdick, Rachelle Jacobs, and Zane Truesdell of Milliman for managing the data expertly.

We reviewed data for reasonableness and insurers reviewed their product exhibit displays. Nonetheless, we cannot assure that all data is accurate.

If you have suggestions for improving this survey (including new entrants in the market), please contact one of the authors.

Footnotes:

  1. Single premium sales are counted at 10 percent for the annualized premium calculations herein.
  2. Elizabeth Festa, “2021 a Banner Year for Life Insurance Sales; Highest Growth Since 1983 Charted”, March 22, 2022, https://www.investopedia.com/2021-a-banner-year-for-life-insurance-sales-5222729.
  3. Society of Actuaries (November 2016). Long-Term Care Insurance: The SOA Pricing Project. Retrieved May 16, 2020, from https://www.soa.org/globalassets/assets/files/static-pages/sections/long-term-care/ltc-pricing-project.pdf (PDF).

2021 Milliman Long Term Care Insurance Survey

The 2021 Milliman Long Term Care Insurance Survey is the 23rd consecutive annual review of stand-alone long-term care insurance (LTCI) published by Broker World magazine. It analyzes the marketplace, reports sales distributions, and describes available products.

More discussion of worksite sales, including a comparison of worksite sales distributions vs. non-worksite sales distributions will be in Broker World magazine’s August issue.

Unless otherwise indicated, references are solely to U.S. stand-alone LTCI sales, excluding exercised future purchase options (FPOs) or other changes to existing coverage. “Stand-alone” refers to LTCI policies that do not include death benefits (other than returning premiums upon death or waiving a surviving spouse’s premiums) or annuity or disability income benefits. Where referenced, “combo” products provide LTCI combined with life insurance or annuity coverage. “Linked benefit” policies are combo policies which can allow more than the death benefit or annuity account value to be used as LTCI.

Highlights from this year’s survey

Participants
Eight carriers participated broadly in this survey. Four others provided sales information so we could report more accurate aggregate industry individual and multi-life sales.

We estimate our statistical distributions reflect about 75 percent of total industry policies sold (85 percent of premium) and about 15 percent of worksite policies sold (30 percent of premium). Total industry sales and total worksite sales (the denominators) include authors’ estimates of sales for three companies.

Our worksite statistical distributions can vary significantly from year-to-year because insurers focusing on particular worksite markets may be over- or under-represented. Our worksite statistical analysis is overly weighted toward executive carve-out programs. The carriers which provided 2020 statistical data had an average worksite annual premium of $4,218 whereas the insurers which did not provide statistical data had an average worksite premium of $1,634.

CalPERS, Northwestern and the six insurers displayed in the Product Exhibit provided broad statistical information. Auto-Owners, Country, LifeSecure, and Transamerica contributed total and worksite sales (new premium and lives insured) but did not provide other information. However, in a few places we were able to reflect some of their product designs in our statistical distributions. We estimate approximately $10 million of sales for those insurers which did not contribute their sales data.

Country Life, Genworth and CalPERS stopped selling stand-alone LTCI in 2020; however, Genworth has since resumed sales and CalPERS intends to resume sales. MassMutual and Transamerica discontinued selling stand-alone LTCI early in 2021 but Transamerica continued to accept new worksite applications until mid-year and may be experiencing last minute sales as a result.

Sales Summary

  • After having reported an increase in new premiums in 2019 (for the first time since 2012), twelve insurers reported $139,562,096* in 2020 annualized new premium sales (including exercised FPOs) and 41,440 new policies, 9.7 percent less premium and 11.9 percent fewer policies than the same insurers sold in 2019. However, some insurers with limited 2020 activity did not report 2020 sales to us. Including estimated sales for those insurers we peg total stand-alone LTCI industry sales at about $150 million*, which is nearly 13 percent less than the 2019 sales of $171,634,536 (restated upward by nearly $900,000 from our report last year). As noted in the Market Perspective section, sales of policies combining life insurance with LTCI or Chronic Illness benefits dropped eight percent in the first half of 2020 and corresponding premium dropped 19 percent. *Single premium sales are counted at ten percent for the annualized premium calculations herein.
  • Although we are not able to quantify the magnitude, the COVID-19 pandemic could have had a material impact on sales.
  • Three insurers sold more new premium than in 2019.
  • The pandemic may have had a greater impact on worksite sales. We estimate worksite new annualized LTCI premium dropped 15 percent in 2020 (18 percent fewer new sales).
  • With FPO elections included in new premium, Northwestern retained the number one spot in sales. Mutual of Omaha was a strong second and again had a large lead in annualized premium from new policies sold. Together, these two insurers combined for 60 percent of new premium including FPOs, compared to 59 percent last year.

The number of policies inforce increased each year through 2014 but has decreased each year since, decreasing 0.9 percent in 2020. However, inforce premium continued to increase (1.9 percent) despite fewer policies inforce and more policies in paid-up status. Inforce premium rises due to sales, price increases, and benefit increases (including FPOs), and reduces from lapses, reductions in coverage, deaths, and shifts to paid-up status for various reasons. A major carrier did not report inforce data, likely suppressing the percentage of inforce premium increase.

Collectively, the seven participants which reported claims saw claims increase only 1.6 percent in 2020, partly because two insurers reported a reduction in claims. The other five insurers experienced a 5.2 percent increase in claims in 2020. Overall, the stand-alone LTCI industry incurred $12.9 billion in claims in 2019 based on companies’ statutory annual filings, raising total incurred claims from 1991 through 2019 to $154.4 billion. (Note: 2019 was the most recent year available when this article was written.) Most of these claims were incurred by insurers that no longer sell LTCI. The reported 2019 incurred claims are 11.2 percent higher than the $11.6 billion of incurred claims reported in 2018.

The placement rate dropped from 59.2 percent in 2019 to 57.8 percent in 2020, which is also lower than the 59.0 percent and 58.8 percent placement rates in 2017 and 2018, respectively. Difficulty in collecting underwriting information during the pandemic may have contributed to lower placement rates. Table 23 shows that three-fourths of the reduction in placement rate can be attributed to suspended and withdrawn applications and Table 26 shows that underwriting averaged about 3 days longer. The longer average underwriting time was also likely caused by the pandemic. However, due to 2020 pending applications that will be reported in 2021, as well as the 2019 applications that were pending at the end of that year, some of our statistics such as underwriting processing time do not fully reflect the impact of the pandemic.

About the Survey
This article is arranged in the following sections:

Highlights provides a high-level view of results.
Market Perspective provides insights into the LTCI market.
Claims presents industry-level claims data.
Sales Statistical Analysis presents industry-level sales distributions reflecting data from 8 insurers.
Partnership Programs discusses the impact of the state partnerships for LTCI.

Available here at www.BrokerWorldMag.com:

  • Product Exhibit shows, for 6 insurers: financial ratings, LTCI sales and inforce, and product details.
  • Product Details, a row-by-row definition of the product exhibit entries, with some commentary.
  • Premium Exhibit shows lifetime annual premiums for each insurer’s most common underwriting class, for issue ages 40, 50, 60, and 70 for single females, single males, and heterosexual couples (assuming both buy at the same age), based on $100 per day (or closest equivalent weekly or monthly) benefit, 90-day facility and most common home care elimination period, three-year and five-year benefit periods or $100,000 and $200,000 maximum lifetime buckets, with and without Shared Care and with flat benefits or automatic three or five percent annual compound benefit increases for life. Worksite premiums do not reflect any worksite-specific discount, though some carriers offer this.
  • Premium Adjustments (from our Premium Exhibit prices) by underwriting class for each participant.
  • Distribution by underwriting class for each participant
  • State-by-state results: percentage of sales by state, average premium by state and percentage of policies qualifying for Partnership by state.

MARKET PERSPECTIVE (more detail in subsequent parts of the article)

“Both buy” and married discounts are reaching stable points. In the past year, some insurers lowered couples’ discounts significantly, to the 15 to 20 percent range. One-of-a-couple discounts are also dropping, to the zero to five percent range. The histories of these discounts are related.

When all LTCI had unisex prices, insurers’ single-person prices reflected that single buyers were predominantly female. Couples who bought policies were nearly 50 percent male; insurers did not have to charge them two prices weighted toward females, so they raised the couples’ discount. When the industry converted to gender-distinct pricing, the justification for couples’ discounts decreased substantially; however, large couples’ discounts continued to be common until now.

As an example, a single person price of $1,500 led to a couples’ combined price of $1,800 when couples’ discounts were 40 percent. If insurers took away the couples’ discount when one spouse was declined, consumers would be disappointed that the spouse about whom they were most concerned was declined, and the price for the healthy insured would be 5/6 of their combined price (5/7 if the discount was 30 percent). Fearing that the healthy spouse would refuse the policy, insurers typically cut the discount in half, rather than removing it completely. In the above example, the healthy spouse would have been charged $1,200 to $1,275, depending on whether the couples’ discount was 40 or 30 percent, respectively.

In the 2019 article “Is Your Spouse Contagious?,” Milliman analyzed the additional cost of LTC incurred by people whose spouses already had LTCI claims. As people who are LTC caregivers are likely to have worse LTCI claims experience than single people, a discount is inappropriate if the spouse is uninsurable. Of course, sometimes only one spouse buys even though both are healthy; for example, perhaps one spouse already has coverage. Nonetheless, their results make it hard to justify an across-the-board one-of-a-couple discount.

We summarized the “Is Your Spouse Contagious?” findings in our survey questionnaire, asking what the industry can do to lower claim costs after the claim or death of a spouse. The same five insurers responded to each question and their recommendations mostly cut across both situations. They cited proactive outreach to provide supportive services to help clients age in place, including preventive measures and care management, examples being home safety assessments and technology to monitor an insured’s health if they live alone. Following the death of a spouse, one carrier suggested informal care options with low daily limits which would permit relatives to be paid caregivers and another suggested a new plan of care, answers that seemed to anticipate that the survivor was already on claim. There were some concerns, however, with one insurer indicating that “cost will be a barrier” and another commenting “if appropriate”.

When one spouse is on claim, two insurers suggested offering respite care options to support the non-claim spouse.

Some specific steps the respondents may have had in mind in their general comments include brain fitness training; helping the healthy spouse marshal and manage resources to help the care recipient; access to cognitive tests that provide early detection of cognitive slippage; lifestyle suggestions including diet and sources of prepared meals; home modification projects; document organization; end-of-life planning; tele-medicine; information to access available government benefits and local services; help in finding and evaluating potential commercial caregivers; products and information about reducing risk and/or facilitating improved caregiving; etc.

We noted that the 10-year Treasury yield as of January 1, 2021 was 0.93 percent and asked what insurers projected it would be in 5 and 10 years. The range in five years was scattered between 1.5 to 3.0 percent and in ten years was two to three percent, with four of the five answers being 2.9 to 3.0 percent. Although all envisioned rising interest rates, only two mentioned that it would ease pressure on profit margins.

The June issue of Broker World magazine had an article about the impact of the pandemic which included data from this survey. Rather than repeat that data here, we refer readers to the June issue.

Government-provided LTCI programs continue to be a topic of discussion.

The Affordable Care Act (2010) included a LTCI program (the “CLASS” Act). Criticisms of the design were validated when, after passage of the ACA, the government dropped the LTCI program because it could not find a way to make it work.

Since then, there have been state efforts to create LTCI programs. On January 1, 2022, the Washington Long-Term Care Trust (WLTCT) will begin collecting 0.58 percent payroll tax to fund a $36,500 lifetime pool of money starting in 2025 (the pool of money is intended to inflate according to the Washington consumer price index). The program provides coverage for vested individuals receiving care in the state of WA. Government-provided LTCI programs will be watched closely for their potential impact on LTCI sales.

Since 2009 (varies by jurisdiction), if an insurer concludes that a claimant is not chronically ill, the insurer must inform the claimant of his/her right to appeal the decision to independent third-party review (IR), which is binding on insurers. As shown in our Product Exhibit, most participants have extended IR beyond statutory requirements, most commonly to policies issued prior to the effective date of IR. It is hard to get data relative to IR. Regulators in some states have not set up the required panel of independent reviewers and regulators do not collect IR statistics. Insurers often do not track IR. It is complimentary of the industry’s claims processing that there has not been a clamor for IR; that there have been significantly fewer requests in the past two years; and that insurers have consistently been completely upheld 70 percent or more of the time based on data we have received over the years from insurers and from Steve LaPierre, President of LTCI Independent Eligibility Review Specialists, LLC (LTCIIERS). In other cases, the reviewer might agree with the insurer partly (e.g., that the claimant did not satisfy the triggers initially, while concluding that the claimant satisfied the triggers later).

Current prices are more stable than past prices, partly because today’s prices reflect much more conservative assumptions based on far more credible data and lower assumed investment yields. Three participants have never increased premiums on policies issued under “rate stabilization” laws. The others reported no increases on policies issued since 2015, 2014 (2 insurers), and 2013 (2 insurers). Nonetheless, many financial advisors presume new policies will face steep price increases, and hence may be reluctant to encourage clients to consider LTCI.

As shown in Table 23, the placement rate for the past 8 years has remained at about 60 percent. Improving the placement rate is critical to encourage financial advisors to mention LTCI to clients. The industry may be able to improve placement rates as follows.

  • Utilize E-applications for faster submission and reduced processing time, thereby increasing placement.
  • Pre-qualify an applicant’s health. Effectively and efficiently increasing the percentage of applicants who are pre-qualified will decrease declines.
  • More effective education of distributors by insurers, such as drill-down questions in on-line underwriting guides and eApps.
  • Require cash with the application (CWA). CWA led to about five percent more of the apps being placed according to our 2019 survey.
  • Continue to improve messaging regarding the value of LTCI and of buying now (rather than in the future). Such messaging would increase the number of applications and improve the placement rate by attracting younger and healthier applicants.

Once again, more than 80 percent of our participants’ policyholders exercised their FPOs (future purchase option, a guarantee that, under specified conditions, a policyholder can purchase additional coverage without demonstrating good health). As both the additional coverage and unit price increase over time, FPOs become increasingly expensive, even more so with the price increases that the industry has experienced. The high election rate demonstrates the importance of LTCI to policyholders and the effectiveness of annual (as opposed to triennial) negative-election FPOs. (Negative-election FPOs activate automatically unless the client rejects them, as opposed to positive-election FPOs which activate only if the client makes a request.) At least in some markets and with some designs, policyholders reliably exercise FPOs when they must do so to continue to receive future offers. Considering such FPOs and other provisions, we project a maximum benefit at age 80 of $305/day for an average 58-year-old purchaser in 2020, which is equivalent to an average 2.9 percent compounded benefit increase between 2020 and 2042. Purchasers may be disappointed if the purchasing power of their LTCI policies deteriorates over time.

Linked benefit products are attractive because even if the insured has no LTC claim, their family will receive benefits and because they often have guaranteed premiums and benefits. According to LIMRA, 516,809 stand-alone LTCI and combination (life and LTCI and life and Chronic Illness) policies were sold in 2019 and were distributed as follows, with stand-alone LTCI’s 11 percent market share the same as 2018. (ADB= “Accelerated Death Benefit)

The stand-alone column and the linked-benefit column are both much more significant in terms of LTC protection than indicated above, for the following reasons:

  1. The Accelerated Death Benefit (ADB) provisions do not increase over time. By the time the average claim payment is made, the stand-alone policies’ maximum monthly benefit (on plans with benefit increase features) will have risen significantly. The linked-benefit portion would also have increased significantly.
  2. The stand-alone and linked-benefit policies have significantly lower lapse rates than the policies with ADB. Thus, they are much more likely to be around when care is needed.
  3. The stand-alone and linked-benefit policies may have lower mortality rates because of their better persistency and because they are purchased with LTCI in mind whereas the ADB policies are generally purchased for their life insurance and the ADB benefit may be incidental in the minds of the buyers.
  4. The ADB policies are less likely to be used to pay for care, as it may be preferable to have the death benefit be paid to the beneficiary.

A small offset is that the stand-alone policies are more likely to be reimbursement-based benefits, which are less likely to result in the full benefit being paid each month.

According to LIMRA, in the first half of 2019, combination life sales dropped slightly, but then rebounded strongly in the latter half of the year to finish ten percent higher than 2018 in terms of premium (although, one percent lower in terms of the numbers of policies). However, in the first half of 2020 (the most recent data available as this article was being written), premiums were 19 percent lower and new policies eight percent lower than the weak first half of 2019. In addition to the pandemic, LIMRA noted that the new 2017 CSO Mortality Table and low interest rates led to higher premiums which depressed sales. The policies with the most significant LTCI benefits (linked benefits) dropped the most (27 percent in premium; 21 percent in policy count).

Only four participants offer coverage in all U.S. jurisdictions; no worksite insurer does so. Insurers are reluctant to sell in jurisdictions which have unfavorable legislation or regulations, restrict rate increases, or are slow to approve new products.

All but one of our participants use third party administrators (TPAs) and five of the eight participants use reinsurers. The number of insurers using TPAs for the following functions is shown in parentheses: Underwriting (6), Issue (5), Billing (5), Commissions (3), and Claims (6). Two insurers noted they use their underwriting and claims TPAs for only some functions and another, which responded that it does not use TPAs for underwriting and claims, noted that it sometimes receives help from its TPA, but the TPA never makes the decision. We thank CHCS, DMS, LifeCare Assurance, Long-Term Care Group, RGA, and Wilton Re for their contributions to the LTCI industry. Other reinsurers and TPAs may support insurers not in our survey. In some cases, affiliated companies provide reinsurance or guarantees.

CLAIMS

  • Seven participants reported 2020 claims. As some companies are not able to provide detailed data, some statistics are more robust than others.
  • The insurers’ combined claim payments on individual policies rose 1.6 percent in 2020 over 2019. Two insurers reported a decrease in claims, while the other five insurers reported a 5.2 percent increase.
  • The LTCI industry has had a much bigger impact than indicated above, because a lot of claims are paid by insurers that do not currently sell LTCI or did not submit claims data to us.

LTCI claims paid by insurers no longer selling LTCI may differ significantly from the following statistics as their claimants are more likely to have facility-only coverage, be older, etc.

Table 1 shows the total dollar and number of reported individual and multi-life (not group) LTCI claims. It reflects the same carriers for both years. As noted above, total claims rose only 1.6 percent. The impact of the pandemic is not clear in the data, but some claimants likely died prematurely and/or spurned facility care, particularly nursing home care. Some claimants likely abandoned facilities, thereby losing coverage either because they did not hire commercial home caregivers or because they had a facility-only policy and did not qualify for exemptions that some insurers provided. Claimants and commercial caregivers potentially were hesitant to meet during a large part of the year, likely dampening home care claims.

Table 2 shows the distribution of those claims by venue, which have shifted away from nursing homes over the years (except in 2019) due to consumer preferences and more claims coming from comprehensive policies. The distribution reflects different insurers from year-to-year; 2019’s aberration was caused by the absence of data from an insurer which resumed providing data this year.

The inception-to-date number of claims is surprisingly more weighted to Nursing Home than the dollar of claims. It seems that nursing home claims come from older policies with lower maximum daily benefits.

In the distribution based on number of claims, a person who received care in more than one venue is counted once for each venue, but not double-counted in the total line.
Six carriers reported their number of open individual claims at year-end, ranging between 51 and 81 percent of the number of claims paid during the year, averaging 64 percent overall.

Table 3 shows average size individual claims since inception. Because 41 percent of claimants since inception have submitted claims from more than one type of venue, the average total claim might be expected to exceed the average claim paid for any particular venue. However, individual Assisted Living Facility (ALF) claims stand out as high each year, probably because:

  • ALF claims appear to have a longer duration compared with other venues.
  • Nursing home costs are most likely to exceed the policy daily/monthly maximum, hence nursing home claims are most likely to understate the cost of care.
  • People who maximize the use of their maximum monthly benefits can generally spend as much in an ALF as in a nursing home.
  • Although some surveys report that ALFs cost about half as much as nursing homes on average, ALFs often charge more for a memory unit or for levels of assistance that align more closely with nursing home care. Upscale ALFs seem to cost a higher percentage of upscale nursing home costs than the average ALF/nursing home ratio.

Several insurers extend ALF coverage to policies which originally did not include ALF coverage, providing policyholders with significant flexibility at time of claim, but contributing to the insurers’ need for rate increases.

The following factors contribute to a large range of average claim results by insurer (see Table 3), which results in significant year-to-year differences in Table 3 because different insurers contribute data:

  1. Different markets (by affluence; worksite vs. individual; geography; etc.)
  2. Demographic differences (distribution by gender and age)
  3. Distribution by benefit period, benefit increase feature, shared care and elimination period.
  4. Distribution by facility-only policies vs. 50 percent home care vs. 100 percent home care vs. home care only, etc.
  5. Different lengths of time in the business.

The following factors cause our average claim sizes to be understated.

  1. For insurers reporting claims this year, nine percent of inception-to-date individual claims are still open. Our data does not include reserve estimates for future payments on open claims.
  2. People who recover, then claim again, are counted as multiple insureds, rather than adding their various claims together.

Besides being understated, average claim data does not reflect the value of LTCI from some purchasers’ perspectives, because the many small claims drive down the average claim. LTCI can provide significant financial return for people who need care one year or longer. A primary purpose of insurance is to protect against adverse results, so the amount of protection, as well as average claim, is important.

Five insurers provided their current individual (excludes group) monthly LTCI claim exposure, which exceeds $5 billion (note: reflects only initial monthly maximum for one insurer). As shown in Table 4, this figure is thirty times their corresponding monthly LTCI premium income and more than 41 times their 2020 LTCI monthly paid claims. Eight insurers contributed data regarding their inforce distribution by benefit period. Treating endless (lifetime benefit periods) as a 15-year benefit period, we found that their average inforce benefit period is 6.85 years. Changing the assigned value of the endless benefit period by one year has an impact of approximately 0.25 years on the average inforce benefit period. With annual exposure thirty times annual premium and assuming an average benefit period of about 6.85 years, we estimate that total exposure is 207 times annual premium.

Three insurers reported their current average individual maximum monthly maximum benefit for claimants, with results ranging from $4,121 to $6,729.

Nursing home (NH) claims are more likely to use the policy’s maximum daily/monthly benefit than ALF claims, because ALF daily/monthly costs are generally lower and because policies sometimes have lower maximums for ALFs. ALF claims correspondingly are more likely to use the policy maximum than are adult day care and home care claims.

STATISTICAL ANALYSIS
Bankers Life, CalPERS, Knights of Columbus, Mutual of Omaha, National Guardian, New York Life, Northwestern and Thrivent contributed significant background data, but some were unable to contribute some data. Four other insurers (Auto-Owners, Country, LifeSecure and Transamerica) contributed their number of policies sold and new annualized premium, distinguishing worksite from other sales, but not clarifying whether FPOs were included in the premium.

Sales characteristics vary significantly among insurers based on market differences (individual vs. worksite, affluence, gender distribution, etc.). Year-to-year variations in policy feature distributions may reflect industry trends but may also reflect changes in participants, participant practices and designs, participant or worksite market shares, etc. The statistical differences between the worksite and non-worksite sales will be reported in the August issue of Broker World.

Market Share
Because new coverage is being issued, we include purchased increases on existing policies in new premium (we call them FPOs and include board-approved increase offers). FPOs increased in 2020, cushioning the reduction in premium from new sales. Removing FPOs spotlights insurers with more new policy sales. Table 5 lists the top 8 participants in 2020 new premium including FPOs and without FPOs. Northwestern ranks #1 including FPOs, with Northwestern and Mutual of Omaha accounting for 60 percent of the market. Ignoring FPOs, Mutual of Omaha is #1. The premium includes 100 percent of recurring premiums plus ten percent of single premiums.

Worksite Market Share
After a strong 2019, worksite premium dropped about 15 percent in 2020, accounting for a lower percentage of total sales than in 2019. It is possible that the worksite market could have produced a bigger percentage of total sales than in 2019 had the pandemic not occurred. However, with Transamerica leaving the market and other changes, the future of the worksite LTCI market (except executive carveout) is unpredictable. LifeSecure, Mutual of Omaha, and National Guardian may pick up market share; linked-benefit worksite products might pick up market share; and/or LTC risk covered in the worksite might drop.

Worksite sales consist of three different markets, the first two of which produce a higher percentage of new insureds than of new premiums:

  • Voluntary group coverage generally is less robust than individual coverage.
  • Core/Buy-Up programs have particularly young age distributions and modest coverage because a lot of people do not buy-up and are less likely to insure spouses.
  • Executive carve-out programs generally provide the most robust coverage. One- or two-couple executive carve-out sales may not qualify for a multi-life discount with some insurers, hence may not be labeled as worksite sales in submissions to our survey.

The amount of worksite sales reported and its distribution among the three sub-markets significantly impact product feature sales distributions. Table 6 is indicative of the full market (including our estimates for two insurers which did not report sales), but this year’s policy feature distributions significantly underweight the voluntary and core/buy-up markets, as most of those markets are not reflected in our statistical data. More information about worksite sales will appear in the August issue of Broker World magazine.

Affinity Market Share
Affinity groups (non-employers such as associations) produced 8.1 percent of new insureds (see Table 7), and 6.0 percent of new business premium. Less than 20 percent of the lower affinity average premium is attributable to the affinity discount. The balance may be due to younger issue age or less robust coverage. It would seem that, over time, an increasing number of associations would have discounts, which might cause the affinity group percentage to increase over time, but our data does not demonstrate such a pattern.

Characteristics of Policies Sold
Average Premium Per Sale
The average new business (NB) premium per insured (Table 8), subtracting FPOs for the insurers that reported statistics, and the average premium per buying unit (a couple comprise a single buying unit) increased six to seven percent each to $2,706 and $3,847, respectively.

Data for 2018 and earlier years included FPOs in these calculations, overstating the average premium per new insured and buying unit.

Average premium per new policy ranged from $1,029 to $3,792 among the 12 insurers.
The lowest average new premium (including FPOs) was in Puerto Rico ($2,511), followed by Indiana ($2,642) and Kansas ($2,915), while the highest was in the District of Columbia ($5,336), followed by Connecticut ($4,820), and New York ($4,656).
For those insurers which reported results for 2019 and 2020, the average inforce premium (reflecting rate increases, FPO elections and termination of older policies) increased from $2,246 to $2,309, a 2.8 percent increase. However, Table 8 shows a decrease due to a change in insurers reporting inforce premium.

Issue Age
Table 9 summarizes the distribution of sales by issue age band based on insured count. The average issue age remained 57.7. All insurers reported an average issue age between 55 and 60. The age distributions for 2016 and earlier had more worksite participants than recent years. Note: one survey participant has a minimum issue age of 40, one will not issue below 30, and one will not issue below 25.

Benefit Period
Table 10 summarizes the distribution of sales by benefit period. For the first time since 2014, endless benefit periods registered a measurable percentage, albeit only 0.2 percent. The average benefit period for limited benefit period policies dropped back to 3.75, but if we treat endless benefit periods as 15 years, the average benefit period was 3.82. Because of Shared Care benefits, total coverage was higher than the 3.75 average suggests. Three-year benefit periods accounted for 52.9 percent of the sales.

Monthly Benefit
Monthly determination applied to a record 83.0 percent of 2020 policies (Table 11). With monthly determination, low-expense days leave more benefits to cover high-expense days. One insurer offers only daily determination; one insurer offers a choice; and the other insurers automatically have monthly determination.

Table 12 shows the largest concentration ever in the $4,500-$5,999 initial monthly maximum range (32.3 percent). The average maximum monthly benefit increased slightly to $4,888.

Benefit Increase Features
Table 13 summarizes the distribution of sales by benefit increase feature. Most notably, only 14.6 percent of the policies were sold without a benefit increase feature.

“Indexed Level Premium” policies are priced to have a level premium, but the benefit increase is tied to an index such as the consumer price index (CPI).

As shown in Table 14, we project the age 80 maximum daily benefit by increasing the average initial daily benefit from the average issue age to age 80, according to the distribution of benefit increase features, using current future purchase option (FPO) election rates and a five percent/year offer for fixed FPOs. The maximum benefit at age 80 (in 2042) for our 2020 average 58-year-old purchaser projects to $305/day (equivalent to 2.9 percent compounding). Had our average buyer bought an average 2019 policy a year ago at age 57, her/his age 80 benefit would be $316/day (equivalent to 2.9 percent compounding). Most policyholders seem likely to experience eroding purchasing power over time if cost of care trends exceed three percent.

FPOs are important to insureds in order to maintain purchasing power, and 82 percent of our participants’ 2019 to 2020 FPOs were exercised. The high election rate is noteworthy, considering that the cost increases each year due to larger coverage increases each year, increasing unit prices due to age, and additional price increases due to rate increases.

One insurer had an election rate of 91 percent, two insurers had 68 to 70 percent, two insurers had 43 to 45 percent, and one insurer had 19 percent. It seems clear that higher election rates occur if FPOs are more frequent (every year vs. every 3 years) and are “negative-election” (activate automatically unless the client rejects them) as opposed to “positive-election” (which activate only if the client makes a request). At least some blocks of business demonstrate that policyholders will exercise FPOs if they must do so to continue to receive future offers.

FPOs are also important to insurers, accounting for at least 22 percent of new premium in 2020. Two insurers had nearly half their new premium come from FPOs.

Elimination Period
Table 16 summarizes the distribution of sales by facility elimination period (EP). Ninety-two percent (92 percent) of buyers opt for elimination periods between 84 and 100 days. The percentage of EPs of 100 days or more was 5.2 percent, lower than any other year in the table.

Table 17 shows the percentage of policies with zero-day home care elimination period (but a longer facility elimination period). For insurers offering an additional-cost zero-day home care EP option, the purchase rate is sensitive to the cost.

Table 17 also shows the percentage of policies with a calendar-day EP. It is important to understand that most calendar-day EP provisions do not start counting until a paid-service day has occurred.

Sales to Couples and Gender Distribution
Table 18 summarizes the distribution of sales by gender and single/couple status.

In 2012, the last year in which all sales were unisex, 54.9 percent of buyers were female. In 2013, the female percentage spiked to 57.2 percent as females purchased unisex pricing that was still available. Since unisex pricing has disappeared entirely except in the worksite, the female percentage has plateaued at slightly above 54 percent. The percentage of females varies significantly based on an insurer’s markets. This year, the percentage of females varied from 45 to 63.9 percent among insurers.

The percentage of accepted applicants who purchase coverage when their partners are declined also varies significantly by insurer based on their couples’ pricing and their distribution system. Few insurers are able to report this data.

Shared Care and Other Couples’ Features
Table 19 summarizes sales of Shared Care and other couples’ features.

  • Shared care allows one spouse/partner to use the other’s available benefits if their own coverage has been depleted or offers a third independent pool that the couple can share.
  • Survivorship waives a survivor’s premium after the first death if specified conditions are met.
  • Joint waiver of premium (WP) waives both insureds’ premiums if either qualifies for benefits.

Changes in distribution between carriers can greatly impact year-to-year comparisons in Table 19, because some insurers embed survivorship or joint waiver automatically (sometimes only in some circumstances) while others offer it for an extra premium or do not offer the feature.

In the top half of Table 19, percentages are based on the number of policies sold to couples who both buy (only limited benefit, for Shared Care). The bottom half of Table 19 shows the (higher) percentage that results from dividing by sales of insurers that offer the feature. For insurers reporting Shared Care sales, the percentage of both-buying couples who opted for Shared Care varied from 8 to 89.7 percent. The corresponding percentage of couples with Joint WP varied from 10 to 100 percent and for Survivorship ranged from 2.1 to 14.1 percent.

Table 20 provides additional breakdown on the characteristics of Shared Care sales. As shown on the right-hand side of Table 20, two- to four-year benefit period policies are most likely (26 to 31 percent) to add Shared Care. Partly because three-year benefit periods comprise 53 percent of sales, most policies with Shared Care (61 percent) have three-year benefit periods, as shown on the left side of Table 20.

Above, we stated that Shared Care is selected by 36.4 percent of couples who both buy limited benefit period policies. However, Table 20 shows Shared Care comprised no more than 31 percent of any benefit period. Table 20 has lower percentages because Table 19 denominators are limited to people who buy with their spouse/partner whereas Table 20 denominators include all buyers.

Shared Care is more concentrated in two- to four-year benefit periods (88.4 percent of shared sales) than are all sales (73.0 percent). Couples are more likely to buy short benefit periods because couples plan to help provide care to each other and Shared Care makes shorter benefit periods more acceptable. Single buyers are more likely to be female, hence opt for a longer benefit period.

Existence and Type of Home Care Coverage
Four participants reported sales of facility-only policies, which accounted for 0.7 percent of total sales. One insurer was responsible for more than 80 percent of such sales. Ninety-six percent (96.4 percent) of the comprehensive policies included home care benefits at least equal to the facility benefit. No participant has reported home-care-only sales since 2018.

Other Characteristics
As shown in Table 21, partial cash alternative features (which allow claimants, in lieu of any other benefit that month, to use between 10 and 40 percent of their benefits for whatever purpose they wish) were included in 52.5 percent of sales, including non-participant sales.

Return of premium (ROP) features were included in 10.4 percent of policies. ROP returns some or all premiums (usually reduced by paid LTCI benefits) when a policyholder dies. Approximately 75 percent of ROP features were embedded automatically in the product. Embedded features are designed to raise premiums minimally, typically decreasing the ROP benefit to $0 by age 75.

Nearly sixteen percent (15.8 percent) of policies with limited benefit periods included a restoration of benefits (ROB) provision, which typically restores used benefits when the insured has not needed services for at least six months. Approximately 90 percent of ROB features were automatically embedded.

Insurers must offer shortened benefit period (SBP) coverage, which makes limited future LTCI benefits available to people who stop paying premiums after three or more years. The insurers able to report SBP sales, sold SBP to 3.7 percent of buyers.

Only one insurer issued non-tax-qualified (NTQ) policies, which accounted for 0.1 percent of industry sales.

“Captive” (dedicated to one insurer) agents produced 53.1 percent of the coverages. Brokers produced 46.3 percent and a direct-to-consumer carrier accounted for 0.6 percent. At one time, “captive” agents who sold LTCI tended to specialize in LTCI. Now many are agents of mutual companies.

Sales distribution by jurisdiction is posted on the Broker World website.

Limited Pay and Paid-Up Policies
In 2020, two insurers sold policies that become paid-up in 10 years or less, accounting for 1.1 percent of sales, the highest percentage since 2014, as shown in Table 22.

Because today’s prices are more stable, premium increases are less likely. One of the key reasons for buying 10-year-pay (avoidance of rate increases after the 10th year) is greatly reduced, while the cost of 10-year-pay has increased, making it less attractive than in the past. Nonetheless, limited-pay and single-pay policies are attractive to minimize post-retirement outflow and to accommodate §1035 exchanges.

Seven participants reported that 3.0 percent of their inforce policies are paid-up, a lower percentage than last year because an additional insurer participated.

PARTNERSHIP PROGRAM BACKGROUND
When someone applies to Medicaid for long-term care services, most states with Partnership programs disregard assets up to the amount of benefits received from a Partnership-qualified policy (some Indiana and New York policies disregard all assets). Except for California, states with Partnership programs grant reciprocity to Partnership policies issued in other jurisdictions. Partnership programs are approved in 44 jurisdictions, all but AK, DC, HI, MA, MS, UT, and VT, but MA has a similar program (MassHealth).

Four states (CA, CT, IN and NY) blazed the trail, legislating variations of the Robert Woods Johnson approach (“RWJ” states), whereas “DRA” states use simpler, more consistent rules developed later, in the Deficit Reduction Act of 2005. For example, RWJ states require a separate Partnership policy form, generally still have more stringent benefit increase requirements and sometimes assess a fee for insurers to participate (none of which apply in DRA states).

Approximately 60 percent of Partnership states now allow one percent compounding to qualify for Partnership, which can help low-budget buyers qualify for Partnership and also enables worksite core programs to be Partnership-qualified. A higher percentage of policies would qualify for Partnership in the future if insurers and advisors leverage these opportunities. However, currently only three insurers offer one percent compounding.
Partnership programs could be more successful if:

  1. Advisors offer small maximum monthly benefits more frequently to the middle class. For example, a $1,500 initial maximum monthly benefit covers about four hours of home care every two days and, with compound benefit increases, may maintain buying power. Many middle-class individuals would like LTCI to help them stay at home while not “burning out” family caregivers and could be motivated further by Partnership asset disregard. (This approach does not work in RWJ states with high Partnership minimum daily benefit requirements.)
  2. Middle-class prospects were better educated about the importance of benefit increases to maintain LTCI purchasing power and to qualify for Partnership asset disregard.
  3. The four original Partnership states migrate to DRA rules.
  4. More jurisdictions adopt Partnership programs.
  5. Programs that privately finance direct mail educational LTCI content from public agencies were adopted more broadly.
  6. Financial advisors were to press reluctant insurers to certify their products and offer one percent compounding.
  7. More financial advisors were certified. Some people argue that certification requirements should be loosened. At a minimum, the renewal certification process could be improved.
  8. Linked benefit products became Partnership-qualified.

PARTNERSHIP PROGRAM SALES
Participants reported Partnership sales in all 44 authorized states except CT and NY. No participant sold Partnership policies in more than 41 states in 2020. Two had Partnership sales in 38 states, three in 29 to 34 states, one in 1 state, and the other has chosen not to certify Partnership conformance.

Insurance brokers do not have access to Partnership policies in CA, CT and NY and from only one insurer in IN. However, in some of those states, consumers can purchase Partnership-qualified coverage from one or two other entities.

In the DRA states, 55 percent of policies qualified for Partnership status. Minnesota (81.4 percent) leads each year. Georgia, Maine and Wisconsin were also above 70 percent.

The original RWJ states had few Partnership sales. In New Mexico, a recent Partnership state, only 4.7 percent of sales qualified, which should increase in the future. Kentucky had only 25.2 percent.

UNDERWRITING DATA
Case Disposition
Seven insurers contributed application case disposition data to Table 23. In 2020, 57.8 percent of applications were placed, the lowest ever, seemingly impacted by the pandemic. One insurer reported a 76.4 percent placement rate; all others were below the average, with three insurers between 40 and 47 percent.

Decline rates and suspended/withdrawn rates hit records. While we thought the suspended/withdrawn rate would rise with the pandemic, of the six insurers who have reported such data for both 2019 and 2020, two had a noticeably lower suspended/withdrawn rate in 2020 and two were +/-0.1 percent.

Decline rate by carrier varied from 11.9 to 38.4 percent, but all but two insurers were between 23.2 and 29.1 percent, varying based on factors such as age distribution, distribution system, market, underwriting requirements, and underwriting standards. Our placed percentages reflect the insurers’ perspective. A higher percentage of applicants secures coverage because applicants denied by one carrier may be issued either stand-alone or combo coverage by another carrier or may receive coverage with the same insurer after a deferral period.

Table 24 shows that, compared to 2019, the placement rate increased below age 60 and decreased above age 60, which seems consistent with a theory that the lower placement rate was related to the pandemic. This data is a subset of the placement data in Table 23.

Low placement rates increase insurers’ cost per placed policy. More importantly, low placement rates discourage advisors from discussing LTCI with clients. In addition to not wanting to waste time and effort, advisors fear that declined clients will be dissatisfied. In the Market Perspective section, we listed ways to improve placement rates. This is a critical issue for the industry. If readers have suggestions, they are invited to contact the authors.

Underwriting Tools
Six insurers contributed data to Table 25, which divides the number of uses of each underwriting tool by the number of applications processed. For example, the number of medical records was 82 percent of the number of applications. That does not mean that 82 percent of the applications involved medical records, because some applications resulted in more than one set of medical records being requested.

Insurers are trying to speed underwriting to increase placement rates. In the worksite market, insurers are less likely to use some of these tools.

Year-to-year changes in distribution of sales among insurers significantly impact results. Lower maximum ages result in fewer face-to-face exams. Insurers might underreport the use of an underwriting tool because they may lack a good source for that statistic. For example, an insurer might not be able to split phone interviews by whether or not they include cognitive testing.

The biggest change was the drop in Face-to-Face assessments, perhaps because it was hard to schedule them due to the pandemic.

Underwriting Time
Table 26 shows the average processing from receipt of application to mailing the policy time (40 days) reversed the trend of speedier processing. Of the six insurers that reported this data in both 2019 and 2020, the three fastest processors of 2019 all got faster and the three slower processors of 2019 all got slower, expanding the range from 28.9-60.3 to 26.9-65.9.

Rating Classification
Table 27 shows that a lower percentage of policies was issued in the most favorable rating classification, but the highest percentage was placed in the two most favorable classes since 2012. That’s surprising because prior to 2016, we had more worksite business in the rating classification table. For more information, look for the August issue of Broker World magazine where we will separate data by worksite vs. non-worksite business.

Only 7.7 percent of policies were issued beyond the second-best classification, but three insurers placed 11.0 to 12.4 percent of policies in such a class and another insurer placed 19.2 percent of policies in such a class.

Two insurers placed more than 80 percent of their applicants in the best underwriting class. The other five insurers placed 19 to 25 percent in their best class.

Lastly, Table 27 shows the percentage of decisions which were either declined or placed in the 3rd or less-attractive classification is reducing. Hence, we conclude that industry is making more favorable decisions rather than declining applicants in lieu of giving them a substandard rating,

Tables 28 and 29 show the 2020 percentages of policies issued in the most favorable category and decline decisions by issue age. Tables 27 and 28 do not exactly match Table 26 because some participants provide all-age rating or decline data. The percentage placed in the most favorable classification increased for ages 65 and older, likely statistical fluctuation. Although overall decline rates increased, the by-age decline rates decreased, except for under age 30; that anomaly results because only some insurers can provide decline data by issue age.

CLOSING
We thank insurance company staff for submitting the data and responding to questions promptly. We also thank Sophia Fosdick, Margaret Liang, Nicole Gaspar, and Alex Geanous of Milliman for managing the data expertly.

We reviewed data for reasonableness and insurers reviewed their product exhibit displays. Nonetheless, we cannot assure that all data is accurate.

If you have suggestions for improving this survey (including new entrants in the market), please contact one of the authors.

Reference:
Society of Actuaries (November 2016). Long-Term Care Insurance: The SOA Pricing Project. Retrieved May 16, 2020, from https://www.soa.org/globalassets/assets/files/static-pages/sections/long-term-care/ltc-pricing-project.pdf (PDF).

2020 Milliman Long Term Care Insurance Survey

The 2020 Milliman Long Term Care Insurance Survey is the 22nd consecutive annual review of stand-alone long term care insurance (LTCI) published by Broker World magazine. It analyzes the marketplace, reports sales distributions, and describes available products, including group insurance.

More analysis of worksite sales will appear in the August issue of Broker World magazine.

Unless otherwise indicated, references are solely to U.S. stand-alone LTCI sales, excluding exercised future purchase options (FPOs) or other changes to existing coverage. “Stand-alone” refers to LTCI policies that do not include death benefits (other than returning premiums upon death or waiving a surviving spouse’s premiums) or annuity or disability income benefits. Where referenced, “combo” products provide LTCI combined with life insurance or annuity coverage. “Linked benefit” policies are combo policies which can allow more than the death benefit or annuity account value to be used as LTCI.

Highlights from this year’s survey

Participants
Nine carriers participated broadly in this survey. Six others provided sales information so we could report more accurate aggregate industry individual and multi-life sales.

We estimate our statistical distributions reflect about 75 percent of total industry policies sold (85 percent of premium) but only about 12 percent of worksite policies sold (28 percent of premium). Our worksite statistical distributions can vary significantly from year-to-year because insurers focusing on particular worksite markets may be over- or under-represented. Last year, we commented that the worksite business in our statistical analysis was overly weighted toward executive carve-out programs. This year, that imbalance has increased. The carriers which provided 2019 statistical data had an average worksite annual premium of $4,568 whereas the ones which provided only total sales had an average worksite premium of $1,627. The corresponding 2018 averages were $2,015 and $1,561, respectively. In 2017, the difference was in the other direction ($1,015 and $1,441, respectively).

National Guardian Life contributed statistical distributions for the first time, but CalPERS and Genworth did not provide statistical distributions this year. Country Life, which has been a consistent participant in this survey, discontinued LTCI sales effective May 1, 2020.

The insurers displayed in the Product Exhibit all provided broad statistical information, although they were not all able to provide all the data we requested. Northwestern also provided such information. Auto-Owners, CalPERS, Genworth, LifeSecure, Transamerica and United Security Assurance contributed total and worksite sales (new premium and lives insured) but did not provide other information. However, in a few places we were able to reflect some of their product designs in our statistical distributions.

Sales Summary

  • The 15 carriers reported sales of 54,563 policies and certificates (“policies” henceforth) with new annualized* premium of $170,770,732 (including exercised FPOs) in 2019, which compared to 2018 industry sales of 56,287 policies with new annualized* premium of $169.7 million (both slightly restated from last year’s report), a 3.1 percent drop in the number of policies but a 0.6 percent increase in new annualized premium, the first increase in new premium since 2012. As noted in the Market Perspective section, sales of policies combining LTCI with other risks dropped slightly. *Single premium sales are counted at 10 percent for the annualized premium calculations herein.
  • Seven of the top 10 insurers sold more new premium than in 2018, while four sold more new policies. This difference resulted largely because elected FPOs add premium but not new policies.
  • Worksite LTCI rebounded in 2019. The three stand-alone LTCI carriers specializing in worksite each saw sales jump by 62 to 76 percent despite increased competition from a major new carrier and from linked-benefit policies.
  • With FPO elections included in new premium, Northwestern garnered the number one spot in sales. Mutual of Omaha was a strong second and had a large lead in annualized premium from new policies sold. Together, these two companies combined for 59 percent of new premium including FPOs, compared to 57 percent last year.
  • Based on our analysis, for the fifth straight year (and fifth time ever), our participants’ number of inforce policies dropped, but less than one percent.
  • Despite the reduced number of policies and increased number of policies in paid-up status, inforce premium increased 10.0 percent and the average inforce premium per policy rose from $2,208 to $2,426. Inforce premium rises due to sales, price increases, and benefit increases (including FPOs), and reduces from lapses, reductions in coverage, deaths, and shifts to paid-up status for various reasons.

Participants’ claims rose 8.1 percent. Overall, the stand-alone LTCI industry incurred $11.6 billion in claims in 2018 based on companies’ statutory annual filings, raising total incurred claims from 1991 through 20187 to $141.5 billion. (Note: 2018 was the most recent year available when this article was written.) Most of these claims were incurred by insurers that no longer sell LTCI. The reported 2018 incurred claims are 5.5 percent higher than the $11.0 billion of incurred claims reported in 2017.

The placement rate rose to 59.2 percent, higher than 58.8 percent in 2018 and 59.0 percent in 2017. The small increase occurred despite the increase in average age. The more favorable and faster underwriting decisions documented below contributed to the higher placement rate. As discussed in the Market Perspective section, the industry may be able to increase placement rates further, which should make financial advisors more comfortable suggesting that their clients consider LTCI, all else equal.

About the Survey
This article is arranged in the following sections:

  • Highlights provides a high-level view of results.
  • Market Perspective provides insights into the LTCI market.
  • Claims presents industry-level claims data.
  • Sales Statistical Analysis presents industry-level sales distributions reflecting data from 11 insurers.
  • Partnership Programs discusses the impact of the state partnerships for LTCI.

Available at www.BrokerWorldMag.com:

  • Product Exhibit shows, for eight insurers: Financial ratings, LTCI sales and inforce, and product details. Please note that, during the COVID-19 pandemic, some insurers have temporarily discontinued sales that would require face-to-face interviews. Our Exhibit ignores such temporary restrictions.
  • Product Details, a row-by-row definition of the product exhibit entries, with some commentary.
  • Premium Exhibit shows lifetime annual premiums for each insurer’s most common underwriting class, for issue ages 40, 50, 60, and 70 for single females, single males, and heterosexual couples (assuming both buy at the same age), based on $100 per day (or closest equivalent weekly or monthly) benefit, 90-day facility and most common home care elimination period, three-year and five-year benefit periods or $100,000 and $200,000 maximum lifetime buckets, with and without Shared Care and with flat benefits or automatic 3 or 5 percent annual compound benefit increases for life. Worksite premiums do not reflect any worksite-specific discount, though some carriers offer this.
  • Premium Adjustments (from our Premium Exhibit prices) by underwriting class for each participant.
  • Distribution by underwriting class for each participant
  • State-by-state results: percentage of sales by state, average premium by state and percentage of policies qualifying for Partnership by state.

Market Perspective (more detail in subsequent parts of the article)

  • Since 2009 (varies by jurisdiction), if an insurer concludes that a claimant is not chronically ill, the insurer must inform the claimant of his/her right to appeal the decision to independent third-party review (IR). The IR determination is binding on insurers. As shown in our Product Exhibit, most participants have extended IR beyond statutory requirements, most commonly to policies issued prior to the effective date of IR. It is hard to get data relative to IR. Regulators do not collect statistics and insurers often do not track it. It has been a positive sign that few IR requests have been made and that insurers seem to have been upheld approximately 90 percent of the time based on data we have received over the years from insurers and from Steve LaPierre, President of LTCI Independent Eligibility Review Specialists, LLC (LTCIIERS). Mr. LaPierre reported a 40 percent drop in IR requests in 2019, but an increase to approximately 30 percent of cases in which insurers were overruled. Part of the increase may be explained by statistical fluctuation because the number of IRs is low. Generally, if the appeal rate drops, the strongest cases are likely to continue to be appealed, resulting in a higher percentage being overruled. Another factor, in the experience of one of the authors, is claims examiners’ unfamiliarity with old policy forms in which standard wording was modified to fit a state-specific requirement, a problem that can be exacerbated if the claim function is transferred to a new entity lacking the historical knowledge. Because the number of IRs is so low, even a small percentage of such errors could cause the IR overturn rate to spike.
  • Third Party Notification (TPN) provisions provide another consumer protection. When someone incurs dementia, bills often accumulate unpaid. Under contract law, insurers could then terminate policies for non-payment of premium, despite the cause of non-payment being unknown claim qualification. In response to this issue, insurers and regulators agreed long ago to encourage applicants to name a third-party who must be notified before a policy can be terminated for non-payment of premiums. Insurers do not contact such a third-party until the grace period is over, and then provide at least another 30 days for the third-party to stave off cancellation. Every two years, insurers give policyholders an opportunity to update the contact information or change the third party. The benefit of this provision to policyholders often receives little attention, perhaps partly because no one seems to have ever studied the impact.

    This year, we asked some one-time questions related to TPNs. Only two participants were able to provide data. One had TPNs identified for 63 percent of its inforce policies and the other had TPNs identified for 77 percent of its policies. One-fifth of the policyholders who had identified a TPN increased their protection by identifying more than one TPN. Only about 10 percent of single purchasers have named a TPN, despite seemingly having a greater need for a TPN. Financial advisors could serve an important role by stressing the importance of a TPN for single people. Not surprisingly, fewer than half of the policies with third-party billing have TPNs. Thus direct-billed policies and couples have distinctly higher percentages of TPNs than indicated above.
  • Current prices are more stable than past prices because today’s prices reflect much more conservative assumptions based on far more credible data1 and lower assumed investment yields. Many financial advisors presume that new policies will face steep price increases, hence can be reluctant to encourage their clients to consider LTCI. Although three participants have never increased premiums on policies issued under “rate stabilization” laws, it may take a long time before the market is comfortable that prices are stable.
  • Linked benefit products have increased market share, due to influences such as: i) regardless of whether the policyholder has a long-term care claim, their family will receive benefits, ii) they often have guaranteed premiums and benefits, iii) they no longer need to be funded with single premiums; and iv) they are issued to younger ages than before.

    According to LIMRA, in the first half of 2019 (the most recent data available when this article went to print), combination life sales dropped slightly, even in the recurring-premium market which continued to gain market share compared to single premiums. The biggest drop (six percent both in premium and policies) was in the Chronic Illness market.
  • As noted earlier, roughly 59 percent of applications have resulted in placed policies in the past three years, with the low placement rates contributing to financial advisors being hesitant to recommend that clients consider LTCI. The industry may be able to improve placement rates in a variety of ways.
    • Utilize E-applications for faster submission and reduced processing time by assuring that all apps are “in good order.” The speed and accuracy increase placement. It would be helpful if brokerage general agents could populate an eApp with quote information, then forward that partial eApp to the broker for completion.
    • Pre-qualify an applicant’s health. It is important to stress the importance of such pre-qualification to advisors and prospects and to continue to find effective ways to accomplish quality pre-qualification.
    • More effective education of their distribution system by insurers, such as with drill-down questions in on-line underwriting guides and eApps.
    • Require cash with the application (CWA), which led to about five percent more of the apps getting placed according to our 2019 survey.
    • Continue to improve messaging regarding the value of LTCI and of buying now (rather than in the future). Such messaging would increase the number of applications and improve the placement rate by attracting younger and healthier applicants.
  • Over the past two years, 79 percent of our participants’ policyholders exercised their FPO (future purchase option, a guarantee that, under specified conditions, a policyholder can purchase additional coverage without having to demonstrate good health). As both the additional coverage and price per unit increase over time, such options become increasingly expensive, even more so with the price increases that the industry has experienced. The high election rate demonstrates the importance of the coverage to the policyholder and the effectiveness of annual (as opposed to triennial) negative-election FPOs (negative-election FPOs activate automatically unless the client rejects them, as opposed to positive-election FPOs which activate only if the client makes a request). At least in some markets and with some designs, policyholders reliably exercise FPOs when they must do so to continue to receive future offers. Considering such FPOs and other provisions, we project a maximum benefit at age 80 of $306/day for an average 58-year-old purchaser in 2019, which is equivalent to an average 2.9 percent compounded benefit increase between 2019 and 2041. Purchasers may be disappointed if the purchasing power of their LTCI policies deteriorates over time.
  • Only four participants offer coverage in all U.S. jurisdictions and no worksite insurer does so. Insurers continue to be reluctant to sell in jurisdictions which are slow to approve new products, restrict rate increases, or have unfavorable legislation or regulations.
  • Eight of our nine participants use third party administrators (TPAs) and seven use reinsurers. We thank American United, LifeCare Assurance, Manufacturers, Munich American, RGA, Wilton Re, Long-Term Care Group, Life Plans, and CHCS for their contributions to the LTCI industry. Other reinsurers and TPAs support insurers not in our survey. In some cases, affiliated companies provide reinsurance or guarantees.
  • As we reported last year, the NAIC adopted a significantly improved 2019 version of the Shopper’s Guide, covering combination products as well as stand-alone LTCI and adding other information, while reducing the number of pages from 80 to 76. We asked last year’s readers to email claude.thau@gmail.com to comment on the new Guide and how (much) it is used to educate consumers. We received no comments. This year, we polled insurers; their answers suggest they view the Shopper’s Guide primarily as a regulatory requirement. Their suggestions to improve the usefulness for consumers included shortening it, linking to it from state department of insurance websites, and regulators using the guide in a campaign to encourage long term care planning. We visited 31 jurisdiction websites to see if they linked to the NAIC Shopper’s Guide. We found that 13 jurisdictions use their own guides. Five (plus the Federal government) link to the 2019 NAIC Guide, while four link to the 2013 NAIC Guide. One state links to an AHIP Guide, and we found no guide or minimal wording in the remaining eight states.

Claims

  • Eight participants reported 2019 claims. As some companies are not able to provide detailed data, some statistics are more robust than others.
  • The eight insurers’ combined claim payments on individual policies rose 8.1 percent in 2019 over 2018, despite only a 0.2 percent increase in inforce policies and a 3.7 percent increase in their inforce premium.
  • The LTCI industry has had a much bigger impact than indicated above, because a lot of claims are paid by insurers that do not currently sell LTCI or did not submit claims data to us.

LTCI claims paid by insurers no longer selling LTCI may differ significantly from the following statistics as their claimants are more likely to have facility-only coverage, be older, etc.

Table 1 shows the total dollar and number of reported individual LTCI claims. The large drop in claims is primarily the result of having Genworth data in 2018 but not in 2019.

Table 2 shows the distribution of those claims by venue, which have shifted away from nursing homes over the years (except in 2019) due to consumer preferences and more claims coming from comprehensive policies. Regarding the change in 2019, we note that, for insurers that contributed data in both 2018 and 2019, the number of claims in nursing homes dipped 0.6 percent following the prior years’ patterns.

The inception-to-date data shows 53.3 percent of the number of claims being in Nursing Homes (vs. 45.0 percent last year). Here again, if we limit data to insurers reporting each year, we see a drop of 0.8 percent instead of an increase of 8.3 percent. Surprisingly, the inception-to-date number of claims is more weighted to Nursing Home than the dollar of claims. The nursing home claims seem to come from older policies with lower minimums.

In the distribution based on number of claims, a person who received care in more than one venue is counted once for each venue, but not double-counted in the total line.

Seven carriers reported their number of open individual claims at year-end, ranging between 59 and 107 percent of the number of claims paid during the year, averaging 75 percent overall. The insurer reporting 107 percent noted that they include open claims that have had no payments made yet. With that carrier excluded, the overall ratio was 76 percent.

Table 3 shows average size individual claims since inception. Because 41 percent of claimants since inception have submitted claims from more than one type of venue, the average total claim generally exceeds the average claim paid for any particular venue. Nonetheless, individual Assisted Living Facility (ALF) claims stand out as high each year, probably because:

a) ALF claims appear to have a longer duration compared with other venues.

b) Nursing home costs are most likely to exceed the policy daily/monthly maximum. Hence the maximum daily benefit negates part of the additional daily cost of nursing homes.

c) People who maximize the use of their maximum monthly benefits can generally spend as much in an ALF as in a nursing home.

d) Although some surveys report that ALFs cost about half as much as nursing homes on average, ALFs often charge more for a memory unit or for levels of assistance that align more closely with nursing home care. Upscale ALFs seem to cost a higher percentage of upscale nursing home costs than the average ALF/nursing home ratio.

Several insurers extended ALF coverage to policies which originally did not include ALF coverage. Providing these additional benefits provides the policyholder with significant flexibility at time of claim, but has contributed to the insurers’ need for rate increases.

The following factors contribute to a large range of average claim results by insurer (see Table 3):

  • Different markets (by affluence; worksite vs. individual; geography; etc.).
  • Demographic differences (distribution by gender and age).
  • Distribution by benefit period, benefit increase feature, shared care and elimination period.
  • Distribution by facility-only policies vs. 50 percent home care vs. 100 percent home care vs. home care only, etc.
  • Different lengths of time in the business.

The following factors cause our average claim sizes to be understated.

  • For the carriers reporting claims this year, 11 percent of the inception-to-date individual claims are still open. Our data does not include reserve estimates for future payments on open claims.
  • People who recover, then claim again, are counted as multiple insureds, rather than adding their various claims together.

Besides being understated, average claim data does not reflect the value of LTCI from some purchasers’ perspectives, because the many small claims drive down the average claim. LTCI can provide significant financial return for people who need care one year or longer. The primary purpose of insurance is to protect against adverse results, so the amount of protection, as well as average claim, is important.

Six insurers provided their current individual (excludes group) monthly LTCI claim exposure, which exceeds $4.8 billion (note: reflects only initial monthly maximum for one insurer). As shown in Table 4, this figure is thirty times their corresponding monthly LTCI premium income and more than 47 times their 2019 LTCI monthly paid claims.

Eight insurers contributed data regarding their inforce distribution by benefit period. Treating endless (lifetime benefit periods) as a 15-year benefit period, we found that their average inforce benefit period is 6.8 years. Changing the assigned value of the endless benefit period by one year has an impact of approximately .25 years on the average inforce benefit period. With annual exposure thirty times annual premium and assuming an average benefit period of about 6.8 years, we estimate that total exposure is 202 times annual premium.

Four insurers reported their current average individual maximum monthly maximum benefit for claimants, with results ranging from $4,696 to $6,552.

Nursing home (NH) claims are more likely to use the policy’s maximum daily/monthly benefit than ALF claims, because ALF costs are generally lower and because policies sometimes have lower maximums for ALFs. ALF claims correspondingly are more likely to use the policy maximum than are adult day care and home care claims.

STATISTICAL ANALYSIS
Nine insurers contributed significant background data, but some were unable to contribute data in some areas. Six other insurers (Auto-Owners, CalPERS, Genworth, LifeSecure, Transamerica and United Security) contributed their number of policies sold and new annualized premium, distinguishing worksite from other sales, but not clarifying whether FPOs were included in the premium.

Sales characteristics vary significantly among insurers based on market differences (individual vs. worksite, affluence, gender distribution, etc.). Year-to-year variations in policy feature distributions may reflect changes in participants, participant practices and designs, participant or worksite market shares and industry trends.

Market Share
We include purchased increases on existing policies in new premium (we call them FPOs and include board-approved increase offers) because new coverage is being issued. However, looking at new premiums ignoring FPOs spotlights insurers with more new policy sales. Table 5 lists the top 10 participants in 2019 new premium including FPOs and shows their sales (if submitted) without FPOs. Northwestern ranks #1 including FPOs, with Northwestern and Mutual of Omaha accounting for 59 percent of the market. Ignoring FPOs, Mutual of Omaha is #1, 63 percent ahead of #2 Northwestern. The premium includes 100 percent of recurring premiums plus 10 percent of single premiums.

Worksite Market Share
The three stand-alone LTCI carriers specializing in worksite each saw sales jump by 62 to 76 percent despite increased competition from a major new carrier and from linked-benefit policies. Thus, worksite business produced 21.0 percent of new insureds (see Table 6) and 13.4 percent of new annual premium (including FPOs but excluding single premium). Worksite sales consist of three different markets, the first two of which produce a higher percentage of new insureds than of new premiums:

  • Voluntary group coverage generally is less robust than individual coverage.
  • Core/Buy-Up programs have particularly young age distributions and modest coverage because a lot of people do not buy-up and are less likely to insure spouses.
  • Executive carve-out programs generally provide the most robust coverage. One- or two-couple executive carve-out sales may not qualify for a multi-life discount with some insurers, hence may not be labeled as worksite sales in submissions to our survey.

The amount of worksite sales reported and its distribution among the three sub-markets significantly impact product feature sales distributions. Table 6 is indicative of the full market, but this year’s policy feature distributions significantly underweight the large group market, as most of that market is not reflected in our statistical data. More information about worksite sales will appear in the August issue of Broker World.

Affinity Market Share
Affinity groups (non-employers such as associations) produced 8.5 percent of new insureds (see Table 7), but only 5.9 percent of new business premium. Less than 20 percent of the lower affinity average premium is attributable to the affinity discount. The balance may be due to younger issue age or less robust coverage.

Characteristics of Policies Sold
Average Premium Per Sale
Table 8 shows the average new business premium per insured ($2,551), subtracting FPOs for the insurers that reported statistics. For insurers that reported distribution by couples vs. individuals, the number of insureds was 41.5 percent higher than the number of buying units (a couple comprise a single buying unit), boosting the $2,551 to $3,608.

The average premium for new policies for the 15 insurers rose 1.7 percent compared to 2018 (we recalculated the 2018 results to include more carriers). Our statistics show a higher average initial maximum monthly benefit, a higher issue age and a slightly higher benefit period, which generate a larger increase in average premium for the insurers which provided statistical data.

Data for 2017 and earlier years included FPOs in these calculations, overstating the average premium per new insured and buying unit.

Average premium per new policy ranged from $1,443 to $3,701 among the 15 insurers.
The lowest average new premium (including FPOs) was in Puerto Rico ($2,036), followed by Oklahoma ($2,586) and Kansas ($2,646), while the highest was in the District of Columbia ($4,575), followed by Connecticut ($4,531), West Virginia ($4,349), and New York ($4,270).
Due to rate increases, FPO elections and termination of older policies, the average inforce premium jumped to $2,426, 9.8 percent more than at the end of 2018.

Issue Age
Table 9 summarizes the distribution of sales by issue age band based on insured count. The average issue age increased to 57.7 mostly due to change in participants. The age distributions for 2016 and earlier had more worksite participants than recent years. Note: Two survey participants have a minimum issue age of 40, one will not issue below 30, and two will not issue below 25.

Benefit Period
Table 10 summarizes the distribution of sales by benefit period. The average notional benefit period increased slightly from 3.74 to 3.79 because of change in participants. Because of Shared Care benefits, total coverage was higher than the 3.79 average suggests. Three-year to five-year benefit periods accounted for 75.2 percent of the sales, quite a concentration compared to the past.

Monthly Benefit
Table 11 shows that, because of the change in participants, monthly determination applied to a record 83.2 percent of 2019 policies. With monthly determination, low-expense days leave more benefits to cover high-expense days. Among companies which make monthly determination optional, the percentage electing monthly determination ranged from 16 to 43 percent.

Table 12 shows that the average maximum monthly benefit increased from $4,763 in 2018 to $4,882 in 2019, two-thirds of which increase resulted from the change in participating insurers.

Benefit Increase Features
Table 13 summarizes the distribution of sales by benefit increase feature. The big increase in three percent compounding is less meaningful considering that there was a big decrease in “Other compound” most of which was a variation of three percent compounding.

“Indexed Level Premium” policies are priced to have a level premium, but the benefit increase is tied to an index such as the consumer price index (CPI).

As shown in Table 14, we project the age 80 maximum daily benefit by increasing the average initial daily benefit from the average issue age to age 80, according to the distribution of benefit increase features, using current future purchase option (FPO) election rates and a five percent/year offer for fixed FPOs. The maximum benefit at age 80 (in 2041) for our 2019 average 58-year-old purchaser projects to $306/day (equivalent to 2.9 percent compounding). Had our average buyer bought an average 2018 policy a year ago at age 57, her/his age 80 benefit would be $313/day (equivalent to three percent compounding). The two percent drop is attributable to the change in participants this year. The increase in the FPO election rate added $4/day to the 2041 benefit. Most policyholders seem likely to experience eroding purchasing power over time if cost of care trends exceed three percent.

FPOs are important to insureds in order to maintain purchasing power, and as demonstrated by the fact that 82 percent of our participants’ 2018-2019 FPOs were exercised. The high election rate is very impressive, considering that the cost increases each year due to larger coverage increases each year, increasing unit prices due to age and additional price increases due to rate increases.

The high election rate, coupled with a range of responses from 20 to 90 percent election, demonstrates the effectiveness of annual (as opposed to triennial) options and negative-election (negative-election FPOs activate automatically unless the client rejects them) as opposed to positive-election FPOs (which activate only if the client makes a request). At least some blocks of business demonstrate that policyholders will exercise FPOs if they must do so to continue to receive future offers.

FPOs are also important to insurers, accounting for at least 18 percent of new premium in 2018 and at least 22 percent in 2019. Two insurers had nearly half their new premium come from FPOs.

Elimination Period
Table 16 summarizes the distribution of sales by facility elimination period (EP). Ninety-one percent (91 percent) of buyers opt for 90-day elimination periods. However, two carriers report 23 to 30 percent of their sales in the 20-44-day EP range. Three carriers reported six to 11 percent of their sales having more than a 200-day EP.

Table 17 shows the percentage of policies with zero-day home care elimination period (but a longer facility elimination period). With most insurers offering an additional-cost zero-day home care EP option, 15 to 30 percent of buyers purchased a zero-day home care elimination period, but one insurer had nearly a 50 percent election rate.

Table 17 also shows the percentage of policies with a calendar-day EP. It is important to understand that most calendar-day EP provisions do not start counting until a paid-service day has occurred.

Sales to Couples and Gender Distribution
Table 18 summarizes the distribution of sales by gender and single/couple status.

The percentage of buyers who are female dropped to 54.2 percent and the percentage of females among single insureds dropped to 64.8 percent. Changes in participants accounted for only 33 and 17 percent of those respective drops. The percentage of females varies significantly and consistently among companies each year based on their markets.

The 81.8 percent of accepted applicants who purchased coverage when their partners were declined is the highest we have seen. However, some insurers which reported approximately 50 percent success in the past did not contribute data this year.

Shared Care and Other Couples’ Features
Table 19 summarizes sales of Shared Care and other couples’ features.

  • Shared care—allows one spouse/partner to use the other’s available benefits if their own coverage has been depleted or offers a third independent pool that the couple can share.
  • Survivorship—waives a survivor’s premium after the first death if specified conditions are met.
  • Joint waiver of premium (WP)—both insureds’ premiums are waived if either qualifies for benefits.

Changes in distribution by carrier can greatly impact year-to-year comparisons in Table 19, because some insurers embed survivorship or joint waiver automatically (sometimes only in some circumstances) while others offer it for an extra premium or do not offer the feature. However, the 2019 increased percentages of Shared Care and Joint WP are not attributable to changes in participants.

In the top half of Table 19, percentages are based on the number of policies sold to couples who both buy (only limited benefit, for Shared Care). The bottom half of Table 19 shows the (higher) percentage that results from dividing the number of buyers by sales of insurers that offer the feature. Four participants sold Shared Care to more than half their limited benefit period couples; four others sold Shared Care to fewer than half of such couples. Three insurers sold Joint WP to 50 percent or more of their couples; three others sold joint WP to fewer couples. Three carriers sold Survivorship ranging to nine to 16 percent of their couples, while two insurers sold Survivorship to 2.5 to three percent of their couples.

Table 20 provides additional breakdown on the characteristics of Shared Care sales. As shown on the right-hand side of Table 20, two- to four-year benefit period policies are most likely (26 to 32 percent) to add Shared Care. Partly because three-year benefit periods comprise 52 percent of sales, most policies with Shared Care (62 percent) have three-year benefit periods, as shown on the left side of Table 20.

Above, we stated that Shared Care is selected by 35.9 percent of couples who both buy limited benefit period policies. However, Table 20 shows Shared Care comprised no more than 31 percent of any benefit period. Table 20 has lower percentages because Table 19 denominators are limited to people who buy with their spouse/partner whereas Table 20 denominators include all buyers.

Shared Care is more concentrated in two- to four-year benefits periods (88.3 percent of shared sales) than are all sales (71.5 percent). Couples are more likely to buy short benefit periods because couples plan to help provide care to each other and Shared Care makes shorter benefit periods more acceptable. Single buyers are more likely to be female, hence opt for a longer benefit period. Shared Care percentages rebound at the longer benefit periods reflecting buyers who are trying to cover catastrophic risk and might prefer an endless benefit period.

Existence and Type of Home Care Coverage
For the first time, no participant reported home-care-only sales. Five participants reported sales of facility-only policies, which accounted for 0.7 percent of total sales. Ninety-six percent (96.4 percent) of the comprehensive policies included home care benefits at least equal to the facility benefit.

Other Characteristics
As shown in Table 21, partial cash alternative features (which allow claimants, in lieu of any other benefit that month, to use between 30 and 40 percent of their benefits for whatever purpose they wish) were included in 49.1 percent of sales, including some non-participant sales.

Return of premium (ROP) features were included in 10.4 percent of policies. ROP returns some or all premiums (usually reduced by paid LTCI benefits) when a policyholder dies. Approximately 80 percent of ROP features were embedded automatically in the product. Embedded features are designed to raise premiums minimally, typically decreasing the ROP benefit to $0 by age 75.

Nearly fourteen percent (13.6 percent) of policies with limited benefit periods included a restoration of benefits (ROB) provision, which typically restores used benefits when the insured does not need services for at least six months. Approximately 89 percent of ROB features were automatically embedded.

Shortened benefit period (SBP) makes limited future LTCI benefits available to people who stop paying premiums after three or more years. Although every insurer is obligated to offer SBP, some carriers did not report any SBP sales. Removing their sales from the denominator, we found that 3.1 percent of buyers selected SBP.

Only one insurer issued non-tax-qualified (NTQ) policies, which accounted for 0.1 percent of industry sales.

“Captive” (dedicated to one insurer) agents produced 57.0 percent of the policies. The balance was produced by brokers. At one time, “captive” agents who sold LTCI tended to specialize in LTCI. Now many are agents of mutual companies.

Sales distribution by jurisdiction is posted on the Broker World website.

Limited Pay and Paid-Up Policies
In 2019, only two insurers sold policies that become paid-up in 20 years or less, accounting for 0.8 percent of sales.

Because today’s prices are more stable, premium increases are less likely. One of the key reasons for buying 10-year-pay (avoidance of rate increases after the 10th year) is greatly reduced, while the cost of 10-year-pay has increased, making it less attractive than in the past. Nonetheless, limited-pay and single-pay policies are attractive to minimize post-retirement outflow and to accommodate §1035 exchanges.

Participants reported that 3.8 percent of their inforce policies are paid-up. Less than one percent (0.8 percent) are paid-up because they have completed their premium period. Another 0.8 percent are paid-up due to shortened benefit period and 0.4 percent are due to survivorship features. Almost half of the paid-up policies are paid up for unidentified reasons. For example, shortened benefit period percentages could be as much as three times as high as suggested herein.

PARTNERSHIP PROGRAM BACKGROUND
When someone applies to Medicaid for long term care services, states with Partnership programs disregard assets up to the amount of benefits received from a Partnership-qualified policy. Partnership sales were reported in 43 jurisdictions in 2019, all but California (no participants offer California Partnership policies) and Alaska, District of Columbia, Hawaii, Massachusetts, Mississippi, Utah, and Vermont, where Partnership programs do not exist. Massachusetts has a somewhat similar program (MassHealth).

The Partnership rules in California, Connecticut, Indiana and New York (“original” Partnership states) are significantly different than in other Partnership jurisdictions (“Deficit Reduction Act (DRA)” jurisdictions). The “original” states legislated variations of the Robert Woods Johnson Partnership (RWJ) proposal, whereas the “DRA” jurisdictions use more consistent rules based on the Deficit Reduction Act of 2005. For example, the “original” states require a separate Partnership policy form, generally still have more stringent benefit increase requirements and assess a fee for insurers to participate (none of which applies in DRA states). As a result, only two to five insurers sell Partnership policies in CA (two), CT (four), IN (five) and NY (two). At the time that this article is written, insurance brokers do not have access to Partnership policies in CA and NY.

The National Reciprocity Compact (NRC) requires member states to recognize Medicaid Asset Disregard earned in any other member state. States creating Partnerships under the Deficit Reduction Act of 2005 were automatically enrolled in the NRC but had the right to secede. The four original Partnership states (California, Connecticut, Indiana and New York) had the right to opt in. California is now the only jurisdiction with a Partnership program that is not a member of the NRC. Last year, we reported that New Hampshire had created a unique regulation in 2018, limiting asset disregard for policies sold in other jurisdictions. New Hampshire has reversed that limitation.

PARTNERSHIP PROGRAM SALES
Insurers sometimes delay certifying policy forms as “Partnership” because of other priorities (e.g., needing time to comply with state-specific requirements to notify existing policyholders or offer an exchange). Such delay is not harmful, as certification is retroactive to policies already issued on that policy form if the policies have the required characteristics. For this reason, the “original” Partnership issues mentioned above and because some insurers are not licensed in all jurisdictions, none of our participants sold Partnership policies in more than 40 jurisdictions in 2019. Three had Partnership sales in 38-40 jurisdictions, four in 29-34 jurisdictions, one in six jurisdictions, and the other has chosen not to certify Partnership conformance.

In the DRA states, 55 percent of policies qualified for Partnership status. Once again, Minnesota led the way; 82.5 percent of the policies sold qualified as Partnership. Maine (75 percent) and Wisconsin (74 percent) followed. North Dakota and Georgia were also above 70 percent.
In the original RWJ states, only 0.4 percent of the issued policies qualified as Partnership: Indiana (3.5 percent), Connecticut (1.0 percent), New York (0.4 percent) and California (zero percent).

Partnership policies are expected to have higher average premiums because of the requirement that Partnership policies issued under age 76 have benefit increase features. In our survey, most states did not have such a relationship because we asked insurers to include FPOs in their sales and the carriers with the most FPOs had high average premiums while selling few Partnership policies.

Approximately 60 percent of Partnership states now allow one percent compounding to qualify for Partnership, which can help low-budget buyers qualify for Partnership and also enables worksite core programs to be Partnership-qualified. A higher percentage of policies would qualify for Partnership in the future if insurers and advisors leverage these opportunities. However, currently only three insurers offer one percent compounding.

Partnership programs could be more successful if:

  1. Advisors offer small maximum monthly benefits more frequently to the middle class. For example, a $1,500 initial maximum monthly benefit covers about four hours of home care every two days and, with compound benefit increases, may maintain buying power. Many middle-class individuals would like LTCI to help them stay at home while not “burning out” family caregivers and could be motivated further by Partnership asset disregard. (This approach does not work where a Partnership minimum daily benefit is required such as CA, $230/day; CT, $291; or NY, $337.) When policies reflecting CA SB 1248 become available in California, California’s minimum size policy will drop to $100/day. South Dakota requires a $100 minimum size for all LTCI and Indiana’s Partnership requires $115.)
  2. Middle-class prospects were better educated about the importance of benefit increases to maintain LTCI purchasing power and to qualify for Partnership asset disregard.
  3. The four original Partnership states migrate to DRA rules.
  4. More jurisdictions adopt Partnership programs.
  5. Programs that privately finance direct mail educational LTCI content from public agencies were adopted more broadly.
  6. Financial advisors were to press reluctant insurers to certify their products and create one percent compounding.
  7. More financial advisors were certified. Some people argue that certification requirements should be loosened. At a minimum, the renewal certification process could be improved.
  8. More insurers offer one percent compounding.
  9. Linked benefit products became Partnership-qualified.

UNDERWRITING DATA
Case Disposition
Eight insurers contributed application case disposition data to Table 22. In 2019, 59.2 percent of applications were placed, including those that were modified, a little higher than in 2017 and 2018. Half of the improvement was related to change in participants.

One insurer reported a 76.7 percent placement rate, the second highest being 58.3 percent. Two insurers placed fewer than 50 percent of their apps, the lowest placement rate being 32.3 percent. Low placement rates increase insurers’ cost per placed policy. More importantly, low placement rates can discourage advisors from discussing LTCI with clients. In addition to not wanting to waste time and effort, advisors fear that declined clients will be dissatisfied.
Decline rates slipped slightly for the second straight year. The decline rate by carrier varied from 11.2 to 41.8 percent, affected by factors such as age distribution, market, underwriting requirements, and underwriting standards. Our placed percentages reflect the insurers’ perspective. A higher percentage of applicants secures coverage because applicants denied by one carrier may be issued either stand-alone or combo coverage by another carrier or may receive coverage with the same insurer after a deferral period.

Underwriting Tools
Eight insurers contributed data to Table 23, which divides the number of uses of each underwriting tool by the number of applications processed. For example, the number of medical records was 86 percent of the number of applications. That does not mean that 86 percent of the applications involved medical records, because some applications resulted in more than one set of medical records being requested.

Insurers are trying to speed underwriting to increase placement rates. In the worksite market, insurers are less likely to use some of these tools.

Year-to-year changes in distribution of sales among insurers significantly impact results. Lower maximum ages result in fewer face-to-face exams. Insurers might underreport the use of an underwriting tool because they may lack a good source for that statistic. For example, the cognitive phone calls are understated below because one insurer could not split them apart from their other phone interviews (PHI) and reported them all as PHI with no or minimal cognitive testing.

Underwriting Time
Table 24 shows the average processing from receipt of application to mailing the policy (37.0 days) was 2.4 days faster than in 2018, which in turn had been 3.4 days faster than in 2017. About 38 percent of the reduction was due to the change in survey participants.

The reduction came at both ends of the spectrum, a much higher percentage processed within 29 days and many fewer taking 45 or more days. All but one insurer reported an increase.

Rating Classification
Table 25 shows that a lower percentage of policies was issued in the most favorable rating classification, but for participants which contributed data both years, the percentage increased 0.4 percent despite a higher average issue age. Two insurers placed more than 80 percent of their applicants in the best underwriting class. Only 8.1 percent of the applicants were placed beyond the second-best classification. In 2016 and prior years, the “best” percentage was lower partly because we received more data from insurers writing worksite business, which does not offer preferred health discounts and because one insurer eliminated its preferred health discount (hence “standard” ratings became its “best”).

Underwriting placements have become more favorable. To gauge whether insurers are declining applicants rather than placing them in a less-attractive rating, we added a line in Table 25 that shows the percentage of decisions which were either declined or placed in the third or less-attractive classification. This approach confirms the more favorable decisions in 2019.

Tables 26 and 27 show by issue age range the percentage of policies issued in the most favorable category in 2019 and the percentage of decisions that were declines. One participant was not able to provide the by-issue-age data, so Tables 26 and 27 do not exactly match Table 25.

Please click on the links below to find the following additional information:

  • Product Exhibit shows, for eight insurers: Financial ratings, LTCI sales and inforce, and product details. Please note that, during the COVID-19 pandemic, some insurers have temporarily discontinued sales that would require face-to-face interviews. Our Exhibit ignores such temporary restrictions.
  • Product Details, a row-by-row definition of the product exhibit entries, with some commentary.
  • Premium Exhibit, which shows lifetime annual premiums for each insurer’s most common underwriting class, for issue ages 40, 50, 60, and 70 for single females, single males, and heterosexual couples (assuming both buy at the same age), based on $100 per day (or closest equivalent weekly or monthly) benefit, 90-day facility and most common home care elimination period (other aspects vary), three-year and five-year benefit periods or $100,000 and $200,000 maximum lifetime buckets, with and without Shared Care and with flat benefits or automatic three or five percent annual compound benefit increases for life. The exhibit includes facility-only policies, as well as comprehensive policies. Worksite products do not reflect any worksite-specific discount, though some carriers offer this.
  • Premium Adjustments (from our Premium Exhibit prices) by underwriting class for each participant.
  • Distribution by underwriting class for each participant.
  • State-by-state results: percentage of sales by state, average premium by state and percentage of policies qualifying for Partnership by state.

CLOSING
We thank insurance company staff for submitting the data and responding to questions promptly. We also thank Nicole Gaspar, Alex Geanous, and Anders Hendrickson of Milliman for managing the data expertly.

We reviewed data for reasonableness and insurers reviewed their product exhibit displays. Nonetheless, we cannot assure that all data is accurate.

If you have suggestions for improving this survey (including new entrants in the market), please contact one of the authors.

Reference:

  1. Society of Actuaries (November 2016). Long-Term Care Insurance: The SOA Pricing Project. Retrieved May 16, 2019, from https://www.soa.org/globalassets/assets/files/static-pages/sections/long-term-care/ltc-pricing-project.pdf.

2019 Milliman Long Term Care Insurance Survey

The 2019 Milliman Long Term Care Insurance Survey is the 21st consecutive annual review of stand-alone long-term care insurance (LTCI) published by Broker World magazine. It analyzes the marketplace, reports sales distributions, and describes available products including group insurance.

More analysis of worksite sales will appear in the August issue of Broker World magazine.

Unless otherwise indicated, references are solely to U.S. stand-alone LTCI sales, excluding exercised future purchase options (FPOs) or other changes to existing coverage. “Stand-alone” refers to LTCI policies that do not include death benefits (other than returning premiums upon death or waiving a surviving spouse’s premiums) or annuity or disability income benefits. Where referenced, “combo” policies provide LTCI combined with life insurance or annuity coverage.

Highlights from This Year’s Survey

Participants
Eleven carriers participated broadly in this survey. Four others provided sales information so we could report more accurate aggregate industry individual and multi-life sales. From these submissions, we estimated total industry production.

We estimate our statistical distributions reflect up to 90 percent of total industry sales and about 65 percent of worksite sales.

State Farm discontinued stand-alone LTCI sales in May 2018, hence is no longer included in the Product Exhibit.

Although not displaying products, Northwestern LTC and State Farm provided background statistical information. Auto-Owners, LifeSecure, Transamerica and United Security Life contributed total and worksite sales (new premium and lives insured) but did not provide broad statistical information.

Sales Summary

  • The 15 carriers reported sales of 56,288 policies and certificates (“policies” henceforth) with new annualized premium of $171,537,644 (including exercised FPOs) in 2018, compared to 2017 restated sales of 64,800 policies ($181,506,770 of new annualized premium), a 13.1 percent drop in the number of policies and a 5.5 percent drop in the amount of new annualized premium. As noted in the Market Perspective section, sales of policies combining LTCI with other risks continue to increase.
  • Five of the top 10 insurers sold more new premium than in 2017, but only three sold more new policies. This difference emerges because elected FPOs add on-going premium but not new policies.
  • With FPO elections included in new premium, Northwestern garnered the number one spot in new sales. Mutual of Omaha was a strong second and had a large lead in annualized premium from new policies sold. Together, they combined for 57 percent of new premium including FPOs and 52 percent of new premium excluding FPOs.
  • For the fourth straight year (and fourth time ever), our participants’ number of inforce policies dropped, this time by 1.1 percent, after 5.1 percent (2017), 0.3 percent (2016) and 0.2 percent (2015) drops previously.
  • Nonetheless, year-end inforce premium per policy continues to increase (3.0 percent in 2018) to $2,169. Inforce premium increases from sales, price increases, and benefit increases (including FPOs), and reduces from lapses, reductions in coverage, deaths, and shifts to paid-up status for various reasons.
  • Participants’ individual claims rose 5.9 percent. Overall, the stand-alone LTCI industry incurred $11.0 billion in claims in 2017 based on companies’ statutory annual filings, raising total incurred claims from 1991 through 2017 to $129.9 billion. (Note: 2017 was the most recent year available when this article was written.) Most of these claims were incurred by insurers that no longer sell LTCI. The reported 2017 incurred claims is similar to the $11.1 billion of incurred claims reported in 2016. Combo LTC claims are in their infancy and amounted to $5.9 million. The claim figures are even more startling considering that only a small percentage of the 7 million covered individuals were on claim at the end of 2017.
  • The average processing time in the industry was eight percent faster in 2018 than in 2017. Nonetheless, active policies resulted from only 58.8 percent of applications, even lower than 2017’s record low of 59.0 percent. Financial advisors often are reluctant to risk a bad experience by recommending that clients apply for LTCI. As noted in the Market Perspective section, the industry may be able to improve placement rates in a variety of ways.

About the Survey
This article is arranged in the following sections:

  • Highlights provides a high-level view of results.
  • Market Perspective provides insights into the LTCI market.
  • Claims presents industry-level claims data.
  • Sales Statistical Analysis presents industry-level sales distributions reflecting data from 11 insurers
  • Partnership Programs discusses the impact of the state partnerships for LTCI.
  • Product Exhibit (click here for PDF) shows, for nine insurers: financial ratings, LTCI sales and inforce, and product details.

Click here to view the following additional information available only online.

  • Product Details, a row-by-row definition of the product exhibit entries, with a little commentary.
  • Premium Exhibit shows lifetime annual premiums for each insurer’s most common underwriting class, for issue ages 40, 50, 60, and 70 for single females, single males, and heterosexual couples (assuming both buy at the same age), based on $100 per day (or closest equivalent weekly or monthly) benefit, 90-day facility and most common home care elimination period, three-year and five-year benefit periods or $100,000 and $200,000 maximum lifetime buckets, with and without Shared Care and with flat benefits or automatic three percent or five percent annual compound benefit increases for life. Worksite premiums do not reflect any worksite-specific discount, though some carriers offer this.
  • Premium Adjustments (from our published prices) by underwriting class for each participant.
  • Distribution by underwriting class for each participant.
  • State-by-state results: percentage of sales by state, average premium by state and percentage of policies qualifying for Partnership by state.

Market Perspective (more detail in subsequent parts of the article)

  • The stability of current prices bears no resemblance to the past instability because today’s prices reflect much more conservative assumptions based on far more credible data and low investment yields. Unfortunately, many financial advisors presume that new policies will face steep price increases. It is likely to take a long time before the market becomes comfortable that prices are stable.
  • Combo products have increased market share because: i) their other benefits mean that regardless of whether the policyholder has a long term care claim, they will receive benefits, ii) they often have guaranteed premiums and benefits, and iii) they now offer alternatives besides single premium.

According to LIMRA, combo life policies (LTCI combined with life insurance) represented 16 percent of new 2017 annualized life insurance premium (25 percent and $4.1 billion, if you include 100 percent of single premium sales). Fourteen percent of the 260,000 combo policies included LTCI benefits after the death benefit had been fully advanced (“extension of benefits; EOB”). Of the 86 percent in which LTCI benefits could not exceed the death benefit, nearly six in 10 (57 percent) used “chronically ill” provision that is not allowed to be called “long term care insurance”, rather than a §7702 LTCI provision.

Looking at the total LTCI market, stand-alone policies accounted for 20.0 percent of the 2017 policies sold, policies with extensions of benefits (EOB) accounted for 11.2 percent and policies with accelerated death benefits but no EOB accounted for 68.8 percent.

  • As anticipated in last year’s report, a new entrant offers unisex LTCI pricing for the worksite market, another carrier re-entered the worksite market and a third carrier is test-marketing a worksite product for possible release. In addition, more combo products are being proposed in the worksite market. For businesses with employees residing in multiple jurisdictions, consistent product availability can be a challenge. Worksite LTCI is more attractive to employers when packaged with solutions for employees who are caregivers for their elders.
  • As noted earlier, fewer than 59 percent of applications have resulted in issued policies in the past two years. The low placement rate makes financial advisors hesitant to recommend that clients consider LTCI. The industry may be able to improve placement rates in a variety of ways.
    • E-applications make the process faster, secure better health information (some applications may then not be submitted) and avoid long delays on apps that are “not in good order” when submitted. In our 2018 survey article, we reported that eApps were 71 percent more likely to be in good order and were less likely to be declined. It would be helpful if brokerage general agents could populate an eApp with quote information, then forward that partial eApp to the broker for completion.
    • Better pre-qualification of prospects’ health will guide applications to an insurer most likely to accept the applicant. As noted above, eApps help. If advisors are reluctant to discuss health issues with their clients, some general agencies interview the client on behalf of the advisor or provide a link to a website where the client can answer health questions. Data quantifying the positive impact of thorough pre-qualification would be helpful.
    • Higher placement rates result when cash is required with the application (CWA). This year, we asked insurers for data regarding placement (excluding worksite business) based on whether cash was required with the application. Carriers who accept applications with or without cash reported a combined placement rate of 58.1 percent with cash and 54.0 percent without cash. Insurers which reported only CWA data placed 60.4 percent of their cases. Insurers which reported only data without CWA placed 55.0 percent.
    • Faster processing may help. However, as noted earlier, the average processing time was 10 percent faster in 2018 than in 2017, yet the placement rate still dropped 0.2 percent. Maybe it would have dropped more without the faster processing.
    • Better messaging regarding the value of LTCI and about the value of buying now (rather than in the future) would improve the placement rate (as well as increase the number of applications).
    • Insurers may be able to educate their distribution system more effectively, such as with drill-down questions in on-line underwriting guides.
  • Three participants have never increased premiums on policies issued under “rate stabilization” laws. Three insurers reported that their highest cumulative increase on such policies has been about 40 percent and two had increased prices 100 percent or more. Two carriers did not indicate their maximum increase, one of which we believe was in the lower end and one in the higher end.

All the insurers allow clients to reduce the maximum daily/monthly benefit (typically not below the original minimum) with a proportionate reduction in future premium. All allow clients to move to a shorter originally-available benefit period with premiums the same as they would currently be had they purchased that benefit period originally. Eighty percent of the insurers allow clients to select a longer elimination period, with premiums the same as they would currently be had they purchased that longer elimination period initially. Some insurers may not offer this option because they do not have longer elimination periods available.

If a client drops a compound benefit increase rider, most insurers freeze the current benefit and charge the premium that the client would be paying today had the client purchased the current amount originally with no compound benefit increases. One insurer takes a more consumerist approach, freezing the benefit and reducing the current premium by the cost of the benefit increase rider. Some policyholders may face reversion to the original maximum daily or monthly benefit.

One insurer explained that the above approaches for dropping a compound benefit increase rider result in higher future premiums as a result of sacrificing future benefit increases if the maximum daily/monthly benefit has increased beyond the additional percentage cost for the compound benefit increase rider. Therefore, that insurer suggests that clients reduce the daily/monthly maximum benefit and retain compounding.

  • Our projected amount of issued protection on new policies increased significantly in 2018 because an insurer with negative-election FPOs (negative-election FPOs activate automatically unless the client rejects them, as opposed to positive-election FPOs which activate only if the client makes a request) submitted FPO election rate data this year but not last year. For the average 57-year-old purchaser in 2018, we project a maximum benefit in 2041 of $313/day, equivalent to an average 3.0 percent compounded benefit increase. Had he/she purchased last year’s average policy at age 56, he/she would have had $279/day by age 80, equivalent to 2.3 percent compounding. Without the change in insurers providing FPO data, the age 80 maximum daily benefit would have dropped from $279 to $276. Purchasers may be disappointed if the purchasing power of their LTCI policies deteriorates over time.
  • Claimants rarely challenge insurer claim adjudications. Since 2009 (varies by jurisdiction), if an insurer concludes that a claimant is not chronically ill, the insurer must inform the claimant of his/her right to appeal the decision to independent third-party review (IR). The IR determination is binding on insurers. As shown in our Product Exhibit, most participants have extended IR beyond statutory requirements, most commonly to policies issued prior to the effective date of IR. At least four participating insurers report never having a request for IR. Four other insurers have reported a total of 72 IR requests resulting in the insurers’ denials being upheld more than 90 percent of the time. This data is consistent with the experience of LTCI Independent Eligibility Review Specialists, LLC. Steve LaPierre, president of that firm, indicated that they have performed approximately 125 IRs and have upheld the insurer more than 90 percent of the time. The existence of IR, the insurers’ voluntary expansion of IR and the insurer success rate when appeals occur help justify confidence in claim decisions.
  • Only four participants offer coverage in all U.S. jurisdictions and no worksite insurer does so. Insurers are reluctant to sell in jurisdictions which are slow to approve new products, restrict rate increases, or have unfavorable legislation or regulations.
  • Seven of our 11 participants use reinsurers and seven use third party administrators (TPAs). The reinsurers are Reinsurance Group of America, LifeCare, Manufacturers, Swiss Re and Union Fidelity. The TPAs are Long-Term Care Group, Life Plans, LifeCare Assurance, and CHCS. Other reinsurers and TPAs support insurers not in our survey. In some cases, affiliated companies provide reinsurance or guarantees.
  • A significantly-changed LTCI Shopper’s Guide was recently adopted by the NAIC. We’re interested in readers’ reviews of the new Guide and comments as to how much it is used to educate consumers. (Please email comments to claude.thau@gmail.com.)

Claims

  • Ten participants reported 2018 claims. The consistency of the data is improving, but some companies were not able to respond to some questions or could not respond in a way that justified including their data for some questions.
  • For the ten insurers which reported individual claims for both 2018 and 2017, claim dollars rose 5.9 percent, despite a 1.1 percent decrease in inforce policies.
  • The LTCI industry has had a much bigger impact than indicated above, because a lot of claims are paid by insurers that no longer sell LTCI.

LTCI claims paid by insurers no longer selling LTCI likely differ significantly from data reported below as their claimants are more likely to have facility-only coverage, be older, etc.

Table 1 shows the total dollar and number of individual LTCI claims paid by those carriers which provided information to use.

Table 2 shows the distribution of those claims by venue. In the distribution based on number of claims, a person who received care in more than one venue is counted once for each venue, but not double-counted in the total line. Individual claims in general continue to shift away from nursing homes. We expect on-going shift away from nursing homes due to consumer preferences and more claims coming from comprehensive policies.

Six of eight carriers that submitted their number of open claims at year-end reported a pending number of claims between 57 percent and 84 percent of the number of claims paid during the year.

Table 3 shows average size individual claims since inception, all of which rose compared to 2017. Because claimants can submit claims from more than one type of venue, the average total claim generally exceeds the average claim paid for any particular venue. Nonetheless, individual ALF claims are consistently high, probably because:

a) ALF claims appear to last long compared with other venues.

b) Nursing home costs are most likely to exceed the policy daily/monthly maximum. Hence the maximum daily benefit negates part of the additional daily cost of nursing homes.

c) People who maximize the use of their maximum monthly benefits can spend as much on an ALF as on a nursing home.

d) Although some surveys report that ALFs cost about half as much as nursing homes on average, ALFs often charge more for a memory unit or more substantial care for levels of assistance that align more closely with nursing home care. And upscale ALFs seem to cost a higher percentage of upscale nursing home costs than the average ALF/nursing home ratio.

Some people may have expected ALF claims to be less expensive than nursing home claims because ALFs cost less per month. But that has not been the case. Some observers applaud insurers which have extended ALF coverage to policies which originally did not include ALF coverage, even though such action has contributed to rate increases on in force policies.

The following factors cause our average claim sizes to be understated.

  • Roughly 1/8 of the inception-to-date individual claims are still open. Our data does not include reserve estimates for future payments on open claims.
  • People who recover, then claim again, are counted as multiple insureds rather than adding their various claims together.

The range of average claim results by insurer (see Table 3) is startling. What can contribute to such differences?

  • Different markets (by affluence; worksite vs. individual; by geography; etc.).
  • Different lengths of time in the business. A newer issuer may have a higher percentage of open claims bringing down the average.
  • Percentage of policies sold to women or with compound benefit increases, monthly home care determination, or 50 percent home care benefits or reduced benefits for ALFs.
  • Distribution by elimination period. Zero-day EP policies might result in a lot of small claims. Ironically 180-day or longer EPs could also result in relatively small claims.
  • Perhaps erroneous reporting. In some of our calculations we have eliminated some submitted data because it seemed very unlikely to be accurate.

Average claim data understates the value of buying LTCI because the many small claims drive down the average claim. LTCI can provide significant financial return for people who need care one year or longer. The primary purpose of insurance is to protect against adverse results, so the amount of protection, as well as average claim, is important.

Six insurers were able to provide data regarding their current monthly exposure. The average current monthly maximum nursing home benefit per inforce claimant ranged from $4,575 to $8,182.

The six insurers’ total monthly exposure (including non-claimants) exceeds $5.5 billion, more than thirty times their corresponding monthly premium income. Recognizing that claims can continue up to the full benefit period, these insurers’ potential claim exposure is about 120 times their monthly premium income.

Nursing home (NH) claims are more likely to use the policy’s maximum daily/monthly benefit than ALF claims, because ALF costs are generally lower and because policies sometimes have lower maximums for ALFs. ALF claims correspondingly are more likely to use the policy maximum than are adult day care and home care claims.

Statistical Analysis
Eleven insurers contributed significant background data, but some were unable to contribute data in some areas. Four other insurers (Auto-Owners, LifeSecure, Transamerica and United Security) contributed their number of policies sold and new annualized premium, distinguishing worksite from other sales.
Sales characteristics vary significantly among insurers. Year-to-year variations in policy feature distributions may reflect changes in participants, participant practices and designs, participant or worksite market shares and industry trends.

Market Share
Table 4 lists the top 10 participants in 2018 new premium, among those still offering LTCI. Because we include FPO elections, Northwestern surpassed Mutual of Omaha. Without FPOs, Mutual of Omaha would have been number one. Together, they produced 57 percent of annualized new premium in 2018 and 52 percent of annualized premium on new policies. They are followed by five insurers with four percent to 10 percent market share each.

Worksite Market Share
Worksite business produced 15.0 percent of new insureds (see Table 5), but only 9.1 percent of new premium (including FPOs) because of its younger issue age distribution and less robust coverage. Worksite sales consist of three different markets:

  • Voluntary group coverage generally is less robust than individual coverage.
  • Core/Buy-Up programs have particularly young age distributions and modest coverage because a lot of people do not buy-up and are least likely to insure spouses.
  • Executive carve-out programs generally provide the most robust coverage. One- or two-couple executive carve-out sales may not qualify for a multi-life discount with some insurers, hence may not be labeled as worksite sales in submissions to our survey.

The amount of worksite sales reported and its distribution among the three sub-markets significantly impact product feature sales distributions. Although Table 5 reflects the full market, this year’s policy feature distributions underweight the voluntary and core/buy-up markets because carriers in those markets shared less policy feature distribution data. More information about worksite sales will appear in the August issue of Broker World magazine.

Affinity Market Share
The affinity sales percentage is based on the participants who provide significant statistical data. Their reported affinity sales produced 7.8 percent of their new insureds (see Table 6), but only 6.2 percent of premium. Only about 20 percent of the lower affinity average premium is attributable to the affinity discount. The balance may be due to younger issue age or less robust coverage.

Characteristics of Policies Sold
Average Premium
As noted last year, our inclusion of FPOs as new business premium overstated the average premium per new insured and buying unit (Table 7) increasingly over time. More precise queries this year allow us to quantify the impact. The average premium per new life ($2,544) is 18 percent less than we would have quoted including FPOs in the numerator. Three insurers reported average premiums for new insureds below $1,700, while five insurers were over $2,800. The average premium per new buying unit (counts a couple only once) was $3,598.

The lowest average new premium (including FPOs) was in Puerto Rico ($1,960), followed by Kansas ($2,448), while the highest was in New York ($4,243), followed by Connecticut ($3,886).

Due to rate increases, FPO elections and termination of older policies, the average inforce premium jumped to $2,168, 3.0 percent more than our restated 2017 figure.

Issue Age
Table 8 summarizes the distribution of sales by issue age band based on insured count. The average issue age was 56.6. The higher average issue ages of the past two years are partly caused by not having issue age distribution for some worksite business. Furthermore, two participants have a minimum issue age of 40, one won’t issue below 30, and two won’t issue below 25.

Benefit Period
Table 9 summarizes the distribution of sales by benefit period. The average notional benefit period slightly increased from 3.73 to 3.74. Because of Shared Care benefits, total coverage was higher than the 3.74 average suggests. For the first time, a single benefit period (3-year) accounted for half the sales.

Monthly Benefit
Table 10 shows that monthly determination applied to 77.8 percent of 2018 policies. With monthly determination, low-expense days leave more benefits to cover high-expense days. When it is offered as an option, we conclude that more than 50 percent of buyers opt for monthly determination. Measuring election rates for optional monthly determination can be challenging due to influences such as insurers switching products during the course of a year and state variations.

Table 11 summarizes the distribution of sales by maximum monthly benefit at issue. Sales were more clustered between $4,500 and $5,999/month than in any year since 2011. The average initial maximum monthly benefit was $4,763, almost exactly the average of 2015-2017.

Benefit Increase Features
Table 12 summarizes the distribution of sales by benefit increase feature. “Other compound” has grown a lot in the past two years; most involve three percent compounding.

The increase in “FPO: Indexed” and the decrease in policies having “no benefit increases” were caused by a reclassification of an insurer’s sales. The insurer guarantees to offer FPOs of indeterminate amount, but the insurer bases its decision on interest rates.

Five percent compounded for life, which represented 56 percent of sales in 2003 and more than 47.5 percent of sales each year from 2006 to 2008, now accounts for only two percent of sales. Simple five percent increases for life were 19 percent of 2003 sales but are now only 0.4 percent of sales.

“Indexed Level Premium” policies are priced to have a level premium, but the benefit increase is tied to an index such as the consumer price index (CPI).

We project the age 80 maximum daily benefit by increasing the average daily benefit purchased from the average issue age to age 80, according to the distribution of benefit increase features, using current future purchase option (FPO) election rates, a five percent/year offer for fixed FPOs and assuming a long-term three percent CPI. The maximum benefit at age 80 (in 2041) for our 2018 average 57-year-old purchaser projects to $313/day (equivalent to 3.0 percent compounding). Had our average buyer bought an average 2017 policy a year ago at age 56, her/his age 80 benefit would be $279/day (equivalent to 2.3 percent compounding). This healthy increase in age 80 maximum benefit (from $279/day to $313/day) is attributable to the inclusion of an additional carrier in the data (see Table 14 discussion). Without that insurer, the projected age 80 maximum daily benefit would have dropped from $279 to $276. Most policyholders seem likely to experience eroding purchasing power over time if cost of care trends exceed three percent.

Eight insurers reported new premium from FPO elections; the percentage of their new premium that came from FPOs ranged from two percent to 43 percent.

Seven insurers provided the number of available FPOs in 2018 and the number exercised. Six of those insurers provided similar data last year; overall, they had a small increase in election rate from 34.7 percent to 36.8 percent. By insurer, election rates varied from 13 percent to 91 percent. The insurers with the three lowest FPO election rates averaged a 25.8 percent election rate; they probably use a “positive election” approach. The other four insurers averaged 90.0 percent election; they probably use a “negative election” approach; i.e., the increase applies unless specifically rejected. The carrier which did not contribute such data last year caused the huge increase in election rate (Table 14); it probably uses a negative election rate.

Elimination Period
Table 15 summarizes the distribution of sales by facility elimination period. Ninety percent of buyers opt for 90-day elimination periods, however, two carriers report fewer than 60 percent of their policies have 90-day EPs (one has many shorter EPs and the other has many longer EPs). The percentage of purchasers buying 180-day or longer EPs hit a record (6.7 percent vs. 6.1 percent in 2012).

Table 16 shows that the percentage of policies with zero-day home care elimination period (but a longer facility elimination period), with adjustments for two carriers which reported only sales, but we know has either type of provision. With most insurers, fewer than 25 percent of buyers purchased a zero-day home care elimination period, but one insurer had nearly a 50 percent election rate.

The percentage of policies with a calendar-day elimination period (EP) definition (33.7 percent) also dropped back toward 2017 levels. For insurers which offer calendar-day EP, 79.4 percent of policies had the feature; in some cases, it was automatic. It is important to understand that most calendar-day EP provisions do not start counting until a paid-service day has occurred.

Sales to Couples and Gender Distribution
Table 17 summarizes the distribution of sales by gender and single/couple status.

The percentage of purchasers who consisted of couples who both buy (55.5 percent) and the percentage of all buyers who were female (67.7 percent) were the lowest percentages since at least 2010.

The 77.8 percent of accepted applicants who purchased coverage when their partners were declined was the highest over that time period. Three factors contributed approximately equally to the increase: General improvement; change of practice to allow a lower marital discount instead of no discount when one spouse is declined; and a change in participants reporting this data.

Fifty-five percent (55.1 percent) of all buyers were female, the lowest percentage since 2012. Insurers’ sales ranged from 47.2 percent female to 61.4 percent female, varying based on market (older age; fraternal, worksite vs. individual) and whether unisex rates were offered. Likewise, insurers ranged from 54.4 percent of single buyers being female to 79.8 percent.

Among couples, 51.0 percent are females, with insurers ranging from 47.9 percent (no other insurer showed less than 49.9 percent) to 52.1 percent. When only one of a couple buys, 56.4 percent are females, probably because the male partner is likely to be older and less likely to be insurable.

Shared Care and Other Couples’ Features
Table 18 summarizes sales of Shared Care and other couples’ features.

  • Shared care—allows one spouse/partner to use the other’s available benefits if their own coverage has been depleted or offers a third independent pool that the couple can share.
  • Survivorship—waives a survivor’s premium after the first death if specified conditions are met.
  • Joint waiver of premium (WP)—both insureds’ premiums are waived if either qualifies for benefits.

Changes in distribution by carrier can greatly impact year-to-year comparisons in Table 18, because some insurers embed survivorship or joint waiver automatically (sometimes only in some circumstances) while others offer it for an extra premium or do not offer the feature. These percentages are lower than in the past, because one carrier reported the number of sales to couples last year, but not this year.

In the top half of Table 18, the percentages are based on the number of policies sold to couples who both buy. The bottom half of Table 18 shows the (higher) percentage that results from dividing the number of buyers by sales of insurers that offer the feature. Two insurers sold Joint WP to 56 to 60 percent of their couples and Survivorship to 10 to 12 percent of their couples.

Table 19 provides additional breakdown on the characteristics of Shared Care sales. As shown on the right-hand side of Table 19, three-year and four-year benefit period policies are most likely (nearly 30 percent) to add Shared Care. Partly because three-year benefit periods comprise 50 percent of sales, most policies with Shared Care are three-year benefit period policies (61.1 percent, as shown on the left side of Table 20).

Above, we stated that Shared Care is selected by 33.4 percent of couples who both buy limited benefit period policies. However, Table 19 shows Shared Care comprised no more than 29.8 percent of any benefit period (it was elected by 25.4 percent of purchasers overall). Table 19 has lower percentages because Table 18 denominators are limited to people who buy with their spouse/partner whereas Table 19 denominators include all buyers. Shared care is more concentrated in two- to four-year benefits periods (89.4 percent of shared sales) than are all sales (72.6 percent). Couples seem more likely to buy short benefit periods, perhaps because couples plan to help provide care to each other, because Shared Care makes shorter benefit periods more acceptable and because single buyers are more likely to be female, hence opt for a longer benefit period. On the other hand, we also see a relatively high percentage of Shared Care on longer benefit periods; these people are probably trying to cover catastrophic risk and might prefer an endless benefit period. Some insurers were more likely to sell Shared Care on their short benefit-period policies, while others were more likely to sell Shared Care on their long benefit-period policies.

Existence and Type of Home Care Coverage
One participant reported home-care-only policies, which accounted for 0.7 percent of industry sales. Four participants reported sales of facility-only policies, which accounted for 0.9 percent of total sales. Ninety-five percent (95.1 percent) of the comprehensive policies included home care benefits at least equal to the facility benefit. These percentages are all lower than in 2017.

Partial cash alternative (and similar) features (which allow claimants, in lieu of any other benefit that month, to use between 30 percent and 40 percent of their benefits for whatever purpose they wish) were included in 41.3 percent of sales (lower than last year’s 44.1 percent).

Other Characteristics
As shown in Table 20, return of premium (ROP) features were included in 12.7 percent of all policies. ROP returns some or all premiums (usually reduced by paid LTCI benefits) when a policyholder dies. Approximately 79 percent of policies with ROP arise from ROP features embedded automatically in the product, compared to 93 percent in 2016. Embedded features are designed to raise premiums minimally, typically decreasing the ROP benefit to $0 by age 75.

Twelve percent (12.4 percent) of policies with limited benefit periods included a restoration of benefits (ROB) provision, which typically restores used benefits when the insured does not need services for at least six months. Approximately 87 percent of policies with ROB arose from ROB features automatically embedded, compared with 79 percent in 2016.

Shortened benefit period (SBP) nonforfeiture option was included in 1.8 percent of policies. Although every insurer is obligated to offer SBP, some carriers did not report any SBP sales. It seems appropriate to remove their sales from the denominator when determining the percentage of purchasers who selected SBP. On that basis, the percentage was 2.9 percent. Only one insurer reported a percentage above six percent (13.3 percent). SBP makes limited future LTCI benefits available to people who stop paying premiums after three or more years.

Only one insurer issued non-tax-qualified (NTQ) policies, which accounted for 0.1 percent of industry sales.

“Captive” (dedicated to one insurer) agents produced 55.8 percent of the policies. At one time, “captive” agents who sold LTCI tended to specialize in LTCI. Now many are agents of mutual companies. The 1.5 percent “other” sales did not involve a broker or agent.

Sales distribution by jurisdiction is posted on the Broker World website.

Limited Pay and Paid-Up Policies
In 2018, only two insurers sold policies that become paid-up, accounting for fewer than 0.5 percent of sales.

Because today’s prices are more stable, premium increases are less likely. One of the key reasons for buying 10-year-pay (avoidance of rate increases after the tenth year) is greatly reduced, while the cost of 10-year-pay has increased, making it less attractive than in the past. Nonetheless, limited-pay and single-pay policies are attractive to minimize post-retirement outflow and to accommodate §1035 exchanges.

Partnership Program Explanations
When someone applies to Medicaid for long term care services, states with Partnership programs disregard assets up to the amount of benefits received from a Partnership-qualified policy. Partnership sales were reported in 44 jurisdictions in 2018, all but Alaska, District of Columbia, Hawaii, Massachusetts, Mississippi, Utah, and Vermont, where Partnership programs do not exist. Massachusetts has a somewhat similar program (MassHealth).

The Partnership rules in California, Connecticut, Indiana and New York (“original” Partnership states) are significantly different than in other Partnership jurisdictions (“DRA” jurisdictions). The “original” states legislated variations of the Robert Woods Johnson Partnership proposal, whereas the “DRA” jurisdictions use more consistent rules based on the Deficit Reduction Act of 2005. For example, the “original” states require a separate Partnership policy form, generally still have more stringent benefit increase requirements and assess a fee for insurers to participate (none of which applies in DRA states). As a result, only two to four insurers sell Partnership policies in CA (2), CT (3), IN (4) and NY (2).

National Reciprocity Compact (NRC) requires member states to recognize Medicaid Asset Disregard earned in any other member state. States creating Partnerships under the Deficit Reduction Act of 2005 were automatically enrolled in the NRC but had the right to secede. The four original Partnership states (California, Connecticut, Indiana and New York) had the right to opt in. California is now the only jurisdiction with a Partnership program that is not a member of the NRC. However, New Hampshire (NH) created a unique regulation in 2018, limiting asset disregard related to policies sold in other jurisdictions to coverage issued on or after April 1, 2007, and only if the policy form was approved by the NH Insurance Department. We’ve asked NH about this regulation in 2018 and 2019, but have not received an explanation yet, so we’ll venture some thoughts below.

NH natives did not have an opportunity to purchase a Partnership policy until April 1, 2007. NH’s April 1, 2007, deviation from NRC standards seems intended to avoid extending asset disregard to an insured who moved in from another state if a NH resident who purchased on the same date can’t benefit from asset disregard.

The requirement that the policy form need have been approved by the NH Insurance Department is puzzling. Why should a NH citizen be harmed because they bought a policy as a resident of another jurisdiction? The impact may be limited because NH has been a member of the Interstate Insurance Product Regulation Commission since June 1, 2007. The IIPRC (“Compact”) approves LTCI policy forms for about 40 states. Policyholders with IIPRC-approved Partnership coverage issued since April 1, 2007, might still qualify for asset disregard if they move to NH.

It seems unlikely that individuals considering relocating to NH and their financial advisors will understand the potential Partnership ramifications. In the unlikely event that they are aware of NH’s unique law, it seems unlikely that they would know whether their policy form was approved by NH.

Partnership Program Sales
Insurers sometimes delay certifying policy forms as “Partnership” because of other priorities (e.g., needing time to comply with state-specific requirements to notify existing policyholders or offer an exchange). Such delay is not harmful, as certification is retroactive to policies already issued on that policy form if the policies have the required characteristics. For this reason and the “original” Partnership issues mentioned above, none of our participants sold Partnership policies in more than 40 jurisdictions in 2018. Five sold Partnership in 35-40 jurisdictions, three sold Partnership in 26-32 jurisdictions, one sold Partnership in eight jurisdictions, one in one jurisdiction (it sells in only one jurisdiction) and the other has never certified Partnership conformance and apparently does not intend to do so.

In the DRA states, 52.5 percent of policies qualified for Partnership status, whereas in the original states only 1.0 percent qualified. In Minnesota, more than 82 percent of the policies sold qualified as Partnership and Wisconsin and Wyoming both had 75 percent of their policies qualify.

Generally speaking, experts have expected Partnership policies to have higher average premiums because of the benefit increase requirements for Partnership policies. Only 26 of the 44 Partnership states demonstrated that pattern, with the other 18 having higher average premiums on non-Partnership policies.

In past survey articles, we noted that Partnership programs could be more successful if states broadened the eligibility requirements. Now, approximately 60 percent of Partnership states allow one percent compounding to qualify for Partnership, which can help low-budget buyers qualify for Partnership and also enables worksite core programs to be Partnership-qualified. A higher percentage of policies should qualify for Partnership in the future if insurers and advisors leverage these opportunities. Currently only three insurers offer one percent compounding.

Partnership programs could be more successful if:

  • Advisors offer small maximum monthly benefits more frequently to the middle class. For example, a $1,500 initial maximum monthly benefit covers about four hours of home care every two days and, with compound benefit increases, may maintain buying power. Many middle-class citizens would like LTCI to help them stay at home while not “burning out” family caregivers and could be motivated further by Partnership asset disregard. (This approach does not work where a Partnership initial maximum monthly benefit must be at least $8608 (CT) and $9114 (NY). When policies reflecting CA SB 1248 become available in California, California’s minimum size policy will drop to $3000/month.)
  • Middle-class clients were better educated about the importance of benefit increases to maintain LTCI purchasing power and to qualify for Partnership asset disregard.
  • The four original Partnership steps migrate to DRA rules.
  • More jurisdictions adopt Partnership programs.
  • Programs that privately finance educational LTCI direct mail from public agencies were adopted more broadly.
  • Financial advisors were to press reluctant insurers to certify their products.
  • More financial advisors were certified. Some people argue that certification requirements should be loosened. At a minimum, the renewal certification process could be improved.
  • More insurers offer one percent compounding.
  • Combo products became Partnership-qualified.

Underwriting Data
Case Disposition
Ten insurers contributed application case disposition data to Table 21. In 2018, 58.8 percent of applications were placed, including those that were modified, a new low slightly below 2017’s previous record low of 59.0 percent.

One insurer reported a 77.1 percent placement rate; the second highest being 56.0 percent. The lowest placement rate was 34.0 percent. Low placement rates increase insurers’ cost per placed policy. More importantly, low placement rates can discourage advisors from discussing LTCI with clients. In addition to wasting time and effort encouraging clients to apply for LTCI, advisors fear disappointment for clients who are rejected.

Although the placement rate dipped slightly, the decline rate also dipped slightly to 25.1 percent of applications (28.2 percent of insurer decisions). Unfortunately, both the suspended/withdrawn and the Free Look refusals/not takens increased. The decline rate by carrier varied from 12.0 percent to 39.3 percent, affected by factors such as age distribution, market, underwriting requirements, underwriting standards.

Perhaps the best way to improve placement rates is to do a better job of pre-qualifying clients’ health profiles prior to submitting applications. General agencies and insurers are promoting approaches which make it easier for advisors to get detailed health information or have a third party ask health questions. For example, eApps should develop better health information and result in speedier processing which may help placement rates.

Our placed percentages reflect the insurers’ perspective. A higher percentage of applicants secure coverage because applicants denied by one carrier may be issued either stand-alone or combination coverage by another carrier or may receive coverage with the same insurer after a deferral period.

Underwriting Tools
Nine insurers contributed data to Table 22, which divides the number of uses of each underwriting tool by the number of applications processed. For example, the number of medical records was 86 percent of the number of applications. That does not mean that 86 percent of the applications involved medical records, because some applications resulted in more than one set of medical records being requested.

Insurers are trying to speed underwriting to increase placement rates. Thus, phone interviews without cognitive screening, prescription profiles and MIB have increased significantly compared to levels of several years ago.

Year-to-year changes in distribution of sales among insurers significantly impact results. Lower maximum ages result in fewer face-to-face exams. Insurers might underreport the use of an underwriting tool because they may lack a good source for that statistic.

*MIB Underwriting Services alert underwriters to errors, omissions, misrepresentations and fraud on applications for life, health, disability income, long term care and critical illness coverage. MIB, Inc. provides its Underwriting Services exclusively to authorized individuals in MIB Group, Inc. member companies.

Underwriting Time
Table 23 shows that the average time from receipt of application to mailing the policy was the lowest since 2012. The improvement came at both ends of the spectrum, a much higher percentage processed within 29 days and many fewer taking 60 or more days. One insurer averaged only 29 days and four others average about 5 weeks or less. Three insurers averaged 51 to 59 days.

Rating Classification
In 2017, a higher percentage of policies was issued in the most favorable rating classification (and in the top two most favorable rating classifications) than in any year since 2012. Table 24 shows 2018 showed similar results, with 48.3 percent in the most favorable classification and 89.5 percent of the policies in the two most favorable classifications. The “most-favorable” results in the past two years benefited from lack of reporting of rating classification distribution from insurers which do not offer preferred health discounts in the worksite and because one insurer eliminated its preferred health discount (hence “standard” ratings were its “best”). However, the reduction in the third-best and less attractive categories were not influenced by fewer worksite business participants being included in this part of the survey.

Table 25 shows that the percentage of policies issued in the most favorable category increased for each age range in 2018 and Table 26 shows that the decline rate went up in each age range except for ages 70+. Perhaps insurers are declining cases that previously might have been placed in the third-best or less attractive rating classifications. Tables 25 and 26 exclude most (perhaps all) policies underwritten with health concessions.

The by-age decline rates are a little high compared to the overall decline rate reported above. That’s because a significant carrier with a low decline rate was unable to provide their data by age.

Click here to view the following additional information available only online.

  • Product Details, a row-by-row definition of the product exhibit entries, with a little commentary.
  • Premium Exhibit, which shows lifetime annual premiums for each insurer’s most common underwriting class, for issue ages 40, 50, 60, and 70 for single females, single males, and heterosexual couples (assuming both buy at the same age), based on $100 per day (or closest equivalent monthly) benefit, 90-day facility and default home care elimination period (other aspects vary), three-year and five-year benefit periods or $100,000 and $200,000 maximum lifetime buckets, with and without Shared Care and with flat benefits or automatic three percent and five percent annual compound benefit increases for life. The exhibit includes facility-only policies, as well as comprehensive policies. Worksite products do not reflect any worksite-specific discount.
  • Premium Adjustments (from our published prices) by underwriting class for each participant.
  • Distribution by underwriting class for each participant.
  • State-by-state results: percentage of sales by state, average premium by state and percentage of policies qualifying for Partnership by state.

Closing
We thank insurance company staff for submitting the data and responding to questions promptly. We also thank Nicole Gaspar and Alex Geanous of Milliman for managing the data expertly.

We reviewed data for reasonableness and insurers reviewed their product exhibit displays. Nonetheless, we cannot assure that all data is accurate.

If you have suggestions for improving this survey (including new entrants in the market), please contact one of the authors.

Footnote:
Society of Actuaries (November 2017). Long-Term Care Insurance: The SOA Pricing Project. Retrieved May 16, 2018, from https://www.soa.org/Files/Sections/ltc-pricing-project.pdf.

2018 Milliman LTCI Survey

The 2018 Milliman Long Term Care Insurance Survey is the 20th consecutive annual review of long-term care insurance (LTCI) published by Broker World magazine. It analyzes the marketplace, reports sales distributions, and details available products. 

This year, in addition to individual policies sold directly to individuals or through multi-life groups (primarily small groups) with discounts and/or underwriting concessions, the survey also includes Genworth group sales as part of the multi-life sales.  (Genworth is the only insurer issuing new LTCI policies on group policies and certificates.) 

More analysis of worksite sales will appear in the August issue of Broker World magazine.

Unless otherwise indicated, references are solely to U.S. stand-alone LTCI sales, excluding exercised future purchase options or other changes to existing coverage. “Stand-alone” refers to LTCI policies that do not include death benefits (other than returning premiums upon death or waiving a surviving spouse’s premiums), annuity, or disability income benefits. 

 

Highlights from This Year’s Survey

Participants
Ten carriers participated broadly in this survey. Seven others provided sales information so we could report more accurate aggregate industry individual and multi-life sales.

CalPERS (the California Public Employees’ Retirement System) is a first-time participant.  As shown in the Product Exhibit, its product is comparable to others.  However, CalPERS is unique in the long term care space in that it is not an insurance company or a third-party administrator. 

As noted above, Genworth’s group line is new to the survey. Genworth’s individual and group lines are counted as a single participant.

The two carriers which sell the most worksite LTCI reported statistical distributions last year but not this year, so this year’s distributions are over-weighted toward individual sales. The inclusion of Genworth’s group product reduces that shift in distribution.

State Farm discontinued stand-alone LTCI sales in May 2018, hence is no longer included in the Product Exhibit.

Although not displaying products, Northwestern LTC provided background statistical information. Auto-Owners, John Hancock, LifeSecure, National Guardian, State Farm, Transamerica and United Security Life contributed to the sales total but did not provide broad statistical information.

Sales Summary 

  • The 17 carriers reported sales of 70,080 policies and certificates (“policies” henceforth) with on-going premiums ($181,956,656 of new annualized premium, including exercised FPOs) in 2017, compared to our 2016 reported sales (increased to reflect 2016 production from CalPERS and Genworth group and adjusted for small corrections to prior data) of 94,353 policies ($225,838,660 of new annualized premium), a 26 percent  drop in the number of policies and a 19 percent drop in the amount of new annualized premium.  (A small amount of unreported single premium sales also occurred.)  However, as noted in Market Perspective, sales of policies combining LTCI with other risks continue to increase.
  • Six insurers (three in the Product Exhibit and three others) sold more premium than in 2016 and five sold more policies. 
  • Mutual of Omaha and Northwestern reversed position as the top two carriers, combining for more than half of the new sales in terms of premium.
  • For the third straight year (and 3rd time ever), our participants’ number of inforce policies dropped, this time by 5.1 percent after 0.3 percent (2016) and 0.2 percent (2015) drops previously.
  • Nonetheless, year-end inforce premium increased 6.0 percent in 2017 (2.9 percent in 2016). Inforce premium increases from sales, price increases, and benefit increases (including FPOs), and reduces from lapses, reductions in coverage, deaths, and shifts to paid-up status for various reasons.  

Participants’ individual claims rose 6.1 percent and group claims rose 10.3 percent. Overall, the stand-alone LTCI industry incurred $11.1 billion in claims in 2016 based on companies’ statutory annual filings, raising total incurred claims from 1991 through 2016 to $118.9 billion. (Note: 2016 was the most recent year available when this article was written.) Most of these claims were incurred by insurers that no longer sell LTCI. This compares with $9.5 billion of incurred claims in 2015, a 14 percent increase.  Combo LTC claims are in their infancy and amounted to $5.9 million. The claim figures are even more startling considering that only 4 percent of 7 million covered individuals were on claim at the end of 2016.

Only 59.0 percent of applications resulted in active policies. This low success ratio contributes to financial advisors’ reluctance to recommend that clients apply for LTCI.

About the Survey
This article is arranged in the following sections:

  • Highlights provides a high-level view of results. 
  • Market Perspective provides insights into the LTCI market.
  • Claims presents industry-level claims data.
  • Sales Statistical Analysis presents industry-level sales distributions reflecting data from 10 insurers.
  • Partnership Programs discusses the impact of the state partnerships for LTCI.
  • Product Exhibit shows, for nine insurers: Financial ratings, LTCI sales and inforce, and product details.
  • Product Details, a row-by-row definition of the product exhibit entries, with a little commentary. 
  • Premium Exhibit shows lifetime annual premiums for each insurer’s most common underwriting class, for issue ages 40, 50, 60, and 70, for single females, single males, and heterosexual couples (assuming both buy at the same age), based on $100 per day (or closest equivalent weekly or monthly) benefit, 90-day facility and most common home care elimination period, three-year and five-year benefit periods or $100,000 and $200,000 maximum lifetime buckets, with and without Shared Care and with flat benefits or automatic five percent annual compound benefit increases for life. Worksite premiums do not reflect any worksite-specific discount.
  • Premium Adjustments (from our published prices) by underwriting class for each participant.
  • Distribution by underwriting class for each participant.
  • State-by-state results: Percentage of sales by state, average premium by state and percentage of policies qualifying for Partnership by state.

Market Perspective (more detail in subsequent parts of the article)

  • Recently priced policies are based on assumptions that rely on far more credible data, hence premiums should generally be more stable.1  However, consumer access to genetic testing seems to pose a potentially significant threat to insurers, as explained in the “One-Time Risk-Related Questions” area in the Sales Statistical Analysis section.  
  • Despite the anticipated more stable pricing, many financial advisors presume that currently-issued policies will face steep price increases.  It is important to educate them that assumptions underlying current market pricing should produce a lower chance of needing a rate increase. For example, one of the biggest assumptions that is better understood today is voluntary termination assumptions, originally often priced closer to eight percent per year compared to often now less than one percent per year. Because voluntary termination rates in pricing are now close to a “theoretical floor” of zero percent, it is far less likely that rate increases will be required on products priced today, all else equal.
  • About half of the participants have increased premiums on policies issued under “rate stabilization” laws.  For most of those insurers, the highest cumulative increase on such policies has been 30 percent to 60 percent.
  • “Combo” policies (LTCI combined with life insurance or annuity coverage) increased to 256,000 sales totaling more than $4 billion of new premium in 2016 (88 percent life; 12 percent annuity) much of which was from single premium sales, compared to $3.6 billion in 2015.  (2017 combo sales were not available when this article was written.) Combo products have increased market share because they include a death benefit (so premiums are not “wasted” for those who never need LTC), are perceived to be more stable, and now offer alternatives besides single premium.
  • There are many ideas being discussed by the industry to address LTC financing, including the following:
    • Stand-alone LTCI with guaranteed premium and with benefits that float up or down based on experience.
    • Life insurance partly pre-paying for LTCI and converting to LTCI at a specified age.
    • A tax-favored retirement program that supplements retirement benefits if LTC is needed.
  • Industries are becoming more electronic, so we asked one-time questions regarding electronic applications (eApps).  Six of 12 respondents currently have eApps.  Another three are likely to have eApps by the end of 2018. All but one of the eApps drill down for further information when a question is answered “yes” (the other eApp is used only for simplified underwriting) and all but one send a skeletal record to the advisor. One eApp can be completed by a consumer without advisor assistance.  Based on data from two participants, eApps are 71 percent more likely to be in good order and significantly less likely to be declined than previous experience with paper apps (overall, eApps had 19 percent lower declines, despite one carrier having a higher decline rate because their eApps had an older age distribution).  Paper apps submitted after an eApp system has been installed are two percent to four percent more likely to be “not in good order” (NIGO) than paper apps prior to the eApp system being installed.  That is probably because the most prolific submitters of applications submit fewer applications that are NIGO and also are more likely to adopt eApps quickly. There are mixed results on the decline rate of paper apps after an eApp system is installed.  It is surprising that the “cleaner” apps did not reduce processing time; perhaps that is due to an older age distribution.  We measured processing time from when the app reaches the insurer, thus ignoring quicker submission by the advisor and possibly speedier movement from advisor to carrier. 
  • During the course of 2017, the brokerage worksite market reduced to a sole insurer.  However, three new unisex offerings appear likely by the end of 2018.  Despite that welcome news, it can be hard to find stand-alone LTCI for employers with many young, lower income or female employees, particularly if the employer does not contribute to the cost. 
  • The average potential future covered LTC costs dropped again for 2017 sales. For the average 57-year-old purchaser in 2017, we project a maximum benefit in 2040 of $254/day, equivalent to an average 2.1 percent compounded benefit increase. The same average purchaser, had he/she purchased last year’s average policy at age 56, would have had $281/day by age 80, equivalent to 2.4 percent compounding. Purchasers may be disappointed if the purchasing power of their LTCI policies deteriorates over time. In addition to the monthly maximum, the average benefit period also dropped, which is not reflected in this calculation.
  • If an insurer concludes that a claimant is not chronically ill, the claimant can appeal the decision to independent third-party review (IR), which is binding on insurers.  We are aware of only 53 times claimants have resorted to IR, and the insurers’ denials were upheld 89 percent of the time. Most participants have extended IR beyond statutory requirements, most commonly to policies issued prior to the effective date of IR. The existence and voluntary expansion of IR and the insurer success rate when appeals occur help justify confidence in the industry’s claim decisions.
  • Only four participants offer coverage in all U.S. states and no worksite insurer does so. Insurers are reluctant to sell in jurisdictions which are slow to approve a new product, restrict rate increases, or have unfavorable legislation or regulations.
  • Six of our participants use reinsurers and six use third party administrators. We’d like to recognize their contribution to the LTCI industry.  The reinsurers used are General Electric, LifeCare, Manufacturers, Munich, Reinsurance Group of America and Swiss Re.  The TPAs are CHCS, Life Plans, LifeCare Assurance, and Long Term Care Group.  Other reinsurers and TPAs support insurers which are not in our survey.  

Claims

  • Ten participants, including one new participant, reported 2017 individual claims but two carriers that contributed claims data last year did not contribute statistical data this year.  Only two carriers submitted group claims data.  Some companies were not able to respond to some questions or could not respond in a way that justified combining their data with the other carriers for some questions.
  • For the nine insurers which reported individual claims for both 2017 and 2016, claim dollars rose 6.1 percent, despite a 6.3 percent decrease in inforce policies. 
  • For the two group carriers, claim dollars rose 10.3 percent. 
  • Combining individual and group claims, these 10 insurers paid $3.2 billion in LTCI claims in 2017 and have paid $29.9 billion from inception.
  • The LTCI industry has had a much bigger impact than indicated above, because a lot of claims are paid by insurers that no longer sell LTCI.

LTCI claims paid by insurers no longer selling LTCI might differ significantly from data reported below because their claimants might be more likely to have facility-only coverage, be older, etc. 

Table 1 shows claim distribution based on dollars of payments, whereas Table 2 shows distribution based on number of claims.

Individual claims shifted significantly away from nursing homes (from 37.4 percent to 32.1 percent) to ALFs (31.2 percent to 35.3 percent).  We’ve expected on-going shift away from nursing homes (because of consumer preferences and because an increasing percentage of claims are on comprehensive policies), but about 60 percent of the change in Table 1 is attributable to different insurers providing 2017 claims information than in 2016. 

In the distribution based on number of claims (Table 2), a person who received care in more than one venue is counted once for each venue, but not double-counted in the total line.  

Eight carriers reported their number of open claims at year-end. Six of the eight insurers reported that their pending number of claims at year-end was between 67 percent and 82 percent of the number of claims they paid during the year.

Table 3 shows average size individual and group claims since inception. Because claimants can submit claims from more than one type of venue, the average total claim should generally be larger than the average claim paid relative to a particular venue. Nonetheless, ALFs consistently show high average size individual claims, probably because:

a) ALF claims appear to last longer compared with other venues.

b) Nursing home costs are more likely than ALF costs to exceed the policy maximum. Hence the maximum daily benefit negates part of the additional daily cost of nursing homes. (Quantified below.)

c) If people maximize the use of their maximum monthly benefits, they’ll spend nearly the same on an ALF as on a nursing home.

d) Although some surveys report that ALFs cost about half as much as nursing homes on average, ALFs often charge more for a memory unit or more substantial care for levels of assistance that align more closely with care provided in a nursing home.  Also upscale ALFs seem to cost a higher percentage of upscale nursing home costs than is true of the average ALF.

Some people may have expected that ALF claims would be less expensive than nursing home claims because ALFs cost less per month.  But that has not been the case.

Except for home care, the individual average claims rose about one-third in 2017. These increases were also significantly attributable to a change in participants.

The following factors cause our average claim sizes to be understated: 

  1. Roughly ten percent of the inception-to-date individual claims are still open. Our data does not include reserve estimates for future payments on open claims.
  2. People who recover, then claim again, are counted as though they are multiple insureds. We are not able to add their various claims together.

Past average claim data understates the value of buying LTCI because the many small claims drive down the average claim. LTCI can provide significant financial return for people who need care one year or longer.  The purpose of insurance is to protect against a non-average result, so the amount of protection, as well as average claim, is important.

The average group claim is smaller than the average individual claim, but closer this year than in the past due to a change in insurers providing the data.  Group claims tend to be smaller because of shorter benefit periods, lower maximum daily benefits, fewer benefit increase features, and more common reduced maximums for home care. 

Only two participants were able to answer our one-time questions to study what percentage of claims use the full maximum monthly benefit. One had a higher percentage of claims use the maximum benefit in each cell, especially for ALFs and community care (home care and adult day care), but the two insurers showed the following consistent patterns:

  1. Nursing home (NH) claims were more likely to use the maximum benefit than ALF claims, which were more likely to use the maximum benefit than adult day care and home care claims. 
  2. Policies with flat benefits were more likely to use the maximum than were policies with increasing benefit maximums (which included policies with FPOs).  

Home care claims with monthly determination of benefits are more likely to pay the maximum monthly benefit than home care claims with daily maximums.  We did not distinguish claims based on that characteristic, but believe the insurer with fewer community care claims using the full maximum had a higher percentage of policies with daily determination.  

Table 5 conveys the false impression that home and adult day care (“community care”) claims are more likely to use the maximum if they have increasing benefits.  That result occurred because the insurer with fewer policies using maximum benefits, sold mostly flat community care benefits, while the insurer with more policies using maximum benefits sold mostly increasing community care benefits.  As noted above, both insurers found that flat benefits were more likely to be entirely used.

We also asked one-time questions about the average monthly benefit paid by venue.  To control the fact that ALF coverage is more common on more recent policies, we limited the question to policies issued between 2000 and 2005 which were on claim in 2017.  Three insurers responded:

  • The average ALF claim was 0.3 percent higher than the average NH claim for one carrier and only 3.3 percent less for another carrier.  For the third carrier, it was 20.4 percent less because their policies did not reimburse 100 percent of the ALF cost up to their NH maximum.  Per Table 3, if we mix all years and include more insurers, the average total cost of an ALF claim is 54 percent higher than the average nursing home claim.
  • The average home care claim differed markedly by carrier.  For one, it was a surprising 87.5 percent of the average nursing home claim.  For another it was 47.4 percent (many policies had lower maximums for home care).  For the third, it was only 13.1 percent (because of a 50 percent home care maximum and daily determination).  Per Table 3, if we mix all years and include more insurers, the average total cost of a home care or adult day care claim is 69 percent as high as the average nursing home claim.

Six insurers were able to provide data regarding their current monthly exposure.  The average current monthly maximum benefit per inforce policy ranged from $5,008 to $6,989, with a weighted average of $6,117.  Expressed as a percentage of monthly inforce premium, the range was 2433 percent to 3948 percent, with a weighted average of 3148 percent.  That means that the maximum monthly (annual) benefit is about 31.5 times the average monthly (annual) premium.  Based on past studies, we believe the average inforce benefit period is more than four years, suggesting that the average protection is 126 times as large as the average annual premium, including premium increases which have occurred and ignoring future benefit increases.

While we were putting this article together, a state regulator expressed concern that payment of unjustified claims contributes to LTCI rate increases.  We don’t think such claims have had a major impact on rate increases, but we have been glad to see the industry’s strong focus in recent years on ferreting out and resisting fraudulent claims.

Sales Statistical Analysis
Ten insurers contributed significant background data, but some were unable to contribute data in some areas. Seven other insurers (Auto-Owners, John Hancock, LifeSecure, National Guardian, State Farm, Transamerica and United Security) contributed their number of policies sold and new annualized premium, distinguishing worksite from other sales.

Sales characteristics vary significantly among insurers. Year-to-year variations in policy feature distributions may reflect changes in participants, participant practices and designs, participant or worksite market shares and industry trends.

Market Share 
Table 6 lists the top 11 carriers in 2017 new premium among those still offering LTCI. Mutual of Omaha continued its surge, moving into first place, with Northwestern a strong second. Together, they produced more than 50 percent of annualized first year premium in 2017. They are followed by five insurers with five percent to 10 percent market share each. 

Worksite Market Share
Worksite business produced 22.0 percent of new insureds (see Table 7), but only 13.9 percent of premium because of its younger issue age distribution and less robust coverage. We’ve restated 2016 sales to include Genworth group, demonstrating that the percentage of sales from worksite sales has not changed much from 2016. Worksite sales consist of three different markets:

  • Voluntary group coverage generally is less robust than individual coverage.
  • Core/buy-up programs have particularly young age distributions, particularly modest coverage levels because a lot of people don’t buy-up and are least likely to insure spouses.
  • Executive carve-out programs generally are the most robust.  One- or two-couple executive carve-out sales may not qualify for a multi-life discount with some insurers, hence may not be labeled as worksite sales in our analysis.

The amount of worksite sales reported and the distribution of worksite sales among the three sub-markets significantly impact product feature sales distributions.  This year’s distributions underweight the voluntary and core/buy-up markets because carriers in those markets shared less statistical data than in the past.  More information about worksite sales will appear in the August issue of Broker World magazine.

We asked a one-time question: Recognizing that combo life/LTCI policies are available in the worksite on a guaranteed issue basis (if there is satisfactory participation), do you envision offering worksite stand-alone LTCI policies on a guaranteed issue basis or with underwriting concessions within the next five years?  No participant envisioned guaranteed issue, but three insurers envisioned instituting worksite health liberalizations.

Affinity Market Share
Reported affinity sales produced 7.3 percent of new insureds (see Table 8), but only 6.8 percent of premium.  About 75 percent of the lower affinity average premium is attributable to the affinity discount.  The balance may be due to younger issue age or less robust coverage. Prior to 2016, affinity sales did not include AARP sales.

 

Characteristics of Policies Sold
Average Premium 
As shown in Table 9, the average premium per new insured ranged between $2,322 and $2,497 between 2011 and 2016, then surged to $2,596 in 2017.   If we had had the same participants each year, the increase would have been larger.  The increase was partly attributable to FPOs, hence overstates the average new sale premium. Three insurers reported average premiums below $1,600, while four insurers were over $3,000, with another at $2,995. The average premium per new purchasing unit (i.e., one person or a couple) also rose, from $3,496 to $3,734 (also inflated by FPOs). The lowest average premium was in Kansas ($2,278) followed by Louisiana ($2,310), while the highest average premium was in New York ($3,942) followed by Connecticut ($3,888).  The average inforce premium jumped 8.5 percent to $2,296, due to rate increases and, to a much lower extent, FPO elections and termination of older policies.

Issue Age 
Table 10 summarizes the distribution of sales by issue age band based on insured count. The average issue age rose to 56.7, the highest since 2013. The change in participants explains about 25 percent of the increase. Two participants have a minimum issue age of 40, one won’t issue below 30, and two won’t issue below 25. 

Benefit Period 
Table 11 summarizes the distribution of sales by benefit period. The average notional benefit period dropped from 4.07 to 3.73, about 40 percent of which was attributable to the change in participants. Because of shared care benefits, total coverage was higher than the 3.73 average suggests. Nearly 62 percent of the sales had two-year or three-year benefit periods. 

We asked a one-time question: How likely is it that your company might offer a lifetime/endless benefit period within the next five years, assuming that you could price it as conservatively as you might like?  All nine respondents said it was unlikely, eight saying it was too risky, five each saying it was too expensive to generate many sales and would require too much risk-based capital or reserves, and three being concerned about anti-selection. However, one non-respondent has begun to offer a lifetime benefit period.

Maximum Monthly Benefit 
Table 12 shows that monthly determination applied to 77.9 percent of 2017 policies, down from 81.0 percent in 2016.  Without the change in carriers, the use of monthly determination would likely have increased.  With monthly determination, low-expense days can leave more benefits to cover high-expense days. It was included automatically in 49.0 percent of policies (vs. 69.6 percent in 2016). Where it was optional, 56.7 percent purchased monthly determination (vs. only 37.5 percent in 2016).

Table 13 summarizes the distribution of sales by maximum monthly benefit at issue. The average maximum benefit decreased 1.5 percent to about $4,700 per month. It would have dropped more had the participants not changed.

Benefit Increase Features 
Table 14 summarizes the distribution of sales by benefit increase feature. “Other compound” has grown a lot in the past two years.  Many of those policies have compounding that stops after a fixed number of years.  Some of the changes in distribution from 2016 are related to changes in participants. 

Five percent compounded for life, which represented 56 percent of sales in 2003 and more than 47.5 percent of sales each year from 2006 to 2008, now accounts for only 1.5 percent of sales. Simple five percent increases were 19 percent of 2003 sales, but are now 0.2 percent of sales.  All simple increase designs together account for one percent of sales (not shown in the table).

“Indexed Level Premium” policies are priced to have a level premium, but the benefit increase is tied to an index such as the consumer price index (CPI).

We project the age 80 maximum daily benefit by increasing the average daily benefit purchased from the average issue age to age 80, according to the distribution of benefit increase features, using current future purchase option (FPO) election rates and assuming a long term three percent CPI. The maximum benefit at age 80 (in 2040) for our 2017 average 57-year-old purchaser projects to $254/day. Had our average buyer bought an average 2016 policy at age 56, her/his age 80 benefit would be $281/day. 

Five insurers provided both the number of available FPOs (at attained age rates) in 2017 and the number exercised, with 34.7 percent of insureds exercising FPOs (Table 15). By insurer, election rates varied from 13 percent to 73 percent. Insurers at the high end use a “negative election” approach; i.e., the increase applies unless specifically rejected. Insurers at the low end use “positive election” (the increase occurs only if specifically requested).  Approximately half of the increase from 2016 is due to different participants.

Elimination Period 
Table 16 summarizes the distribution of sales by facility elimination period. As an overwhelming percentage of policies opt for 90-day elimination periods, we may see reduced flexibility offered in the future.

Table 17 shows that the percentage of policies with zero-day home care elimination period (but a longer facility elimination period) has dropped from 38.9 percent in 2013 to 13.4 percent in 2017 and that the percentage of policies with a calendar-day elimination period (EP) definition jumped to 43.7 percent.  Those changes are caused by a change in sales distribution among carriers. For insurers which offer calendar-day EP, 45.5 percent of policies had the feature; in some cases it was automatic. It is important to understand that most calendar-day EP provisions do not start counting until a paid-service day has occurred.

Sales to Couples and Gender Distribution
Table 18 summarizes the distribution of sales by gender and couples status. The data in this table was not affected by the change in participants.

The biggest change was that 67.6 percent of healthy partners completed her/his purchase when the unhealthy partner was declined, compared to 71.4 percent in 2016.  The drop is attributable to an insurer which shifted to a new product which removed the couples’ discount entirely under such circumstances.  Their previous product h

2017 Milliman LTCI Survey

The 2017 Milliman Long Term Care Insurance Survey is the 19th consecutive annual review of long term care insurance (LTCI) published by Broker World magazine. It analyzes the marketplace, reports sales distributions, and details available products. 

The data includes certificates or individual policies sold to multi-life groups (primarily small groups) with discounts and/or underwriting concessions, but excludes group policies aimed only at the large group market. 

Analysis of worksite sales will appear in the August issue of Broker World magazine.

Unless otherwise indicated, references are solely to U.S. stand-alone LTCI sales, excluding exercised future purchase options or other changes to existing coverage. “Stand-alone” refers to LTCI policies that do not include death benefits (other than returning premiums upon death or waiving a surviving spouse’s premiums), annuity, or disability income benefits. 

 

Highlights from This Year’s Survey

Participants
Thirteen carriers participated broadly in this survey. Four others provided sales information so we could report accurate aggregate industry individual and multi-life sales.

Although not displaying products, Northwestern LTC provided background statistical information. Auto-Owners, John Hancock, MedAmerica, and United Security contributed to the sales total but did not provide other statistical information.

Sales Summary

  • The 17 carriers reported sales of 88,922 policies ($220,501,539 of new annualized premium) in 2016, which we believe represents 100 percent of the stand-alone LTCI industry’s 2016 individual and multi-life sales.
  • Overall, the number of policies sold was 13.6 percent less than in 2015 and the annualized premium was 14.2 percent less than in 2015. “Combo” policies (i.e., LTCI combined with life insurance or annuity coverage) and policies that offer LTC-related accelerated death benefits more than made up for the sales reductions.
  • Six insurers increased sales compared to 2015. 
  • The average issue age dipped from 55.9 to 55.8, the lowest ever reported in this survey. Fewer insurers offer coverage to people under issue age 40 or above issue age 75.
  • The average premium per new insured dropped slightly from $2,497 to $2,480 (reflecting 17 insurers), and the average premium per new buying unit (recognizing couples as one buying unit) dropped slightly from $3,526 to $3,496. 
  • Reported worksite business produced 12.6 percent of new insureds (12.5 percent in 2015 and lower percentages in 2014 and 2013), but only 8.5 percent of premium because of the younger issue age distribution. Worksite sales may be understated because small cases that do not qualify for a multi-life discount may not be labeled as worksite. More information about worksite sales will appear in the August issue of Broker World magazine.
  • Reported affinity business amounted to 6.1 percent of the 2016 new insureds (down from 6.8 percent in 2015 and 7.8 percent in 2013 and 2014) but only 5.1 percent of the premium (consistently a lower percentage of premium than policy count). 
  • Northwestern and Mutual of Omaha continued as the number one and number two carriers, combining for 45 percent of the new sales in terms of premium.
  • In 2015, the number of in-force policies for our participants dropped for the first time (0.2 percent). In 2016, the number of in-force policies dropped again, by 0.3 percent.
  • Nonetheless, year-end in-force premium increased 2.9 percent in 2016 (2.4 percent in 2015). In-force premium is increased by sales, price increases, and benefit increases, and is reduced by lapses, reductions in coverage, deaths, and shifts to paid-up status for various reasons. 

Participants’ individual claims rose 6.9 percent and group claims rose 4.7 percent. Overall, the stand-alone LTCI industry incurred $9.7 billion in claims in 2015 based on companies’ statutory annual filings, raising total incurred claims from 1991 through 2015 to $107.8 billion. (Note: 2015 was the most recent year available when this article was written.) Most of these claims were incurred by insurers that no longer sell LTCI. This compares with $8.7 billion of incurred claims in 2014, roughly an 11 percent increase.

The average time from receipt of the application until a policy is issued dropped from 44 days to 38 days, the fastest time since 2012.

 

About the Survey

This article is arranged in the following sections:

  • Highlights provides a high-level view of results. 
  • Market Perspective provides insights into the LTCI market.
  • Claims presents industry-level claims data.
  • Sales Statistical Analysis presents industry-level sales distributions reflecting data from 12 insurers (our 13 participants other than National Guardian, which had no sales last year). 
  • Partnership Programs discusses the impact of the state partnerships for LTCI.
  • Policy Exhibit shows information such as financial ratings and sales results for each carrier and details about their product offerings.
  • Product Details provides a row-by-row definition of the product exhibit. We have 16 products displayed. 
  • Premium Rate Details explains the basis for the product-specific premium rate exhibit.

Market Perspective (more detail in subsequent parts of the article)

  • Insurers continue to deal with disheartening price increases on existing policies and unsatisfactory results for those older blocks. Recently priced policies are based on assumptions that rely on far more credible data, hence premiums should generally be more stable, but many financial advisors presume that currently issued policies will face steep increases. 
  • Unfortunately, the potential future covered long term care costs from current sales continue to drop compared with previous years. For the average 56-year-old purchaser in 2016, we project a maximum benefit in 2040 of $281/day, or approximately an average 2.4 percent compound benefit increase. Purchasers may be disappointed in their selected designs if the purchasing power of their LTCI policies deteriorates over time.
  • We are aware of only 37 times claimants have resorted to independent third-party review (IR), and the insurers’ denials were upheld 89 percent of the time. (If an insurer concludes that a claimant is not chronically ill, the claimant can appeal the decision to binding IR.) Most participants have extended IR beyond statutory requirements, most commonly to policies issued prior to the effective date of IR. The existence and voluntary expansion of IR and the insurer success rate when appeals occur all work to justify confidence in the industry’s claim decisions. Such confidence may be reflected in the media, as the industry has received little criticism regarding claims adjudication in the past few years.
  • The annual number of life insurance policies sold with long term care benefits is now more than twice the number of stand-alone policies sold. More than 80 percent of those policies limit the long term care benefits to no more than the policy face amount. The number of life insurance policies sold with a long term care benefit that exceeds the death benefit has increased to about one-third of the stand-alone policies sold. The increasing popularity of such products is attributable to having a death benefit (so premiums are not “wasted” for those who never need long term care), perceived greater pricing stability, and expansion to more premium flexibility and long term care coverage potential with such products.
  • This year, we asked some questions regarding the future of the LTCI industry. We asked how many insurers would be in the stand-alone LTCI market in five years. Nine participants answered, with an average response of 14.2 and a range of 8 to 20 insurers. In response to the same question for life insurance products with a long term care benefit that exceeds the death benefit, seven participants answered, with the same 8 to 20 range and an average of 13.0 insurers. Five participants thought there would be about 20 percent more insurers in the stand-alone space than in the combo market, and the other two participants thought there would be the same number in each market.
  • Only one participant believes there will eventually be a government LTCI program and expects that program to provide limited benefits. Seven insurers responded that they do not expect such a program, and the other participants chose not to answer this question.
  • One insurer has made both single premium sales (which constitute a noncancelable product) and endless (“lifetime”) benefit periods available once again with a stand-alone LTCI policy. It will be interesting to see how these offerings affect 2017 sales. Another insurer offers an “endless” benefit period on a combo product.
  • The shift to gender-distinct pricing is nearly complete, but the impact continues to evolve. At the beginning of 2013, all products used unisex pricing. Now only one insurer uses unisex pricing outside the worksite. (Note: two carriers use unisex pricing for couples.) 
  • The additional effort required to create unique unisex pricing for the worksite, coupled with insurers’ fear of gender anti-selection (when unisex worksite prices offer women large discounts compared with gender-distinct “street” pricing), make it more difficult to find attractive worksite LTCI programs, especially for small carve-outs in companies with more than 15 employees and for employers with a largely female staff. The worksite market has also narrowed because fewer companies offer coverage to applicants below age 40. Similarly, it is hard to satisfy members of business associations with affinity LTCI programs. Such members generally want to pay through their business to earn tax breaks but affinity programs generally utilize gender-distinct pricing. 

We asked additional questions this year relative to the worksite market. Insurers that do not sell in the worksite market often did not answer these questions. Distributors might answer some of these questions differently from insurers.

  • Is the worksite market large enough to justify an ongoing commitment to having a separate product in that market? Five insurers responded that the worksite market is large enough to justify the effort and two specifically said it is not large enough. Some carriers that answered positively do not currently have a worksite product, while some that have a worksite product either did not answer the question or answered “no.”
  • Is the lack of product availability (or are product differences) by jurisdiction a barrier to worksite sales? Two insurers selected the “meaningfully” choice, three selected “a little,” and one selected “not at all.” Insurers do not expect much change in terms of jurisdictional differences.
  • Only one insurer felt that the availability of the Partnership Program is significant in the worksite market. 
  • We asked if a minimum issue age of 40 is a meaningful barrier in the voluntary, core/buy-up and carve-out markets. Only one carrier perceived the minimum age to be a meaningful barrier and only in the core/buy-up and carve-out markets. Three insurers said it would become harder to purchase under age 40 while two said it would become easier to purchase under age 40.
  • We asked if combo sales with an extension of benefits would increase in the voluntary, core/buy-up and carve-out markets. Only one insurer envisioned an increase and that was only for the voluntary market. It should be noted that we questioned executives in the stand-alone LTCI market, not executives in the combo market.
  • Single males generally pay much more through the worksite than “on the street.” Single women generally have been paying a lot less through the worksite than “on the street.” Couples may pay less or more. We offered several ways the gender pricing dichotomy will affect the market. Only one insurer checked the “fewer employers will sponsor programs” box. That same insurer was the only one agreeing that “both-buy” discounts would become more common and larger in the worksite. On the other hand, five insurers agreed that the minimum number of employees would increase, the minimum participation requirement would increase, and that unisex prices would grow closer to female prices. Four insurers selected “worksite gender distribution will shift more to females.” 
  • In contrast to the above answers, only one insurer expressed concern about health anti-selection in worksite cases, because there are few health concessions and because of the participation requirements.
  • We asked about the likely difference in later-policy-year lapse rates between the worksite market and the “street” market, asking separately about the voluntary market, core/buy-up market and executive carve-out market and giving three choices: “less than one percent,” “one percent to two percent,” and “more than two percent.” The average answer was in the one percent to two percent range for core/buy-up and carve-out programs but a little less for voluntary programs. One insurer noted that the difference would disappear after a few policy years.

We asked some questions about “both-buy” discounts (percentage discounts when, generally, a husband and wife or two life partners both purchase coverage). We stated the premise that “With unisex pricing, single person pricing generally reflected an expectation that most buyers would be female. Couples’ both-buy discounts were on the order of 30 percent to 40 percent, partly because couples’ business was very close to 50/50 in gender distribution. That is, gender distribution contributed to the large both-buy discounts.”

  • Five insurers agreed with this statement. Two insurers disagreed, one stating that reduction in claim costs justifies the discounts, while the other disagreed because of their unique market. 
  • It might be relevant that five insurers have higher “both-buy” discounts in 2017 than in 2013, four have the same discount in 2017 as in 2013, and three have lower discounts now than in 2013.
  • We asked what justifies large both-buy discounts with gender-distinct pricing. Four insurers cited increased likelihood that a claimant would stay at home and three of those insurers also checked off the “reduced anti-selection” box. One insurer stated that the both-buy discounts are not justified. 

The potential impact of regulation continues to be unclear. Last year, we wrote that, “The detrimental impact of the Affordable Care Act on worksite LTCI sales should wane, as the ACA is likely to demand less attention from employers and employee benefit brokers going forward. The new Department of Labor fiduciary rules do not appear to impact LTCI directly, but increased need for detailed documentation may leave financial advisors less time for ancillary services such as LTCI sales. Furthermore, some advisors may become more reluctant to discuss LTCI with their clients, concerned that they lack the expertise to meet fiduciary standards.” As this 2017 article is being drafted, uncertainty relative to the Patient Protection and Affordable Care Act (ACA) and fiduciary rules continues to impact the LTCI market, with no clear resolution in sight.

Only five participants offer coverage in all U.S. jurisdictions and only one worksite insurer does so. When a jurisdiction is slow to approve a new product, restricts rate increases, or has unfavorable legislation or regulations, it contributes to insurers’ reluctance to sell in that jurisdiction.

Claims

  • Eleven participants reported 2016 individual claims, the same as in 2015 except that one large insurer stopped contributing data and another insurer reported the number of claim payments made during the year, rather than the number of policies that had claim payments. We’ve adjusted the data to avoid distorted comparisons. However, the change in carriers pushed our venue distribution more toward nursing homes. For true group claims, the same three carriers reported as in 2015.
  • Individual paid claim dollars rose 6.9 percent, despite a slight decrease in in-force policies. Many factors contribute to the increase: Claims increase as insureds get older, benefit increase features including  future purchase options increase maximums, long term care costs rise, claims shift to more recently issued policies that have larger maximum benefits, etc. 
  • Group paid claim dollars rose 4.7 percent. Assisted living facilities (ALFs) gained 1.1 percent share of group claim dollars and community care gained 0.3 percent, with a corresponding 1.4 percent drop for nursing homes. Note: Fewer group claims are reported in 2016 than in 2015, because one carrier overstated the number of group policies with claims in 2015.
  • Combining individual and group claims, these 11 insurers paid $3.3 billion in LTCI claims in 2016 and have paid $29.8 billion from inception.
  • The LTCI industry has had a much bigger impact than indicated above, because a lot of claims are paid by insurers that no longer sell LTCI.

LTCI claims paid by insurers no longer selling LTCI might differ significantly from data reported below because their claimants might be more likely to have facility-only coverage, be older, have smaller policies, etc. 

Table 1 shows claim distribution based on dollars of payments, whereas Table 2 shows distribution based on number of claims. In the distribution based on number of claims, if someone received care in more than one venue, that person is counted more than once. Claims will shift away from nursing homes because of preference for home care and ALFs and because newer sales are overwhelmingly “comprehensive” policies (covering home care and adult day care, as well as facilities), whereas many older policies covered only nursing homes. Claims that could not be categorized as to venue were ignored in determining the distribution by venue type. 

Table 3 shows average size individual and group claims since inception. Because claimants submit claims from more than one type of venue, the average total claim should generally be larger than the average claim paid relative to a particular venue. Nonetheless, ALFs consistently show high average size individual claims, probably because:

  • ALF claims come from more recent policies with higher daily maximums.
  • ALF claims appear to last longer compared with other venues.
  • Nursing home costs are more likely than ALF costs to exceed the policy maximum. Hence the maximum daily benefit negates part of the additional daily cost of nursing homes.

The following factors distort our average claim sizes:

  1. Roughly 15 percent of the inception-to-date individual claims are still open. Our data does not include reserve estimates for future payments on open claims.
  2. People who recover, then claim again, are counted as though they are multiple insureds. We are not able to add their various claims together.

In-force claim data understates the value of current sales because:

  1. The many small claims drive down the average claim. The purpose of insurance is to protect against a non-average result, so the amount of protection, as well as average claim, is important.
  2. Older policies had lower average maximum benefits and were sold to older issue ages compared with current sales, resulting in smaller claims for shorter periods of time than might result from today’s sales. 

The average group claim is smaller than the average individual claim, probably because of shorter benefit periods, lower maximum daily benefits, fewer benefit increase features, and more common reduced benefits for home care. 

Statistical Analysis
Twelve insurers contributed significant background data, but some were unable to contribute data in some areas. Four other insurers (Auto-Owners, John Hancock, MedAmerica, and United Security) contributed their number of policies sold and new annualized premium.

Sales characteristics vary significantly among insurers. Hence, year-to-year variations may reflect a change in participants or changes in market share, as well as industry trends.

Market Share 
Table 4 lists the top 10 carriers in 2016 new premium. Northwestern and Mutual of Omaha repeated as the top two carriers, with Mutual of Omaha cutting Northwestern’s lead by 40 percent compared with 2015. The two top carriers produced 45 percent of annualized first year premium in 2016. They are followed by four insurers with 7.0 percent to 8.5 percent market share each, and then three insurers with 5.0 percent to 5.5 percent market share each. Four of the top 10 had higher sales in 2016 than in 2015. 

Characteristics of Policies Sold
Average Premium 

The average premium per new sale was $2,480, almost unchanged from $2,497 in 2015. Two insurers had average premiums between $1,505 and $1,565, while three insurers were between $3,070 and $3,129. The average premium per new purchasing unit (i.e., one person or a couple) was also similar to last year, dropping from $3,525 in 2015 to $3,496 in 2016. The average in-force premium rose 0.7 percent to $2,116.

Issue Age 
Table 5 summarizes the distribution of sales by issue age band based on insured count. The average issue age was stable (55.8 in 2016 vs. 55.9 in 2015), but still a record low. Table 5 shows that a record high 17.9 percent of buyers were between 30 and 49 and a record low 3.6 percent were 70 or older. All but two insurers had their most sales in the 55-59 block; one had their most sales in the 60-64 block and one had their most sales in the 65-69 block. Three participants have a minimum issue age of 40, two won’t issue below 30, and two won’t issue below 25. 

Benefit Period 
Table 6 summarizes the distribution of sales by benefit period. The combined percentage of sales for benefit periods of four years or less in 2016 remains the same as in 2015. While most carriers continued to gravitate toward shorter benefit periods, one insurer sold many eight-year benefit period policies, hence the average notional benefit period increased slightly from 4.01 years to 4.07 years. Because of shared care benefits, total coverage was higher than the 4.07 average suggests. Endless (lifetime) benefit period sales may register on this distribution in 2017 because one insurer is now offering such policies.

Maximum Monthly Benefit 
A record 81.0 percent of 2016 policies were sold with a monthly or weekly maximum, which is superior to a daily maximum from a consumer’s perspective given the additional flexibility to use benefits. It was included automatically in 69.6 percent of the policies. Where it was optional, only 37.5 percent of purchasers opted for monthly or weekly determinations.

Table 7 summarizes the distribution of sales by maximum monthly benefit at issue. The average maximum benefit decreased about 0.5 percent, staying at about $4,800 per month.

Benefit Increase Features 
Table 8 summarizes the distribution of sales by benefit increase feature. Future purchase options (insureds buy more coverage in the future at attained age prices, 36.0 percent), deferred options (purchasers can add level premium compound benefit increases within five years of issue if they have not been on claim, 3.8 percent), and benefits scheduled to be flat (15.2 percent) now comprise 55 percent of LTCI sales, and “other compound” has surged to 10.3 percent of sales as future purchasing power is sacrificed to produce lower premiums.

The level-premium three percent compound increase provision, once called the “new five percent,” has dropped from 30.1 percent of sales to 23 percent of sales in two years; however, 3.2 percent of that 7.1 percent drop has shifted to 3.5 percent compound and step-rated. Five percent compounded for life, which represented more than 47.5 percent of sales each year from 2006 to 2008, now accounts for only 2.3 percent of sales. 

The “Age-Adjusted” benefit increase features typically increase benefits by five percent through age 60, by three percent compound or five percent simple from 61 to 75, and by zero percent after age 75.

“Indexed Level Premium” policies are priced to have a level premium, but the benefit increase is tied to an index such as the consumer price index (CPI).

A small error in the 2015 distribution has been corrected for one carrier, primarily shifting data from the “Other” category to various compound benefit options.

We project the age 80 maximum daily benefit by increasing the average daily benefit purchased from the average issue age to age 80. We project benefits according to the distribution of benefit increase features, using current future purchase option (FPO) election rates and assuming a long-term three percent CPI. The maximum benefit at age 80 (in 2040) for our 2016 average 56-year-old purchaser projects to $281/day. Had our average buyer bought an average 2015 policy at age 55, his age 80 benefit would be $300/day. The age 80 coverage for 2016’s average buyer is six percent less than if that person had bought in 2015 and 24 percent less than a purchase in 2014. Combining the reduction in sales with the reduction in coverage at age 80 for the average sale, the stand-alone LTCI industry sold about 26 percent as much coverage in 2016 as it did in 2012. The drop in coverage is really greater primarily because the average claim payment age (as opposed to the claim start age) is greater than 80. However, some of the difference has been covered by combination policies with LTCI benefits and policies with accelerated death benefits.

Six insurers provided both the number of available FPOs (at attained age rates) in 2016 and the number exercised. Table 9 shows 32.8 percent of insureds exercised FPOs that were available in 2016 based on their data. By insurer, election rates varied from 17 percent to 74 percent. The high percentage reflects an insurer using a “negative election” approach; i.e., the increase applies unless specifically rejected. Most carriers use “positive election” (the increase occurs only if specifically requested). 

Elimination Period (EP)
Table 10 summarizes the distribution of sales by facility elimination period. More than 96 percent of issued policies have facility elimination period selections of 84 days or longer.

The percentage of policies with zero-day home care elimination period (but a longer facility elimination period) has dropped from 38.9 percent in 2013 to 21.3 percent in 2016, which is largely due to change in sales distribution among carriers. In 2016, 35.6 percent of the policies had a calendar-day elimination period definition, compared with only 31.6 percent in 2015. When a calendar-day EP was available, 45.5 percent of policies had the feature; in some cases, it was automatic. 

Sales to Couples and Gender Distribution
Table 11 summarizes the distribution of sales by gender and couples status. It shows that 44.4 percent of couples insure only one spouse/partner. Sometimes one spouse already has coverage (perhaps left over from a previous marriage). Sometimes one spouse is declined and the other buys. The percentage of single people was low, but the percentage of females among single insureds was high. It appears the one-of-a-couple sales include a good percentage of males.

When one spouse is declined, the other spouse completes the purchase 71.4 percent of the time.

Shared Care and Other Couples’ Features 
Table 12 summarizes the distribution of sales by shared care and other couples’ features. It shows that a lower percentage of both-buying couples bought couples’ features than in 2015:

  • Shared care (allows one spouse/partner to use the other’s available benefits if their own coverage has been depleted or offers a third independent pool that the couple can share)
  • Survivorship (waives a survivor’s premium after the first death if specified conditions are met)
  • Joint waiver of premium (both insureds’ premiums are waived if either qualifies for benefits) 

Changes in distribution by carrier and product designs impact year-to-year differences in results in Table 12, particularly because sometimes survivorship or joint waiver is embedded automatically. 

Because some insurers don’t offer these features, Table 12 also shows the (higher) percentage that results from dividing the number of buyers by sales of insurers that offer the feature. On this basis, the percentage of people buying shared care did not drop as much, partly because we refined the calculation this year to reflect a carrier that makes shared care available only for some benefit periods.

Table 13 provides additional breakdown on the characteristics of shared care sales. As shown on the right-hand side of Table 13, eight-year (37.7 percent), three-year (33.2 percent), and four-year (33.1 percent) benefit period policies are most likely to add shared care. Because three-year benefit periods comprise 42.2 percent of sales, most policies with shared care are three-year benefit period policies (as shown on the left side of Table 13).

Above, we stated that shared care is selected by 36.0 percent of couples who both buy limited benefit period policies. However, Table 13 shows shared care comprised no more than 37.7 percent of any benefit period. Table 13 has lower percentages because Table 12 denominators are limited to people who buy with their spouse/partner whereas Table 13 denominators include all buyers.

Existence and Type of Home Care Coverage 
One participant reported home-care-only policies, which accounted for 1.0 percent of industry sales. Four participants reported sales of facility-only policies, which also accounted for 1.0 percent of total sales. Ninety-seven percent (96.6 percent) of the comprehensive policies included home care benefits at least equal to the facility benefit. These percentages were all within 0.2 percent of 2015 results.

Partial cash alternative features (which allow claimants, in lieu of any other benefit that month, to use between 30 percent and 40 percent of their benefits for whatever purpose they wish) were included in 30.3 percent of sales. This is more than double the 14.2 percent of 2014, because the two insurers that dominate such sales include these features automatically and each sold more business in 2016 than in 2014 in an industry in which total sales declined. Another insurer covers some fa

WordPress › Error

There has been a critical error on this website.

Learn more about troubleshooting WordPress.