I know many of you have visions of a Grandmother or Aunt who wore one of those shapeless amorphous sack dresses. They covered a world of sins and no one really wanted to know exactly what was going on underneath. What we were sure of was that nothing really risky was ever going to see the light of day. Here’s what we know: Shortly after HIPAA we had approximately 8 million folks who owned some form of LTCI. Twenty years later we still have about 8 million. For the last dozen or so years about a half million Americans per year have been buying some form of chronic illness protection. I don’t think anyone would argue that this could be described as a seriously flat market. Active companies still trying to sell stand-alone individual accident and health policies can now be counted on fingers and toes, and those in the brokerage market on one hand. The only signs of life in the LIMRA numbers or new product filings at the IIPRC concern the growing addition of some flavor of combo offering. I think we can make this really short and sweet:
- We were wrong about persistency, investments, mortality, morbidity, the rise of non-insurance benefits, that ALF’s enhance mortality, and that our premium ceilings were not glass but tempered steel (to name just a few).
- We oversold benefits by a wide margin. Somewhere in the neighborhood of 80 percent of benefits sold will never be used.
- We ended up sweating bullets about the cost of overly aggressive future inflation COLAs but failed to recognize that the number just above made most of that a moot point.
As has been pointed out repeatedly in this column, there have always been two sales: 1) “Primary” replacing as much of the risk as possible with catastrophic coverage, and, 2) “Supplemental” adding sufficient additional dollars at the time of claim to maintain private pay status. Insurance does not exist in the cold vacuum of space. Everyone’s story is different. Again, here is what we know:
- About 50 percent of Americans will be within reach of the 250 percent of poverty line, meaning Medicaid is just over the horizon awaiting them with open arms and bureaucratic indifference.
- About five million mass affluent households will buy insurance or chose intentionally or by benign neglect (yours or theirs ) to self-insure.
- And about 34 million middle class households will continue to set out there waiting on the insurance industry to make a serious attempt to be helpful, or wait for the wind that is already blowing in Washington to create Medicare Part E where we will be taxed to pay instead of encouraging individual decisions to do the right thing to protect ourselves and our families.
What is needed is custom built Italian Suits—no more Muumuus. Just for fun let’s take just one small, yet glaring, overpricing regimen. Three fourths of all stand-alone policies are sold as couples in some form. Yes, we even give small discounts because someone will be there who cares when the first one needs assistance—in theory reducing the claim. However when we sold the couple and explained the discount we probably at least let it be believed that the risk was somehow equal for both spouses. We knew, and the customer knew, that that is not what happens. Men claim sooner and shorter, women later and longer, and the chance is greater that they both pass away before any real possibility that they both would have a catastrophic claim. My own suspicions are that we have allowed for catastrophic risk involving both joint policyholders and that much of that risk and premium is wasted and severely detrimental to sales. Somehow we forgot the basics: Sell to our new understanding of the real nature of the risk, price to what we can afford that covers most of the claim, and begin with an evaluation of how little–not how much—insurance is needed to remain free!
Other than that I have no opinion on the subject.
