We live in interesting times. The cumulative effects of discouraging industry news has led to the usual spectrum of concerned calls and emails: Are we okay? Where do we go from here?
The LTC insurance industry is simply adjusting and responding to the same demographics and financial realities as every other segment of the resilient American public. This too shall pass and we will continue to move forward.
Long term care products are built to adjust and respond to changing realities. Our understanding of the risk and the best way to address that challenge will continue to evolve. The need is not diminished—it continues to grow and intensify. Irrefutable demographics cannot be ignored. The answer remains immutable and obvious—spread the risk and leverage the outcome. Insurance is the only answer.
It is now more important than ever that you stop and help all your clients understand that the government will never be able to handle the full cost of the aging American populace. You may never again be able to purchase this much needed benefit at this low price. Individual and multi-life underwriting may never again be this flexible. Benefit availability may never again be this abundant. The cost of purchasing future claim dollars may never again be this competitive. Product options to address the risk may never again be this plentiful. What you do right now matters!
During times of stress in our industry, when events transpire which seem to defy reason, two aberrant voices have a tendency to appear.
One voice blames our problems on bad math. The pricing was simply wrong, and somehow we should have seen this coming. Horse manure! Pricing at any point in time is always based on current realities, and future speculation is a function of that understanding. Is there really anyone out there who would argue that the world we live in today is the same as three years ago? The truth is that we now have more than 20 years of experience with this product. Premiums have risen substantially and current underlying pricing assumptions are believed to be much more stable. NAIC rate stabilization is working.
The other voice is the one that seeks to blame adverse conditions on bad sales. We sold too much, we sold too little, or we sold the wrong thing. What we actually did was the best we could with the ammunition available. There have never been enough agents helping us make this sale. NAIC/Partnership training requirements built on a solid foundation of suitability and ethical conduct are slowly but surely mandating the participation of all life and health agents. You can no longer hide or ignore this need. To maintain your professional status, you must find the best way to protect your clients from America’s greatest underinsured risk.
No one could have looked in a crystal ball and predicted the love and respect Americans have for their LTC insurance policies. Amazingly, persistency continues to improve. Products are now priced with a one percent or smaller lapse rate—virtually the only lapse is death. Should it surprise anyone that these lower lapse rates will continue to put pressure on existing rates?
We should also note that products with more current rate stabilization pricing have experienced much lower price adjustments. Cost fluctuations this year can be attributed directly to product and premiums that had not been completely adjusted to new pricing realities.
Mortality and morbidity trends have not only continued but accelerated. We continue to live longer, meaning that mortality lapses are not arriving as anticipated, and morbidity improvements, measured by activities of daily living, are also putting pressure on current pricing assumptions. There is evidence that claims may be lasting longer than predicted.
There is also evidence that we need to be careful for what we wish. Unlimited benefit sales have exceeded projections. Therefore, lifetime claim benefits have seen substantial pricing increases (and surprise, surprise, the longer your selected benefit period, the longer your claim tends to last).
There are also benefits that actually may never have been insurance benefits. Similar to elective surgery, assisted living and family member caregiving may be considered personal financial choices and not necessarily the province of stand-alone LTC insurance.
Last but not least, consider the current interest environment and that each LTC insurance policy has a very long investment period before claims are paid. A one percent change in long term care investments can have as much as a 10 percent impact on cost. Considering that the majority of LTC insurance is purchased when clients are 50 and claims do not occur until they are 80, the capital and reserve requirements are exacerbated by the sure and certain knowledge that these policies have a long and almost guaranteed claims tail.
I would be remiss not to mention that state regulators have not all been very helpful. Delays in approving increases and allowing more middle class consumer friendly product choices have slowed us down considerably. In addition, pressing on the equation is a lack of creativity in terms of middle class policy design, growing evidence of claims fraud and, frankly, an unbelievable lack of sales training.
Where do we go from here? We just keep building.
Partnership plans are helping. We sell less to more at the worksite. We unleash marketing Hades with combo products fueled by 1035 firestorms; fortunately we all finally recognize that every agent has a fiduciary responsibility to attempt to leverage this risk.
Now more than ever this must be a primary wholesale brokerage line of business. It demands what we do best: rapid response in terms of product and pricing with a growing underwriting flavor. Never hesitate, never wait, never postpone—every day is a fire sale and it always was! There has never been a better time than now to sell more long term care insurance.
Other than that I have no opinion on the subject.
