I recently had the privilege of speaking to the board of directors of one of the handful of courageous LTCI companies that have chosen to stand and fight. Their concerns were a reflection of the same valid soul searching that we all have to be going through. It is almost impossible to look at the rise and fall of LIMRA numbers over the last 15 years and not question your commitment and your sanity.
The questions that seem to continue to beg for an analysis are: Why do sales continue to fall? Why have so many left the field of combat? The problem is those are the wrong damn questions!
The questions should be: Where have the chronic illness risk abrogation sales relocated and why? Why have some companies stayed the course and why have a substantial number decided to throw in the towel?
Perhaps a brief over simplified review of recent LTCI history is in order:
- 2000-2003 Post HIPAA birth of the modern LTCI market. TQ policies turned the horses loose with a little over 100 companies lining up to attack this exciting new market of corporate premium deductibility and tax free benefits. It was a horse race populated by horses that had never been on this track and no one should have expected that every horse was going to cross the finish line a winner.
- 2004-2006 First wave of market adjustments: claims were real, persistency was unreal and sales were somewhat unpredictable.
- 2007-2009 The Great Recession coupled with severe rate actions on both old blocks and new premium.
- 2010-2015 Sales appearing to fall steadily for 10 years seemed to be reinforced by “The Great Company Exodus.” Carrier white towels thrown in the ring began to look like a New England blizzard. Which brings us to today’s situation with about 30 companies successfully still in the race selling stand-alone LTCI.
“The Great Company Exodus” deserves further analysis. Why did they leave? It was not related to the validity of the sale itself or any inherent flaws in the market or the product. Each company originally perceived an opportunity to serve a new market. They made their own unique decision to try to strategically answer consumer demand, perhaps accommodate their own distribution and hopefully make a profit. It was only the decision to move forward that was the same. Each one has subsequently left for their own indigenous reasons. Their decision to throw in the towel was based on issues which were unique to them, not LTCI.
There were as many reasons as there were defections:
- Some were never really even in the business, having secured 100% reinsurance. Making it very easy to walk away.
- Some companies changed ownership and therefore direction. Nothing wrong with the new mortgage holders wanting to focus on more profitable lines of business.
- Some suffered from bad management and poor sales, never achieving sufficient premium to overcome costs.
- Some oversold benefits or underwriting—never a wise choice.
- Some just had a classic changing of the marketing guard creating new priorities and global agendas.
- Some did experience bad claims, particularly in the true group arena. Guarantee issue on a voluntary basis is a known formula for problems.
- Some suffered from their own inherent distribution channel conflicts.
- Some began to weary from repeated needs to provide additional reserves to cover the long gestation period and anticipated claims trends in LTCI.
- Some simply lost faith. This line of business just wasn’t what we thought it would be. When you hold it up to the light many expectations simply did not materialize. Poor performance on a non-essential line of business always has a problematic future.
None of this has anything to do with the value, importance or ultimate profitability of stand-alone LTCI! Insurance marketing stuff just happens and not every company was ever going to cross the finish line anyway.
It’s the corollary question that deserves the most attention: Why have some stayed and continue to work hard every day to find the right balance of competitive premium, accurately anticipated claims and empathy with the needs of distribution and at the same time stay committed every day to maintaining a strong value proposition for consumers and ultimate faith in the profitability of LTCI?
- Some have been leaders and innovators from the beginning, creating substantial blocks of in force premium. The sheer forward momentum and centrifugal force of new premium makes it very hard to even consider walking away.
- Some have always been health companies with the experience and long term view necessary to maintain the required commitment.
- Some are owned by experienced medical health companies who understand the true historical nature of this market and the longevity required to accomplish goals.
- Some have corollary lines of business and LTC planning “fits” well with life or supplemental offers.
- Some have already made the transition to product that addresses the same risk but uses a new and novel approach to its solution.
There is much that the LIMRA numbers do not show. Some examples:
- The most successful sales companies may coincidentally also have the best premium for the best benefit. Look carefully at the companies that offer family care. They illustrate the most competitive premiums and demonstrate the greatest recent sales growth. How could that be? Best benefits plus best premium equals best sales. Amazing!
- The lowest average premium companies have the best sales. Maybe there really is an invisible ceiling on relative purchase price. Incredible!
- Sex distinct pricing, tighter underwriting and retail sales force shutdowns dramatically impacted sales. Surprise!
- Companies with better trained and better controlled field forces make more sales. Shocking!
And last but not least in any way, please get this straight: Sales are not down, they are flat. If you will just take a moment, stop looking at the market through your panicked fingers, and do some simple math you will notice that sales addressing chronic illness are as strong as ever. If you will simply add stand-alone LTCI to combo life sales and short term sales, the number of folks solving their risk problem or the number of companies actively engaged in chronic illness risk abrogation is actually fairly static. Premium and company commitment has relocated, it has not vanished. The sky is not falling it’s just a different color blue.
Other than that I have no opinions on the subject.
