Riders In The Sky

Like Willy Wonka’s chocolate factory, we now live in a world of “combo” confections coming in all combinations of flavors, sizes and colors. Confusion, misunderstandings and frankly a potential abundance of experience disappointments, stand before us like a solid and forbidding rock candy mountain. Some light has been recently shed on the mysteries and old wive’s tales frequently attributed to the two birds with one stone, have your cake and eat it too aficionados. LIMRA, with the hard work of an SOA LTC Section Council member, has recently released a new combo life study helping clear the fog. The study is titled “Combination Products: A One-Stop Solution?” (full annotation at the end). I would not want to offend LIMRA by publishing any direct information in this column. Instead I will take my usual liberties to paraphrase, embellish and interpret my own personal observations from this excellent work.

Combo life policies do seem to offer solutions to the most common historical complaints concerning stand-alone LTCI health products. They certainly are simpler to explain with fewer moving parts, fewer consumer buying decisions, and the offer of additional stability providing at least the availability of guaranteed premiums and benefits. But the biggest boogie man put down triumphantly is the demise of the dreaded “Use it or Lose it” monster selling objection. Someone is going to get some money period. The study identified three categories of product offerings: 1) Life with chronic illness—IRC Section 101g; 2) Life with long term care—IRC Section 7702B; and 3) Life with an EOB rider paying both an acceleration of life benefits and an extension of benefits paid beyond the face amount—all as a long term care benefit. Not all companies in this market participated in the study. For the purposes of this article I would guess somewhere around 50 companies or so have some form of rider available.

What we learned:

  • Confirming again that the number one impediment to sales is cost and that we have clearly limited our market penetration to those wealthier members of our country. It was again acknowledged that perhaps the only way to move this to the middle class is with the use of less expensive chronic illness riders.
  • Consumers like combo products specifically because their premium is never in jeopardy. There can never be any losers.
  • As you may know, the CMA in 2018 will now allow Medicare Advantage plans to add some long term care benefits. However the most expensive component remains care community monthly cost which, in my humble opinion, will remain the responsibility of private citizens. The quest for economic assistance in time of need persists. New reliable and affordable alternatives must step forward.
  • The vast majority of product offerings are life CI, although some form of rider is available with all policy form options from term to variable.
  • The industry deserves a compliment, as overwhelmingly companies offer product to meet market need. Offense in this case creates a better quality of rider than defensive moves to accommodate distribution.
  • Companies are trying to reach more middle class buyers, lowering face amounts and target ages.
  • Companies are for the most part relying on existing distribution strategies with only a few building out new ones.
  • Underwriting practices and philosophy are frankly all over the board. This is of course good, or bad, or both…too early to tell.

The study ends with five key issues that stand before us: Consumer perceptions of the new offerings; product visibility; regulatory and compliance concerns; operational friction as dual administration issues require the ability to walk and chew gum; and, finally, risk management strategies in a new line of business without sufficient experience.

However, the most important finding from the majority of surveyed consumers was…they want to buy! There is something very basic, charming and endearing about simplicity—hopefully guaranteed premiums with guaranteed benefits that we should all find extremely attractive.

Other than that I have no opinion on the subject.

“Combination Products: A One-Stop Solution?” LIMRA. Authors: Scott R. Kallenbach, FLMI, Director, Strategic Research, LIMRA, and Linda Chow, FSA, MAAA, Senior Actuarial Consultant, Ernst & Young LLP.

Ronald R. Hagelman, CLTC, CSA, LTCP, has been a teacher, cattle rancher, agent, brokerage general agent, corporate consultant and home office executive. As a consultant he has created numerous individual and group insurance products.

A nationally recognized motivational speaker, Hagelman has served on the LIMRA, Society of Actuaries, and ILTCI committees. He is past president of the American Association for Long Term Care Insurance and continues to work with LTCI company advisory boards. He remains a contributing “friend” of the SOA LTCI Section Council and the SOA Future of LTCI committee. Hagelman and his partner Barry J. Fisher are principles of Ice Floe Consulting, providing consulting services for Chronic Illness/LTC product development and brokerage distribution strategies.

Hagelman can be reached at Ice Floe Consulting, 156 N. Solms Rd., New Braunfels, TX 78132 Telephone: 830-620-4066. Email: ron@icefloeconsulting.com.