In the early dawn of brokerage we all operated humbly, at least publicly, by placing our hand on our hearts and soliciting “surplus and excess only.” We walked softly and carried three big sticks–better rates, better commissions and spectacularly better underwriting. The winner, to our credit, was of course the American consumer. My father used to say that the big career companies would eventually, like vultures on a phone pole, swoop down to co-op the new freedom we had introduced into the opening marketplace. On a corollary basis, we of course profited from a reservoir of well trained and well-disciplined professional agents. For an aging generation of brokerage freedom fighters perhaps our greatest voiced concern at this moment in time is: “Where will we find those experienced and motivated brokers to continue business as usual?”
In the smaller brokerage world of chronic illness risk abrogation, our concerns and our options for growth are seriously restricted by the nature of what we do. We sell a product which may appear to have a lot of moving parts but product flexibility is restricted and contained within a regulatory razor wire fence. Perhaps the consumer protections were needed, but they have created a sterile and desolate landscape which discourages creativity and innovation. Holding your breath for dramatic reform at the NAIC or for that matter the sacred halls of Congress does not appear to be an immediately rewarding strategy.
The sale itself will never get any easier and a healthy commission will continue be required to justify the time and expertise necessary to do it right. Again, however, the market and the regulators have built in barriers for compensation. Higher commissions will not build this market. Market experience has also given us a product struggling to keep pace with needed premium adjustments, and although one company or another may have a temporary pricing advantage it is transitory by definition. Once upon a time in brokerage we could offer substantially better pricing because we enjoyed reduced overhead. As we well know much of that overhead has been returned to us. We know price matters, but substantial price differentiation for traditional stand-alone LTCI does not and will not drive this market.
For those with sufficient courage to view the most recent LIMRA numbers we know that individual sales for stand-alone LTCI are down again for the first two quarters of 2015. However, when the dust settles on 2015 I believe more Americans will have chosen to solve their chronic illness risk problem than at any time since the high water marks of sales in 2002 and 2003. Those choosing to leverage the risk simply now cover a much wider spectrum of alternatives. Without over generalizing, my personal estimate for 2015 is about 50 percent of buyers will choose individual tax-qualified LTCI; about 25 percent will choose a life combo plan; and, another 25 percent will elect a smaller benefit policy flying under much of the regulatory radar. In response to this shifting market we have all expanded our solutions portfolios to provide as many available chronic illness risk options as possible.
Just so no one misunderstands—I am delighted that we have so many choices. Each product direction has its own inherent benefits and strategic limitations. Stand-alone LTCI has clearly demonstrated that it has a pricing ceiling. Life combo selection must be preceded by a need for life insurance, asset based sales require the existence of discretionary dollars and short term benefits obviously do not protect against catastrophic risk. I continue to believe every planning conversation should begin with evaluating the shortest distance between the pain and the premium, and in most circumstances a careful examination of the need for traditional LTCI is required.
The potential for substantial growth and brokerage success may coincidentally involve the very market in which we are historically the most familiar. It is that line of business which lies at the emotional heart and entrenched core of almost every brokerage operation. For many it may no longer be our most profitable exercise, but it is the one challenge we know we are really good at and is probably the one we secretly most enjoy. It is not based on price. In most situations it is not susceptible to benefit level requirements. It was never based on agent commissions earned. It goes against the corporate risk-taking grain of the vast majority of our “me too” conservative carrier behemoths. In other words, co-opting this market and reducing consumer choice to mediocrity will take much longer and never completely succeed. Long term care insurance brokerage must return to its roots—impaired risk/substandard successful case placement! These sales are not governed by the lowest rates, highest commissions, pristine A.M. Best ratings or competition from the giants. When you understand there have always been two LTCI sales—one policy decision that addresses as close to 100 percent of the financial risk as the client can afford, and one that strives to supplement existing assets and income to provide the ability to maintain freedom of choice and guarantee personal dignity at the time of claim—you are then free to make even the smallest risk leveraging decision a strategic success.
The potential market is enormous. Today’s placement ratios are at an all-time low. I suspect almost 50 percent of those applying for coverage are unsuccessful, and that does not account for the thousands that never even tried. This problem has been the plague of our business from the beginning. To put it mildly there is an existing backlog of frustrated need waiting to be addressed. Aside from “Are you certified?” our most frequent conversations involve trying to determine why a policy was not placed or explaining that one or both of those applying was declined or rated up.
At this point our answers are few and far between. Several current approaches are possible:
- Utilize a life policy with a chronic illness ADBR life rider (IRC Section 101g), particularly those who automatically include the benefit with the policy but only charge for its cost in the event of a claim. They, therefore, only use mortality underwriting and with up to a Table 4 life risk a policy could be issued.
- Utilize a SPWL policy with living benefits and reduced underwriting expectations.
- Asset-based LTCI provides simplified issue “drop ticket” underwriting and may provide some marginal risk relief.
- There are tax qualified SPDAs and FPDAs for home health care (HHC) and facility protection that allow both guarantee and simplified issue options.
- There are short term reduced benefit HHC and nursing home policies with dramatically reduced underwriting providing basically modified guarantee issue alternatives.
- Multi-life can still provide reduced underwriting with sufficient participation.
Create a new marketing plan that can truly “salvage” surplus business. Solicit previously unavailable premium that is not already operating in heavy competition. Offer alternatives not available from your less focused brokerage competition. Getting your agency in position to take full advantage of what amounts to an emerging market is always a good strategic plan. Because, dear reader, there is much additional product assistance in the protection pipeline that is soon to appear in a theatre near you. In the very near future I would expect to see a number of approaches that will provide better access to some of these potential sales.
Currently in varying stages of development :
- Enhanced underwritten single premium immediate annuities which provide guaranteed additional income to those most in need at the point of claim. The more serious the impairment, the greater the payout.
- A new generation of accelerated death benefit “life riders” which, if filed through the IIPRC, may elect to no longer require a permanent disability and some will offer reduced underwriting.
- A number of new and exciting whole life , UL and IUL plus chronic illness present value alternatives with reduced underwriting are also in development.
- New multi-life opportunities are also in development incorporating modified guarantee issue levels of enrollment.
The truth is the market is huge, growing and anxiously waiting for relief. Placing the ADB rider risk subordinate to a primary life risk utilizing a combo strategy structurally reduces the cost of the chronic illness portion and can, based on pricing, also reduce underwriting. The market for smaller (less than 365 day benefits) policy sales based on underwriting concessions will also continue to attract converts. “Actively at work” underwriting concessions will continue to emerge in the group supplemental benefit realm. I therefore invite you to return to your roots, remember your origins, have some fun again providing help where none appeared to be available, and let’s kick this magical, old fashioned brokerage can on down the road again.
Other than that I have no opinion on the subject.
