The jury has returned a verdict on production results for 2013. For those of us defending one’s right to protect himself and his family against the devastation of an extended caregiving event, the final decision is a little disheartening. We will just have to meet the news head-on and guess as to its etiology. “2013 marks the largest fall in annual premium since LIMRA began tracking individual LTCI sales in 1989.”
A 30 percent decline now brings our five-year compound growth rate to a negative 8 percent. Production is still bunched up at the top, with more than three-fourths of sales coming from the top five writers. Close to five million policies remain in force, with no change in very low lapse rates. Maybe this is a good place to start our speculation. We know that what is sold is really sold and will remain in place unless, of course, the government steps in and picks up the tab, which is as likely as pigs flying in pink tutus. We know that every sale, regardless of size, duration, open or closed block, or carrier commitment is a good and solid sale. We know that regardless of carrier intransigence causing rate increases, benefit abandonments, restricted distribution, reduced commissions and extreme underwriting rigidity, every sale is a wonderful and worthwhile sale.
Interestingly, worksite sales only experienced a small decline although average premiums did decline. This is particularly interesting in light of the fact that we have very few product choices left and meaningful underwriting concessions are vanishing before our eyes. Just for the record I would like once again to explain that much of the solution for insuring the “mass middle” market is at the worksite. Either we will succeed with product and employer-sponsored enrollments of our own design, or the government will simply increase payroll taxes and do the job for us. Although there may have been some problems with true group guarantee issue business, I have seen no evidence that multi-life was not a successful approach. It was difficult and administratively stressful. The majority of LTCI sales still originate from life companies, and the strains of additions and deletions with ever-changing list bills is problematic for those truly unaccustomed to walking and chewing bubble gum at the same time. The multi-life approach must return, and I would strongly recommend that unless you are owned by a health company, you should seek outside TPA assistance.
Commenting on a persistently bad economy is too easy of a target. However, extremely low interest rates, high unemployment and a black hole of discretionary income might have something to do with a reluctance to step up and leverage excess risk. As long as the lie persists that buying a policy is optional for consumers and selling a policy is optional for agents, I do not expect sales to improve dramatically. It is also a little too obvious to suggest that the Affordable Care Act may have become something of a distraction for consumers and producers alike. While we are on the subject of economic philosophy, I don’t believe anyone would suggest that scarcity of product reduces the cost of that commodity. Price does matter. A parade of seemingly endless rate increases and new product introductions, regardless of how justified, is frightening all concerned.
I choose to believe that our shrinking universe of committed carriers has stabilized, that those courageous companies that remain will be able to price adequately, and that increasingly restrictive underwriting practices will return confidence and longevity to the market. I would be remiss, however, if I did not point out the obvious. In addition to the unavoidable perception of pricing instability, last year’s onslaught of sex-distinct rates and full underwriting requirements, coupled with dramatically expanded cognitive screenings, may have seriously contributed to a precipitous decline in new sales in 2013.
Self-inflicted wounds should be the most illustrative. If we are going to learn anything from our mistakes, it might be the notion that imposing a structured reduction in new business often takes on a life of its own. In other words, be careful what you wish for—this time we all took a hit!
Other than that I have no opinion on the subject.
