Up The Creek Without A Paddle: Working With Clients Experiencing In Force Rate Actions

It was the Spring of 2006 and I was participating in a senior sales leader meeting in Richmond, VA, when the president of Genworth’s long term care division announced that we would be raising rates…and the world paused ever so slightly. The room was silent but for the clicking of the wall clock that nobody had ever paid attention to while meeting in that room. For 33 years our agents had enjoyed the privilege of proclaiming to their prospects, strategic partners, as well as their clients, that our policyholders had never suffered the indignity of a rate increase. It was a minute or two before any of us could find our voices, and when we did, as I recall, it was fear and gibberish that we spouted. That was then.

As of today, my wife and I have experienced three rate increases, the last of which was large enough that the State of Illinois required that it be phased in over three years, which ultimately means that we have now endured five rate increases. How do I feel about that as a policyholder? Well, while the check I stroke for the annual premium is now of a size that I seriously must consider the account on which it is drafted, I nonetheless know that it is still a bargain! But how does the average client who is not “in the business” react? Anger? Frustration? Fear? In most cases, the answer would probably be along the lines of d) all of the above.

Some of us know first-hand about this range of emotions, because it was such a conversation with a pair of 80-year-old policyholders (not clients of mine) that I just concluded that prompted me to pen this article. Many of us are working with our own clients while others may be working with Unassigned (“Orphan”) clients as we deal with the specter of the in-force rate action. In any event, our role at this point is to assist the policyholder to once again make an informed decision on what to do now that they have received notice of an upcoming rate action and to avoid the knee-jerk reaction of cancellation or non-forfeiture.

You can also get ahead of the power curve and soften the blow by staying in contact with your clients, by offering policy reviews, or calling them anytime you receive a piece of correspondence such as an address change, lapse protection, etc.

As the Agent of Record or newly appointed Servicing Agent, it is your responsibility to position this increase in as positive a light as possible, and remind the client exactly what the implications are to them if they even for a second consider not retaining the policy in full force and effect.

It is All About Value

  • Review with them the reasons why they previously purchased this policy. If they are your client, pull out the notes or fact finder that you [hopefully] have retained. In any event, ask open ended questions that address:
    • Family history of required care.
    • Their own personal history of caregiving.
    • Peace of Mind.
  • Do your homework, and verify the following:
    • Current cost of care in their area—having these numbers available can often be critical in evaluating the appropriateness of the plan design.
    • Current value of their plan—daily/monthly benefit, pool of benefits.
    • Current cost of a like policy purchased today at attained age and with commensurate benefit levels.
    • Review just how much they have invested in the plan to date and show them how they have leveraged their money better than other investments.
  • Remind them of the benefits and value that they have already accrued:
    • Survivorship—they may be sitting on a plan that will be paid up with the passing of the first spouse to die.
    • Pool of benefits—how large has it grown?
    • No HHC elimination period.
    • Home modification and equipment.
    • Other benefits that may no longer exist, e.g. no claims offset.
  • Another thought is to add up the premiums they have paid and give them the breakeven analysis. For example, “You have invested $30,000 in premiums and you will break even in five months if you had a claim today at $6,000 per month in long term care costs and benefits paid to you.

Pivot Points for When Premium is an Issue

  • Benefit Multiplier—dropping from Unlimited/Lifetime to a set benefit period. For someone who was in their 60s when they bought an unlimited plan, who now finds themselves in their 80s, this may be a natural pivot point.
  • Daily/Monthly Benefit—reducing from a catastrophic nursing home scenario to a more modest plan that addresses the costs associated with home health care and/or an assisted living facility may allow you to preserve the plan.
  • Inflation Protection—Using the same logic, reducing the inflation protection from five percent to three percent, or even to zero if they are older and the plan has grown accordingly, may soften the blow and even eliminate the rate increase for them.
  • Modal Premium—softening the blow; shifting from annual to semi-annual much like they pay their real estate taxes and potentially other large ticket items. Monthly because it is an “out of sight out of mind” EFT. Avoid quarterly payments because the bill will be a constant source of irritation and present them with the necessity to make this decision no less than four times annually.

Tools for Reconstructing Need

  • Risk—compare and contrast the risk of long term care to the other major risks that they do insure against such as their home, auto, health, and life. They would no sooner drop any of these coverages, so why would they drop the coverage on the greatest risk that we all face?
  • Interest on Saving (IOS)—show them how to let their portfolio protect itself. LTCI is designed to protect lifestyle both in terms of assets and income. Utilizing some of the income from their interest on savings or return on investments is a great way to help them discover an alternative source of paying for this coverage, especially if they have retired in the interim and/or are now living on a fixed income with little to no discretionary income leftover at the end of the month.
  • Open-ended questions that reveal their primary motivation for previously purchasing coverage. Was it their role as a caregiver, writing the checks that paid for a loved one’s care, or merely visiting someone in a facility?
  • Suzy Orman’s book You’ve Earned It, Don’t Lose It: Mistakes you can’t afford to make is a great third party authority with which they may be familiar.

Objection Handlers to Cost

  • What commodity or insurance that you purchase regularly has not gone up in price? What did a gallon of gasoline or milk cost you when you bought it years ago? What did your first house cost compared to the most recent car you purchased?
  • What are you currently earning on your Money Market or Certificate of Deposit? Far less than in years past. For this reason, insurance companies can no longer afford to pay you five percent compound on these policies. Three percent is the new five percent.
  • Insurance companies are in the business of making money by managing risk much in the same manner as we are doing by placing the insurance in place. We all hope to go through life without filing a claim for a lost home or car, but when we need to file such a claim we are relieved to have this coverage in place. LTCI is no different. We buy it, hope we don’t need it, but with the odds being what they are—90 percent for a couple, 79 percent for a single woman—clearly, we will likely file a claim.
  • How well could they handle writing a check for $5000-$12,000 each month before it would really hurt?
  • If the annual premium for both is less than the monthly benefit for one of them, this is a no brainer. This is the optimum in plan design.

For the record, if we were to purchase our long term care policy today, with all the same bells and whistles with the current available benefit level at our attained ages, the price tag would be in excess of $28,000 per year for the two of us. Given that our benefit pool has grown to nearly $1million over the years, and we could each enjoy a monthly benefit of just shy of $10,000, it would still be a good deal in terms of leveraging our investment dollars. At $3,800 annually it is an absolute bargain. At tax time, the ancillary tax relief is also a positive, but best of all is the gratitude that my wife expresses to me for the decision we made over twenty years ago when we hear about any one of our friends or acquaintances who suddenly finds themselves at the base of long term care crisis creek without the proverbial paddle, much less a canoe to ride in.

Whether you are conducting this conversation face-to-face or remotely, it may be helpful to have the children of the policyholder present when you are reaffirming the value of the policy as an asset to the family, and may also allow you to garner referrals to in turn insure the children with LTCI! They made a great decision years ago to protect themselves, their families, finances, and their peace of mind; our job today is to help them reaffirm this decision.

Don Levin, JD, MPA, CLF, CSA, LTCP, CLTC, is chairman of the board of the National Long Term Care Network and the managing general agent of PNW Insurance Services, a national brokerage which offers long term care insurance, short term recovery care, life insurance and annuities to the general public across the country. The long term care planning specialists and staff of PNWIS are proud to offer comprehensive individualized planning solutions to their clients while also working through a strategic alliance of financial planners, estate planning and elder law attorneys, CPAs, and other businesses and organizations.

Levin has been in the long term care industry since 1999, during which time he has been an award-winning agent, district manager, regional sales manager, marketing director, associate general agent, general agent, and divisional vice president. Levin is also a former practicing Attorney-at-Law, court-appointed arbitrator and is a retired U.S. Army officer.

In addition to his various law and life and health insurance licenses, and the above designations, Levin has also earned Green Belt certification through GE’s Six Sigma program, and is a graduate of GAMA International’s Essentials of Leadership and Management. He has also taught Managing Goal Achievement®, Integrity Selling® and The Way to Wealth® to hundreds of leaders and salespeople over the past fifteen years. He previously possessed FINRA Series 7, 24, and 66 licenses.

Levin earned his Juris Doctor from The John Marshall Law School, his MPA, from the University of Oklahoma, and his BA from the University of Illinois-Chicago. He is also a graduate of the U.S. Army Command and General Staff College and the Defense Strategy Course, U.S. Army War College.

He is a published author of nine books in a wide range of genre.

Levin may be reached via telephone at (509) 348-0206. Email: dlevin@pnwis.com.