The long term care insurance (LTCI) industry is in a state of decline, right? Just look at sales of traditional LTCI products. They are continuing to decline at a steady pace. Estimates are that stand-alone LTCI sales in 2014 will have ended around $300 million, approximately 70 percent lower than the peak of $1 billion in 2002. But sales of traditional LTCI are only part of the industry picture.
Let’s back up a second. Carriers know the same facts you know. Less than 10 percent of seniors have some LTCI protection, government programs are strained and not a solution, and most of the nation’s wealth sits in the hands of baby boomers and seniors, the very folks who are closest to needing long term care services. So carriers do see a tremendous market in providing LTCI protection for the benefit of their clients and agents. They simply have needed to find ways to participate in the LTCI industry with products that are properly priced and sustainable, have market appeal, and meet reasonable profit expectations. And they have been doing just that.
You have all heard about “linked benefit” or “hybrid” products that include the need for long term care services as a benefit trigger. The concept of enabling access to claim dollars for more than one reason is not new, but it is certainly the tool being utilized by carriers to expand their product lines and participate in the LTCI industry. Let me frame this product evolution more broadly.
Most insurance policies are single risk focused, designed to cover the risk of only one unexpected adverse event occurring. Traditional LTCI has been in this category for decades. However, the decade-long decline of traditional LTCI sales has sparked the expanded use of a very simple product concept. What if we make the pool of dollars available to our client if more than one adverse event occurs? What if we cover more than one risk in a single policy?
Here is my new term for this type of policy that enables claim dollar access for multiple reasons: the M-TIP.
M-TIP is a Multiple Trigger Insurance Policy. Get access to the claim benefit pool if more than one bad thing happens. This is the new trend in insurance policy design and has redefined, some say revolutionized, the new, real LTCI industry. The need for long term care services has become one of the main additional triggers being added to other core, formerly singular-need focused policies.
We can find M-TIPs with a long term care trigger in many different forms today. You can find life/LTCI, annuity/LTCI, CI/LTCI, and soon likely other health-based products offering claim access for long term care services. Most products are built on an individual chassis, but some are also offered on a true group product platform. The true group products provide underwriting concessions, including guaranteed issue. There are now several carriers participating in the real LTCI industry through the use of M-TIPs. The advent of this product development trend is having significant consequences to participants in the LTCI industry. Here’s why.
The traditional tax qualified LTCI products created a very standardized, single product solution LTCI industry. Those days of standardization are now gone. The new, real LTCI industry is far from standardized. There are so many different M-TIP product variations with a long term care trigger on the market today, and more will be coming. Carriers see this product development trend as a growth opportunity and a way to differentiate themselves as they seek competitive advantage.
What about long term care risk management tools that are solutions with no long term care insurance component, like life settlements that create specified long term care benefit plans, or even the use of reverse mortgages? Immediate annuities that help create an income stream for someone who already needs care now? Are these alternative product solutions part of the new LTCI industry? Many argue they are, since they help clients and their families manage the costs of long term care services.
So what does an LTCI industry that is no longer standardized mean to agents, brokers, agencies and distributors? It means a few things. First, when someone seeks long term care protection there are many risk management options available, only one of which is traditional LTCI. Second, to properly help a client and family plan for future or even current long term care needs, you need to be knowledgeable about all of the various long term care risk management tools available. Third, there is tremendous opportunity for those who wish to be long term care planning specialists.
Not everyone will want to become truly well versed and able to deliver all of the product solutions available in the real, now non-standardized LTCI industry. Lack of standardization in an industry keeps compensation levels high. Also, diversity of risk management solutions demands that professionals learn all of those solutions to properly advise their clients. Those who choose to be long term care planning experts, as compared to LTCI-only experts, will be rewarded well into the future.
The truth is that the real LTCI industry is expanding at a rapid pace through innovative product development that is insurance and non-insurance based. Here are some questions you may want to ask yourself: Am I an LTCI expert or a long term care planning expert? What should my role be in the real LTCI industry? How can I best run my business to properly advise my customers regarding long term care risk management and planning?
