Findings and Trends in
the Long-Term Care Insurance Industry
According to information gathered by the American
Association for Long-Term Care Insurance (AALTCI) in their 2012 LTCi Sourcebook
and what occurred in 2013, the LTCi industry continues to evolve and certain
buying trends have become apparent.
We’re seeing internal rate increases for new buyers based
upon gender based pricing and claims history, rate increases for existing
policyholders, the elimination of certain benefits and features; decreases in
discounts and stricter underwriting requirements.
This was bound to happen due to the existing economic and
regulatory climate. Interest rates are
remaining low. The anticipated 5% policy lapse ratio is actually 1-1.5%.
Policyholders are holding onto their policies. They see the value in having the
coverage. The top 10 carriers paid $10.8 million in claims per day in 2011. In
order for LTCi companies to remain solvent and live up to their obligations,
change had to occur.
Last year, the change with the most impact was gender-based
pricing. Women live longer, are on claim longer, therefore they will pay more
for coverage. The premium increases have been 20% or more depending upon the
state. Several states, however, have opted not to approve this trend citing
discrimination. Lawsuits are pending.
The questions asked most often by prospective clients are
when is the right time to buy and how should the features be designed?
The average buyer’s age has changed dramatically. Twenty
years ago, the average buyer was 70 years old. Today, approximately 56.5% of
buyers are between the ages of 55 and 64; 22% are 45 to 54 and 18% are 65 and
over. It seems that more individuals are planning for LTC prior to retirement
when the premiums are lower and insurability is higher.
According to the 2012 LTCi Sourcebook, approximately 46.5%
of couples bought policies together versus 21.5% of sales for singles. Perhaps
due to cost or insurability, 32% of sales were for one spouse.
On the national level, the average daily benefit selected
was between $150-199, the average length of coverage was 3 years, and the
average elimination period was 90 to 100 days. In terms of inflation, 5%
compound was chosen more often with 3% compound as the second most popular
choice. Very few individuals purchase CPI based inflation or Future Purchase
Options.
According to a 5 year study conducted by John Hancock on
costs of care, nursing homes averaged a 3.5% increase, assisted living 3.4% and
home care 1.5%. Depending upon age,
selecting 3.5% inflation could stay in line with future costs and save premium
dollars especially if a higher daily benefit is initially selected to
compensate for the lower inflation protection.
In CNY, the average cost of nursing home care is $350 so the
selected daily benefit would be higher than the national norm. In NYS, the Partnership
plans have a minimum daily benefit of $274 for 2014 as well as mandated
coverage periods and inflation options.
The LTCi companies have gathered extensive claim statistics
over the last 35 years. According to the LTCi Sourcebook, 50% of newly opened
claims are paid for home care; 19% for assisted living and 31% for nursing home
care. 65.5% of claims start at age 80 or older; 24.1% at ages 70 to 79; and
8.4% at ages 60-69.
As far as marketing trends, we are seeing more policies with
alternative cash benefits and more hybrid policies (life insurance with LTC or
chronic illness riders)
Cash alternative benefits add flexibility at claim time. It
allows policyholders to pay for informal care from friends and neighbors who
generally cost less thereby extending the life of the policy. This feature also
takes into consideration future caregiving options.
The hybrid policies allow for the acceleration of the death
benefit to pay for LTC expenses. Those with LTC riders generally require a
single premium and two sets of underwriting. Many of the features in the LTC
rider are as robust as a standalone LTCi policy. The hybrids with chronic
illness riders are a good alternative for individuals who are uninsurable for
LTCi because only life underwriting is required. Hybrid policies are appealing
because there are no wasted premiums.
More than ever before, individuals have the ability to
tailor their LTC plan for affordability and value. Perfect policies don’t exist
but the LTCi carriers are offering more appropriate and realistic choices based
on statistical information.
Susan Suben, MS, CSA,
is President of Long Term Care Associates, Inc. and a consultant for
Canandaigua National Bank & Trust Company.
Information for this article was gathered from the AALTC 2012 Sourcebook
and ICB 2013 Webinar on LTC Trends. She can be reached at 800-422-2655 or by
email at susansuben@31greenbush.com.
