After years of being battered by low consumer demand, higher-than-expected claims, and low interest rates (which slash investment returns on premiums), the long-term care insurance industry may be peaking its head above the financial foxhole.
Make no mistake, the prospects for the sale of traditional individual long-term care (LTC) insurance policies remain bleak. Last year, the entire industry sold only about 100,000 of these policies, a stunningly low number at a time when more than 8,000 Americans turn 65 each day. Yet, for the first time in years, industry execs are talking about new products. A few firms are even returning to the market.
At the industry’s annual conference last week, the mood was surprisingly upbeat– though it was hard to miss the gallows humor. One veteran industry observer looked at the surprisingly large crowd and wondered if perhaps it included everyone who purchased a long-term care insurance policy last year.
For insurance companies, aging baby boomers remain an enormous opportunity and a painful tease. On one hand, they are a mouth-watering market of 77 million. Yet, the window for them to buy traditional LTC insurance is rapidly closing.
High premiums and low value
Broadly, the industry continues to struggle to overcome two huge consumer concerns: high premiums and low perceived value, especially for those who may never claim benefits.
Carriers are trying to address these challenges in several ways:
In an effort to hold down premiums, they are finding ways to limit benefits. Most carriers now sell short-term care policies—insurance that pays perhaps $50-a-day for six months or a year. And they are scaling back inflation protection, urging customers to consider 2 or 3 percent annual benefit increases instead of 5 percent.
At least one carrier is looking to bring back lifetime coverage, a product long-since abandoned by the industry because of its huge risk to insurers and consequent high cost to consumers. But it is targeting middle-market buyers with a limited daily benefit of perhaps $50. Curiously, this product looks a lot like the CLASS Act, the ill-fated 2010 public insurance program the industry strongly opposed.
Insurance companies are also showing renewed interest in group insurance, another product they largely abandoned in recent years. One hope: By encouraging employers to make long-term care insurance part of a standard employee benefit package, they may attract younger buyers for whom annual premiums would be relatively low.
What about creating products where customers can get something back if they die without needing long-term care? Here too, carriers are experimenting. For instance, many offer return-of-premium riders where, for an extra cost, your heirs get your payments back if you die before tapping benefits.
Combo Products
For the past half-dozen years, insurers increasingly have been selling combination products that add an LTC rider to an annuity or whole life insurance policy. With these policies, if you become eligible for the long-term care benefits, you receive additional payments during your life. If not, you still get your regular monthly annuity payments or full death benefit.
In 2015, for the first time, carriers sold about as many of these “combo” products as traditional LTC insurance. Until now, most have been designed as a single-premium—one big upfront payment. But in an effort to attract more middle-income buyers, some carriers are letting consumers spread payments over time.
Combo products remain controversial. Some carriers worry that the potential market is too small. Some consumer advocates argue that combining annuities with LTC insurance creates high-fee products that are too complicated.
Industry execs also expressed interest in the idea of a new public catastrophic insurance program, an idea proposed by several groups in recent months. By covering true catastrophic risk, such a program could create a better environment for private insurers to sell shorter-term policies.
The state of the industry remains precarious. But for the first time in several years, executives were looking to the future with something more than gloom.