The Current State of the Long-Term Care Insurance Market
Presented to
14th Annual Intercompany Long-Term Care Insurance Conference
by
Marc A
M
A. C
Cohen,
h Ph
Ph.D.
D
LifePlans, Inc.
Rosen Centre
Orlando, Florida
March
h 16-19th
h 2014
Presentation Topics
• Current overview of U.S. LTC Insurance Market
• Profile of Individuals Purchasing Policies
• Product Evolution
• Public Policy
• Claims Experience
• Market exit amongg Carriers and Implications
p
• Challenges and Opportunities
2
Growth in National LTC Expenditures (billions)
$250
$206
$200
65% Growth
$150
$125
69% Growth
$100
$74
$50
$0
1991
2000
2011
3
Changes in Long-Term Care Financing Sources 1991-2011:
Growth
G
owt in Public
Pub c & Private
P vate Financing
F a c g
80%
67%
70%
60%
59%
57%
50%
40%
33%
36%
30%
22%
20%
12%
7%
10%
3%
0%
Medicaid and Medicare
Out-of-Pocket
1991
2000
Private
2011
Source: SCAN Foundation, 2013; Avalere, 2007, Health Care Financing Administration, Office of the
Actuary, Data from the Office of National Health Statistics in Health Care Financing Review, Fall 1994
4
Current LTC Insurance Industry Parameters (2012)
•
Individual market
– Roughly 5.0 – 5.5 million individual policies in force.
– Total annualized in-force p
premium of over $9.5 billion.
– Fewer than 20 companies still active in market
– Annual sales in 2010 were 65% lower than in 2000.
– Sales have been flat for last three years with about 250,000 policies added
each year
•
Group Market
– About 2.0 – 2.5 million certificates in force.
– Total premium of greater than $1.7 billion.
– Slightly more than 11,000 employer groups sponsoring coverage
– Less than 8 insurers actively selling in the group market
– Over the last three years, roughly 150,000 certificates per year have been sold
5
Number of insured Lives has been relatively flat since 2005
8,000
6,995 6,894
7,000
7,186
7,030 7,115 7,033
7,263 7,357
6,404
6,053
6,000
5,612
5,179
4,793
5 000
5,000
4,497
4,130
4,000
3,697
3,338
2 946
2,946
3,000
2,000
3,202
2,601
1,704
1,000
0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: NAIC LTC Experience Reports
6
Annual Sales of Individual LTC Insurance
Policies have been declining since 2002
800
754
698
609 600
600
509
500
400
200
420
380
362
332
300 306 283
221
253 249
254
172
0
1990 1992 1994 1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Note: LifePlans analysis based on AHIP, LIMRA and LifePlans sales surveys, 1990-2013.
Beginning in 2009, LTC Partners data for annuitants included in counts
7
Group sales represent 35% to 45% of total sales
between 2005-2012 (thousands)
600
528
500
527
493
484
445
400
438
397
395
332
300
200
300
306
283
221
196
100
2005
176
2007
2008
I di id l
Individual
249
192
189
221
210
184
2006
254
253
2009
G
Group
141
2010
2011
2012
T t l
Total
Note: Estimates based on AHIP, LIMRA and LifePlans sales data and analysis. Beginning in
2009, LTC Partners data for annuitants included in counts
8
Combination products are growing in the market (policies in force)
300 000
300,000
246,700
228,645
212,807
200,422
200,000
236,000
219 040
219,040
191,227
100,000
72 736
72,736
0
2009
2010
2011
2012
Individual Life and Annuity products with accelerated LTC
Group Certificates for Life and Annuity Products with Accelerated LTC Benefits
Sources: NAIC, 2013, 2012, 2011.
Note: The 2012 data is based on 30 companies reporting and no group certificate data provided.
Group certificates for 2013 is estimate based on trending. Data unreported in NAIC 2013 report.
9
In-force Premiums by product type (billions):
There remains a great deal of opportunity in the market
$120.0
$106.3
$90.0
$60.0
$28.2
$30.0
$11.3
$13.6
$4.7
$0.0
LTC Insurance
Combined
Short-Term
and LongTerm Disability
Individual
Disability
Insurance
$0 3
$0.3
Critical Illness Individual Life
Insurance
Group Life
Insurance
Sources: NAIC, 2013, Gen Re, 2013
Note: Premium from combination products not included. In 2011 represented $2.2 billion of new
premium
i
(G
(Geneva Association
A
i i Four
F
Pillars
Pill Newsletter,
N l
No.
N 51,
51 September
S
b 2012
10
Private LTC insurance has modest penetration of
population with incomes over $20,000
20%
16%
15%
10%
8%
5%
5%
0%
Age 45+
Age 45 to 64
Age 65+
Source: LTC Financing Strategy Group, 2008
11
CHARACTERISTICS OF
PRODUCTS AND PURCHASERS
12
Stand-alone policies have become more comprehensive,
greater benefits, and average premiums are increasing
Policy Characteristics
Average
for 2010
Average
for 2005
Average for
2000
Average
for 1995
Average for
1990
2%
92%
6%
3%
90%
7%
14%
77%
9%
33%
61%
6%
63%
37%
---
Daily Benefit Amount for NH
Care
$154
$142
$109
$85
$72
Daily Benefit Amount for Home
Care
$153
$135
$106
$78
$36
Nursing Home Only Elimination
Period
86 days
80 days
65 days
59 days
20 days
Integrated Policy Elimination
Period
89 days
81 days
47 days
46 days
--------
Nursing Home Benefit Duration
4.8 years
5.4 years
5.5 years
5.1 years
5.6 years
92%
76%
41%
33%
40%
$2,268
$1,918
$1,677
$1,505
$1,071
Policy Type
Nursing
g Home Onlyy
Nursing Home & Home Care
Home Care Only
Percent Choosing Inflation
Protection
Annual Premium
Source: AHIP, 2011
13
Across all ages premiums are rising, but largest
increase is at younger ages
$3,949
$4,000
$3,294
$2,759
$3,000
$2,255
$2 000
$2,000
$1,000
$2,003
$1,877
$1,213
$919
$2,604
$2,581
$2,341
$1,829
$2,146
$1,528
$1,487
$1,177
$0
Age 55-64
Age 65 to 69
2010
2005
Age 70 to 74
2000
Age 75+
1995
Note: Between 1995 to 2000 increase in premiums due primarily to increase in policy benefits. Between 2000 –
2010, increase in premiums due to true up of pricing assumptions and move toward greater rate stability
Premium increase 1995-2010: Age 55-64: 145% Age 75+ 84%.
Source: AHIP 2011
14
Younger, wealthier and employed individuals are buying policies
Characteristic
2010
2005
2000
1995
1990
59 years
61 years
65 years
69 years
68 years
% 70
%>
8%
16%
40%
49%
42%
% Married
69%
73%
70%
62%
68%
Median Income
% > $50,000
$87,500
77%
$62,500
71%
$42,500
42%
$30,000
20%
$27,000
21%
Median Assets
% > $75,000
$325,000 $275,000
82%
83%
$225,000
77%
$87,500
49%
N.A.
53%
Average Age
% College Educated
71%
61%
47%
36%
33%
% Employed
69%
71%
35%
23%
15%
Source: AHIP, 2011
15
The share of LTC sales to the middle market age 40-69 is declining
75%
55%
50%
41%
42%
36%
25%
17%
9%
0%
Middle Income
Low Income
1995
Upper Income
2010
Note: Low income <33% of income distribution; Middle income = 33% - 66%; Higher income = >66%
Source: LifePlans analysis of AHIP Buyer Data, 2011
16
Most people buy policies to maintain lifestyle and
p
and not jjust to p
protect assets ((2010))
consumption
40%
33%
30%
20%
18%
13%
18%
17%
10%
0%
Avoid
Dependence
Source: AHIP, 2011
Protect
Assets/Leave
an Estate
Guarantee Protect Living One of Other
Affordability
Standards
Reasons
17
Most people choose not to buy policies because they
are viewed as too costly (2010)
75%
61%
50%
25%
18%
20%
13%
0%
Don't Believe
Insurers
Source: AHIP, 2011
Hard to Choose
Policy
Too Costly
Waiting for Better
Policy
18
There has been targeted public support for the
private market
•
HIPAA Tax qualification status
 Deductibility of premiums for itemizers
 Few p
people
p benefit because of 7.5% AGI threshold
•
Partnership Programs
 Purchasers of LTCI can access Medicaid without having to spend-down
assets
 45 states participate
 Little knowledge of the program: <25% of random sample age 50 and over
knew about program
 45% indicated
i di
d they
h would
ld be
b more likely
lik l to purchase
h LTCI if state h
had
da
Partnership Program
•
Manyy states have tax incentives for purchase
p
of LTCI
 Benefits too small to make much of a difference
•
Some potential off-sets due to some level of Medicaid crowd-out
19
CLAIMS EXPERIENCE
20
Most LTC claimants are well served by companies
when it comes to claims payments
•
By 2012 $78 billion in incurred claims and annual incurred claims approaching
$8 billion .
•
Data suggests that roughly 95% of all claims are paid.
paid
•
Of people receiving claims payments, 94% had no disagreement with the
insurer and 3% had a disagreement that was resolved satisfactorily.
•
Vast majority of claimants indicate that policy benefits met their care needs;
90% felt their policy provided flexibility in service choice.
•
The iinsurance covers a significant
Th
i ifi
percentage off the
h daily
d il costs off care -(between 72% and 98%).
•
Half of claimants felt that in the absence of their policy, they would have to
seekk institutional
i i i l care or would
ld not be
b able
bl to afford
ff d service
i levels.
l l
•
Most people have no disagreement with their company at claim time (94%),
and the majority (77%) do not find it difficult to file a claim (77%) .
Source: U.S. Department of Health and Human Services, 2010
21
Proportion of claimants who say that the
LTC b
benefit
fi iis meeting
i their
h i care needs
d
100%
98%
98%
86%
75%
New Claimants
Home Care
Nursing home claimants
Assisted living claimants
Note: Almost all issues mentioned relate to service p
provision and not insurance
benefits.
22
Claims experience is deteriorating in recent years:
Industry Actual to Expected Annual Incurred Claims, 2009-2012
120%
116%
112%
111%
110%
2009
2010
2011
90%
60%
30%
0%
Source: NAIC Experience Reports, 2012
2012
23
RECENT TRENDS AND
OPPORTUNITIES
24
Roughly 20 companies are still selling a meaningful numbers of policies; in
2002, AHIP reported 102 companies selling policies
Currently
y Selling
g
Closed Blocks
Auto-owners Insurance Group
Genworth Life Insurance Company/ Genworth Life
Insurance Company of NY
John Hancock (Individual Policies)
Bankers Life & Casualty Company
Transamerica Life Insurance Company
Country
Life Secure
State Farm Mutual Auto Insurance Company
New York Life Insurance Company
Northwestern Long Term Care Insurance Company
Mutual of Omaha Insurance Company
Massachusetts Mutual Life Insurance Company
Medamerica Insurance Company/ Medamerica
Insurance Company of NY
K i ht off C
Knights
Columbus
l b
Thrivent Financial For Lutherans
United Security
Lincoln Financial Group
State Life
United SPDA/LTC
Unum Life Insurance Company of America
First Unum Life Insurance Company
Metropolitan Life Insurance Company
John Hancock Group
Metlife Insurance Company of CT
Continental Casualty Company
Prudential Insurance Company of America
RiverSource Life Insurance Company
Allianz Life Insurance Company of North America
Senior Health Insurance Company of PA
Penn Treaty
Aetna Life Insurance Company
Lincoln Benefit Life Company
Union Security Insurance Company
Time Insurance Company
Abilit IInsurance C
Ability
Company
United Teacher Assoc Insurance Company
American Family Life Assurance Company of Colorado
Monumental Life Insurance Company
Kanawha Insurance Company
CUNA Mutual Insurance Society
Physicians Mutual Insurance Company
Provident Life & Accident Insurance Company
WEA Insurance Corp
Guarantee Trust Life Insurance Company
Southern Farm Bureau Life Insurance Company WEA
Insurance group is still marketing a small number of
Partnership policies.
25
Most policies are now administered by companies no
longer in the market and these companies have less
f
favorable
bl claims
l i
experience
i
125%
115%
93%
100%
75%
55%
50%
45%
53%
47%
55%
45%
25%
0%
% off
Policyholders
% off Annual
A
l
Claims
Companies no longer selling policies
Cumulative
C
l ti % off
A t l to
Actual
t
Industry Earned Expected Incurred
Premiums
Claims (2009)
Companies still selling policies
Source: Analysis of 2009 and 2010 NAIC Experience Exhibit Reports
26
Trends in factors affecting profitability have been very
unfavorable throughout the decade
• Since 2000, all major determinants of premium and
product p
p
profitabilityy have been ggoingg in the wrongg
direction:




interest rates are significantly lower than what was priced for,
voluntary lapse rates are lower than for any other insurance product,
morbidity is somewhat worse than expected and
mortality is actually improving.
• For these reasons, the prior decade saw a major
exodus
d off companies
i from
f
the
h market,
k as returns on
the product have been significantly below expectation.
27
Pricing LTC Insurance.......
28
Distribution Challenges Persist
•
The number of agents selling LTC has declined and there are fewer specialists
•
Th agent force
The
f
is
i aging
i
•
Little succession planning evident
•
Consumers purchase products differently today and rely more on the internet
•
Higher commissions did not appear to draw enough new agents into the
market to effectively increase overall market size significantly over the past
decade.
•
Fewer than 10,000 agents actually sell the product and it is very unlikely that
they will be able to reach the more than 155 million people in the labor force.
29
Single most Important Reasons that the Company left the
Market: Capital Requirements and Not Hitting Profit Objectives
Product performance - not hitting profit objects
15%
New senior management not interested in
product
19%
New evaluation/assessment of the risk involved
with
ith the
th product
d t and
d staying
t i in
i the
th market
k t
Distribution issues
12%
23%
Lack of confidence in ability to manage risk
Could not get reinsurance or partner with whom
to share risk
12%
4%
8%
4%
4%
Concern about
C
b t ability
bilit to
t gett rate
t increases
i
if
necessary
Capital requirements
Other
Source: DHHS, 2013
30
Circumstances under which Company
would consider re-entering Market
50%
46%
46%
45%
40%
36%
35%
32%
32%
30%
25%
20%
14%
15%
10%
5%
0%
Regulatory
changes
Changes to Changes to Changes in
distribution the structure consumer
of the product attitudes
Changes in
public policy
(tax policy)
Other
Source: DHHS, 2013
31
Most companies indicate they are very
unlikely to return to the market
8%
High (>75% chance)
12%
36%
M di
Medium
(50%
(50%-74%)
74%)
4%
Low (25% to 49%)
Very low (<25%)
Not going to happen
40%
Source: DHHS, 2013
32
Key Demand and Supply Issues
Demand: Consumer
• Lackk off information/shrouded
i f
i /h d d
attributes
• Misperceptions about need,
costs, and coverage
• Myopia
Supply: Insurer
• Adverse selection
g sellingg costs
• High
• Inefficient risk-bearing:
common shocks
• Consumer confusion/product
complexity
• Mistrust of industry/contracts
Source: Scan Foundation, 2013
33
Key Demand and Supply Solutions
Demand/Consumer-related
•
Si lif /
Simplify/standardize
d di products
d
•
Index premiums
•
Educational campaign and warnings
•
Expanded employer role
•
Mandated availability
•
Smart opt-out/ forced-choice
•
Targeted subsidy
Source: Scan Foundation, 2013
Supply/Insurer-related
•
Reinsurance pool
•
Expanded
p
employer
p y role
•
Joint marketing with health
insurance
34
Prospects for the Market and Need for “Re-Set” market
•
There needs to be a market re-set because:
 Current strategies have not worked well in assuring broad consumer appeal and insurer
enthusiasm
 Continued demographic trends, budget deficits and improved mortality mean the demand
for long-term services and supports will only grow in the future putting at risks families and
elders
 Needd to b
be outward
d llooking
ki focus
f
on product
d and
d distribution
di ib i partnerships
hi with
i h public
bli
payers, providers, health plans, etc.
•
LTC Carriers have amassed a wealth of experience, knowledge and expertise
and
d are wellll positioned
i i d to workk with
i h new and
d existing
i i partners to ddevelop
l
more successful strategies
•
public sector support
pp focused on spurring
p
g
There remains a critical role for p
demand and supply.
• LTC insurance has an important role but not likely the critical role
•
Need to think through new models of public-private mechanisms to
maximize the number of insured Americans
35