Long-term Care Insurance:

A Product and Industry in Transition

Presented to
NAIC Senior Issues Task Force

by
Marc A. Cohen, Ph.D.
LifePlans, Inc.
Gaylord Convention Center in National Harbor, Maryland
November 28, 2012

Presentation Topics
Current overview of U.S. LTC Insurance Market

Profile of Individuals Purchasing Policies

Product Evolution
Market exit among Carriers and Implications

Current LTC Insurance Industry Parameters

Individual market

Roughly 5-6 million individual policies in force.

Total annualized in-force premium of over $8 billion.
Roughly one dozen companies still active in market
Annual sales in 2010 were 65% lower than in 2000.
Between 2009 and 2011 average annual growth was positive at 6%
Group Market

Between 2.2 and 2.6 million certificates in force.

Total premium of greater than $2.0 billion.

Compound annual sales growth rate between 2005 and 2010 is +5%
Slightly more than 11,000 employer groups sponsoring coverage
Less than 8 insurers actively selling in the group market
3

Number of Insured Lives has been relatively flat since 2005

8,000
6,995
7,000

6,894

7,030

7,115 7,157

7,263

6,404
6,053
6,000

5,612

Thousands

5,179
4,793

5,000

4,497
4,130
4,000

3,697
3,338

3,202

3,000

2,000

2,946
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
Year

Source: NAIC, 2011

Annual Sales of Individual LTC Insurance

Policies have been declining since 2002
800
754

698
609

600

509

500

400

600

420
380

362

332

300

306

283
220

200

253 247

0
1990 1992 1994 1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Note: LifePlans analysis based on AHIP, LIMRA and LifePlans sales surveys, 2011.

Growing proportion of sales is in the Group Market

Group market represents a growing share of sales:
In 2000:

75% Individual market

25% Group Market

In 2010:

58% Individual market

42% Group Market

Concentration in both markets: Top 10 carriers in individual

market and top 5 in group market: 95% of sales

Market penetration less than 10% of total population

16% of the age 65+ with incomes > $20,000 have
policies.

CHARACTERISTICS OF
PRODUCTS AND PURCHASERS

Great deal of product change over last 20 years

Began as nursing home insurance in 1980s but now reimburses

the costs of care in community and institutional settings:
Nursing home
Assisted Living
Home and community-based care

Access to a bank of benefits

Typically to reimburse the costs of services
Standard benefit triggers based on functional and cognitive status

Care management provided to help at claim time.

Average premiums differ by market:
Individual Market: about $189 per month (average age 59)
Group Market:
about $ 57 per month (average age 46)
8

Policies are becoming 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 Home Only
Nursing Home & Home Care
Home Care Only

Percent Choosing Inflation

Protection
Annual Premium
Source: AHIP, 2011

Across all ages premiums are rising, but largest

increase is at younger ages
$3,949

$4,000
$3,294
$2,759

$3,000

$2,000

$2,255
$1,877

$2,003

$2,581

$2,341
$1,829
$1,528

$1,487
$1,177

$1,213
$919

$1,000

$2,604

$2,146

$0
Age 55-64

Age 65 to 69

2010

2005

Age 70 to 74

2000

Age 75+

1995

Premium Increase: 1995-2010: age 55-64: 145%; age 65-69: 134%; age 70-74: 115%; age 75+: 84%
Source: AHIP, 2011

10

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%

N.A.

Source: AHIP, 2011

11

Most people buy policies to maintain lifestyle and

consumption and not just to protect assets (2010)
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

12

Incurred claims are growing more quickly than annualized premium

as the policyholder base ages and sales of new policies decline
$12,000
$11,000
$9,727

$10,000

$10,004

$8,797
$8,260
$7,665

$8,000
$6,724

$7,000

$6,350
$5,912

$5,910
Millions

$6,000

$5,155
$4,724
$3,795

$3,000

$2,388
$1,556

$5,102

$4,240

$4,187

$4,000

$2,000

$10,615

$9,321

$9,000

$5,000

$10,380

$2,765

$3,124

$3,380

$1,870

$1,000
$1999

2000

2001

2002

2003

2004

Annualized Earned Premiums ($000)

Source: NAIC, 2011

Year

2005

2006

2007

2008

2009

2010

Incurred Claims ($000)

13

Most claimants are well served by companies when it

comes to claims payments
More than $35 billion paid in claims and now >$4 billion per year
Data suggests that roughly 95% of all claims are 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 insurance covers a significant percentage of the daily costs of care -(between 72% and 98%).
Half of claimants felt that in the absence of their policy, they would have
to seek institutional care or would not be able to afford service levels.
Most people have no disagreement with their company at claim time
(94%), and the majority (77%) of do not find it difficult to file a claim
(77%) .
Source: U.S. Department of Health and Human Services, 2010

14

RECENT TRENDS:
SIGNIFICANT MARKET EXIT

AMONG MAJOR CARRIERS

15

Study of Market Exit

Purpose
To understand what are the primary reasons why companies who actively marketed
LTC insurance policies ceased selling such policies
How has the industry changed over the last 15 to 20 years in terms of key aggregate
market characteristics and performance indicators

Method
Date from the National Association of Insurance Commissioners (NAIC) Long-Term
Care Experience Reports for 2000, 2009 and 2010
Sizing the market
Key industry performance variables

Development and administration of a survey to key executives in 26 companies

Support
Funded in part by the Assistant Secretary of Planning and Evaluation Office of Aging,
Disability and Long-Term Care, Department of Health and Human Services

In-kind support from the Society of Actuaries

16

Roughly a dozen companies are still selling a meaningful numbers of policies;

in 2002, AHIP reported 102 companies selling policies
Currently Selling

Closed Blocks

Genworth Life Insurance Company/ Genworth Life

Insurance Company of NY

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
Ability Insurance 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.

John Hancock (Individual Policies)

Bankers Life & Casualty Company

Transamerica Life Insurance Company
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
Knights of Columbus
Thrivent Financial For Lutherans

17

The inability to hit profit objectives, concern about rate relief and
high capital requirements have driven companies from the market
Selected Reasons

Percent Responses
69%

18

62%

16

Capital requirements

54%

14

Reputation risk

23%

Distribution issues

23%

New regulatory requirements

19%

Unfavorable public policy

4%

Product performance - not hitting profit objectives

Concern about ability to get rate increases if necessary

Note: Table does not include all reasons given.

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Single most Important Reason that the Company left the

Market: Capital Requirements
Product performance - not hitting
profit objects

15%

New senior management not

interested in product

19%

New evaluation/assessment of
the risk involved with the product
and staying in the market
Distribution issues

12%
23%

Lack of confidence in ability to

manage risk
Could not get reinsurance or
partner with whom to share risk
Concern about ability to get rate
increases if necessary

12%

Capital requirements

4%
8%

4%

4%

Other

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Recent performance in the market also deteriorated somewhat:

In four of the last six years the actual-to-expected loss
experience has been over 100%
Individual Year Cumulative Countrywide Experience Actual Losses to Expected Losses
120%

115%

110%
105%
Percentage

105%

104%

104%

103%

103%

102%

100%

99%

100%

101%
100%

99%

97%
95%

95%

95%

95%
94%

94%

1999

2000 2001
Year

93%

90%

85%

80%
1992

1993

1994

1995

1996

1997

1998

2002

2003

2004

2005

2006

2007

2008

2009

20

Performance of companies who have exited and have

closed blocks is less favorable than those still in market
100%

92%
81%

81%

75%

68%
55%

50%

45%
29%

33%

25%

0%

% of Total
Policyholders

Actual-to-expected
Incurred Claims
(cumulative)
In-market

Standard Deviation in
Actual-to-Expected
(cumulative)

Coefficient of
Variation in Claims
per Covered Life

Closed Block

Source: LifePlans Analysis of NAIC Experience Reports, 2011

21

Most companies indicate they are very

unlikely to return to the market
8%
High (>75% chance)

12%
36%

Medium (50%-74%)

4%
Low (25% to 49%)
Very low (<25%)

Not going to happen

40%

22

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
distribution

Changes to Changes in
the structure consumer
of the product attitudes

Changes in
public policy
(tax policy)

Other

23

Selected Changes

Selected Factors Potentially Influencing the

Decision to Reenter the Market
Definitely

Maybe

No

Ability to file multiple sets of new-business premium rates the use

of which is automatically determined by an external interest-rate
index.

4%

32%

60%

The ability to file multiple sets of new-business premium rates the

use of which is automatically determined by an external interestrate index for new-business premium rates and in-force premium
rates.

4%

36%

56%

Allowing stand-alone LTC and/or combination-products to be

funded with pre-tax dollars.

8%

25%

62%

Being able to offer other combination products (for example,

disability income with LTC, or critical illness with LTC rather
than just life and annuity combination products.

4%

28%

68%

Being able to offer a Universal LTC policy design so that like

Universal Life, it would allow for premium flexibility, interest
crediting, cash values, age and/or duration adjusted insurance
charges (current and guaranteed) for LTC, and surrender
charges.

8%

20%

64%

Note: Only listed are those changes that received >25% response of Maybe or Definitely

24

Conclusions

By all measures private market is not meeting initial

expectations
Public policy and regulatory approaches should be designed to
help the industry Re-set:
Lower the cost of policies,
Allow greater product funding-flexibility,
Support new forms of combination-products,
Encourage strategies that help to minimize risks outside of the control
of companies to de-risk to lower capital requirements

Important to provide companies with more certainty around

rate relief regulatory policy
Large number of policyholders in closed blocks poses
challenges to carriers, consumers and regulators.
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