Advisory Council July 2013 Meeting Presentation: Private LTC Insurance Industry

07/19/2013

ADVISORY COUNCIL ON ALZHEIMER'S RESEARCH, CARE, AND SERVICES

Friday, July 19, 2013

 

The Current State of the Private Long-Term Care Insurance Industry

Marc A. Cohen, Ph.D.
LifePlans, Inc.

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.
    • Approximately one dozen companies still active in market
    • Annual sales in 2010 were 65% lower than in 2000.
    • Between 2009 and 2012 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
Number of Insured Lives has been relatively flat since 2005
Bar Chart: 1992 (1,704); 1993 (3,338); 1994 (3,697); 1995 (3,202); 1996 (2,601); 1997 (2,946); 1998 (4,130); 1999 (4,793); 2000 (4,497); 2001 (5,179); 2002 (5,612); 2003 (6,053); 2004 (6,404); 2005 (6,995); 2006 (6,894); 2007 (7,030); 2008 (7,115); 2009 (7,157); 2010 (7,263).
Source: NAIC, 2011

 

Annual Sales of Individual LTC Insurance Policies have been declining since 2002
Line Chart: 1990 (380); 1992 (500); 1994 (420); 1996 (609); 1998 (600); 2000 (698); 2002 (754); 2003 (509); 2004 (362); 2005 (332); 2006 (300); 2007 (306); 2008 (283); 2009 (220); 2010 (253); 2011 (247); 2012 (226).
Note: LifePlans analysis based on AHIP, LIMRA and LifePlans sales surveys, 2012.

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 innovation 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)
Policies have become more comprehensive with richer benefits
Policy Characteristics Average
for 2010
Average
for 2005
Average
for 2000
Average
for 1995
Average
for 1990
Policy Type
   Nursing Home Only 2% 3% 14% 33% 63%
   Nursing Home & Home Care 92% 90% 77% 61% 37%
   Home Care Only 6% 7% 9% 6% ---
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
Percent Choosing Inflation Protection 92% 76% 41% 33% 40%
Annual Premium $2,268 $1,918 $1,677 $1,505 $1,071
Source: AHIP, 2011.

 

As policies have become more comprehensive and actuarial assumptions “trued up”, premiums have increased
Bar Chart: Age 55-64 -- 2010 ($2,255), 2005 ($1,877), 2000 ($1,213), 1995 ($919); Age 65-69 -- 2010 ($2,759), 2005 ($2,003), 2000 ($1,487), 1995 ($1,177); Age 70-74 -- 2010 ($3,294), 2005 ($2,341), 2000 ($1,829), 1995 ($1,528); Age 75+ -- 2010 ($3,949), 2005 ($2,604), 2000 ($2,581), 1995 ($2,146).
Premium Increase: 1995-2010: age 55-64: 145%; age 65-69: 134%; age 70-74: 115%; age 75+: 84%
Source: AHIP, 2011

 

Younger, wealthier and employed individuals are buying policies
Characteristic 2010 2005 2000 1995 1990
Average Age
   %> 70
59 years
8%
61 years
16%
65 years
40%
69 years
49%
68 years
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
82%
$275,000
83%
$225,000
77%
$87,500
49%
N.A.
53%
% College Educated 71% 61% 47% 36% 33%
% Employed 69% 71% 35% 23% N.A.
Source: AHIP, 2011.

 

The share of LTC sales to the middle market age 40-69 is declining
Bar Chart: Middle Income -- 1995 (41%), 2010 (36%); Low Income -- 1995 (17%), 2010 (9%); Upper Income -- 1995 (42%), 2010 (55%).
Note: Low income <33% of income distribution; Middle income = 33% - 66%; Higher income = >66%
Source: LifePlans analysis of AHIP Buyer Data, 2011

 

Most people choose not to buy policies because they are viewed as too costly (2010)
Bar Chart: Don't Believe Insurers (18%); Hard to Choose Policy (13%); Too Costly (61%); Waiting for Better Policy (20%).
Source: AHIP, 2011

 

Most people buy policies to maintain lifestyle and consumption, not just to protect assets (2010)
Bar Chart: Avoid Dependence (18%); Protect Assets/Leave an Estate (33%); Guarantee Affordability (13%); Protect Living Standards (18%); One of Other Reasons (17%).
Source: AHIP, 2011

Public support for the private market has taken a variety of forms

  • HIPAA Tax qualification status
    • Deductibility of premiums for itemizers
    • Few people 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 they would be more likely to purchase LTCI if state had a Partnership Program
  • State Tax incentives for purchase of LTCI
    • More than half the states provide tax incentives
    • Benefits too small to make much of a difference

 

Claims Payments among LTC Insurance Companies

Recent claims performance has deteriorated somewhat: On a cumulative basis, claims are running 3% higher than expected
Line Chart: 1992 (100%); 1993 (105%); 1994 (104%); 1995 (103%); 1996 (97%); 1997 (95%); 1998 (95%); 1999 (94%); 2000 (94%); 2001 (93%); 2002 (95%); 2003 (99%); 2004 (104%); 2005 (102%); 2006 (99%); 2007 (101%); 2008 (100%); 2009 (103%).

 

Industry Actual to Expected Annual Incurred Claims, 2009-2011
Bar Chart: 2009 (112%); 2010 (111%); 2011 (112%).
Source: NAIC Experience Reports, 2012

Society of Actuary Findings on Dementias and Long-Term Care Insurance

  • “…Alzheimer’s claims continue to be most frequent, longest and most expensive, as well as trending upward”
  • Alzheimer’s claims have gone from representing 15% to 34% of total claims by count (2004)
  • Alzheimer’s claims paid-to-date are more than three times greater than the next leading cause (stroke).
Claims Experience among 8,500 Claimants within Six Years of Policy Issue (“Early Claimants”)
Bar Chart: 0-2 Years -- Dementia (16%), Non-Dementia (84%); 2-3 Years -- Dementia (23%), Non-Dementia (77%); 3-4 Years -- Dementia (25%), Non-Dementia (75%); 4-5 Years -- Dementia (28%), Non-Dementia (72%); 5-6 Years -- Dementia (30%), Non-Dementia (70%).

 

Financial Implications of Dementia Among “Early Claimants”
Bar Chart: 0-2 Years -- % of Claims Costs Attributable to Dementia Claims (32%), % of Costs Attributable to Non-Dementia Claims (68%); 2-3 Years -- % of Claims Costs Attributable to Dementia Claims (42%), % of Costs Attributable to Non-Dementia Claims (58%); 3-4 Years -- % of Claims Costs Attributable to Dementia Claims (46%), % of Costs Attributable to Non-Dementia Claims (54%); 4-5 Years -- % of Claims Costs Attributable to Dementia Claims (49%), % of Costs Attributable to Non-Dementia Claims (51%); 5-6 Years -- % of Claims Costs Attributable to Dementia Claims (52%), % of Costs Attributable to Non-Dementia Claims (48%).
Source: NAIC Experience Reports, 2012

 

Slightly less than half of new claims have dementia and most receive care in institutional settings
Bar Chart: Total New Claimants -- Distribution of Dementia Claimants by Service Setting (46%); Home Care Claimants -- Percent with Dementia by Service Setting (28%), Distribution of Dementia Claimants by Service Setting (30%); Assited Living Claimants -- Percent with Dementia by Service Setting (64%), Distribution of Dementia Claimants by Service Setting (26%); Nursing Home Claimants -- Percent with Dementia by Service Setting (63%), Distribution of Dementia Claimants by Service Setting (44%).
Note: People who are cognitively impaired are 50% less likely to transition between care settings compared to their non-cognitively impaired counterparts.
Source: ASPE, 2008

 

Mortality rates for those with dementia are almost as great as for those with 5-6 ADL limitations 21 months after initial claim
Bar Chart: <2 ADL limitations (17%); 2 ADL limitations (19%); 3-4 ADL limitations (26%); 5-6 ADL limitations (40%), Cognitively Impaired (35%).
Source: ASPE, 2008

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 do not find it difficult to file a claim (77%).

Source: U.S. Department of Health and Human Services, 2010

 

Recent Trends: Significant Market Exit among Major Carriers

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
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
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.

 

Single most Important Reasons that Companies have left the Market: Capital Requirements and Product Performance
Pie Chart: Product performance - not hitting profit objectives (19%); New senior management and interested in product (12%); New evaluation/assessment of the risk involved with the product and staying in the market (12%); Distribution issues (4%); Lack of confidence in ability to manage risk (4%); Could not get reinsurance or partner with whom to share risk (8%); Concern about ability to get rate increase if necessary (4%); Capital requirements (23%); Other (15%).

 

Most companies indicate they are not likely to return to the market
Pie Chart: High (8%); Medium (12%); Low (4%); Very low (40%); Not going to happen (36%).

 

Circumstances under which Company would consider re-entering Market
Bar Chart: Regulatory changes (36%); Changes to distribution (14%); Changes to the structure of the product (46%); Changes in consumer attitudes (32%); Changes in public policy (32%); Other 46%).

Key Demand and Supply Issues in the Market

  • Demand
    • Lack of information/shrouded attributes
    • Misperceptions about need, costs, and coverage
    • Myopia
    • Consumer confusion/product complexity
    • Mistrust of industry/contracts
  • Supply
    • Adverse selection
    • High selling costs
    • Inefficient risk-bearing: common shocks

Key Demand and Supply Solutions

  • Demand-related
    • Simplify/standardize products
    • Index premiums
    • Educational campaign and warnings
    • Expanded employer role
    • Mandated availability
    • Smart opt-out/ forced-choice
    • Targeted subsidy
  • Supply-related
    • Reinsurance pool
    • Expanded employer role
    • Joint marketing with health insurance

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” to attract middle market buyers:
    • 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

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