John Hancock said Thursday it will no longer sell new stand-alone long-term care insurance (LTCi) policies in the individual market, dealing another blow to a declining industry product line.
In a notice to agents, broker/dealers and managing general agents, the company said the last day to submit “in good order” applications will be Dec. 2.
The last day for agents to complete paramedical exams is Dec. 16, and all long-term care policies must be issued and paid for by Feb. 10, 2017, the company said. Long-term care “quick quotes” will be discontinued immediately.
“As many of you well know, the distribution landscape for LTC insurance has shrunk significantly since the peak of the industry in 2002,” the notice said. “Today, there are far fewer outlets through which individual LTC insurance is sold, impacting the growth potential of the product.”
Consumer demand also has fallen and the capital requirements for the long-term care business are simply too high, the company said in its notice to agents.
John Hancock sells stand-alone policies in 49 states. In 2014, it was the No. 3 seller of individual and group LTCi policies in the U.S. behind Genworth Financial and the No. 1 LTCi seller Bankers Life, according to industry statistics.
Leaving the stand-alone LTCi market is a sign that the product line is no longer profitable enough for the company.
“It doesn’t surprise me,” said insurance and financial advisor Gene A. Pastula, founder and president of Westland Financial Services in San Diego. “We’ve been reading about the problems of (LTC) carriers.”
The silver lining is that with less competition, it should be easier for the insurers and agents who remain in the market, he said.
Offsetting the good news is that a major producer leaving the market doesn’t inspire confidence in the product for remaining insurers and distributors.
“There isn’t a lot of good news about this,” Pastula said. “It certainly is not looking good.”
In-Force Block Unaffected
The in-force long-term care block will not be affected. John Hancock will instead offer long-term care coverage as an accelerated benefit rider on its life insurance products, the company said in its note to agents and distributors.
Hybrid or combination life insurance policies with long-term care riders have proven more popular than individual stand-alone long-term care policies.
Long-term care insurance companies reported 129,000 individual long-term care policy sales in 2014. This was down from a high of 754,000 individual policy sales in 2002, according to an analysis by the Center for Insurance Policy and Research.
In 2013, insurance companies sold 305,068 individual life and annuity products with accelerated long-term care riders. This compares with 72,736 life and annuity products with the riders in 2009, the CIPR study found.
In 2014, there were 12 companies selling individual LTCi policies, down from 125 insurers in 2000.
At the annual conference of the American Association for Long-Term Care Insurance in 2014, executives representing several LTCi companies, including John Hancock, said the need for LTCi was growing but that it was important to design products correctly.
John Hancock’s announcement to discontinue individual new long-term care sales follows last month’s sale of Genworth Financial, a major long-term care insurer in the U.S., to a Chinese financial services company.
Genworth has struggled to set aside enough in reserve to meet its future long-term care liabilities after the company sold thousands of long-term care policies too inexpensively years ago.
Rising claims, low mortality and lower than expected lapses have led to higher prices on many long-term care policies.
Most insurers’ LTCi policies issued before the mid-2000s were priced too low, leading to dozens of long-term care companies abandoning the market. Companies that remained have been raising premiums on their in-force blocks and on new policies.
The single most important reason an insurer leaves the LTCi market is because of capital requirements followed by product performance, the CIPR study found.
In 2014, earned premiums were $11.5 billion and there were 7.2 million policies in-force.
Demand Shifting to Life-LTC Hybrids
With John Hancock’s departure from the individual market, there are now about seven or eight long-term care insurers left in the individual market, said Jesse Slome executive director of the American Association of Long Term Care Insurance.
Thursday’s announcement by John Hancock announcement is “disappointing but not surprising,” Slome said.
But he disputed the notion that the long-term care distribution had shrunk and said that the demand landscape has changed.
“To the contrary, distribution is not shrinking but choosing to sell products that consumers are willing to buy,” he said. “When consumers fail to understand the benefits of a traditional long-term care policy, it’s understandable that they do nothing or seek other options.”
Over the three-month period ending in October, AALTCI registered a 27 percent increase in consumer inquiries for long-term care insurance price quotes compared with the three-month period ending a year ago, Slome said.