Long-term care: Insurance innovation can’t come soon enough

By Larry Nisenson

Staggering statistics reveal that the 65+ population will swell to more than 70 million Americans by the year 2030, but less than 10% of them have a solution in place for long-term care. Studies have shown repeatedly that most aging adults are concerned with outliving their retirement savings, yet too few have a plan for what is their largest potential liability. For example, the average cost of just one long-term care event is $140,000, which would devastate the average retiree’s savings pool of $255,000.

Given this yawning gap in retiree financial preparedness, one might think that long-term care insurance sales would be booming – but they aren’t. Why might that be the case? According to Milliman, 2022 saw the lowest sales volume of traditional long-term care insurance in more than 20 years. Sales peaked in 2000 with new premiums exceeding $2 billion but have been in steady decline ever since.

It’s important to note that those numbers don’t include the many new nontraditional products that have entered the market to help consumers cover their long-term care costs. That said, it remains puzzling why overall numbers are still shrinking annually given the growing number of aging adults and the burgeoning need for this type of coverage.

What’s standing in the way of buying long-term care insurance?

There are several factors for the decline, including inaccurate actuarial assumptions, regulations that limit key product changes, agents who shy away from these products because of perceived poor client experiences and carriers who have exited the marketplace. The obstacles are formidable, but it's imperative that today’s industry overcome them to help protect aging consumers from outliving their retirement savings.

Innovation is sorely needed to achieve this, but the insurance industry has been slow to overcome antiquated processes. However, this may be beginning to change.

One indicator is the sheer number of insurtech companies surfacing in today’s landscape. According to the Milken Institute, there are more than 1,500 insurtech companies today. Most of these companies innovate around known issues and friction points, such as improving risk selection in the application process, and better understanding morbidity and mortality drivers. Machine learning is driving a lot of this innovation, as it can quickly consume massive volumes of data from complex sources, spot trends and correlate or quantify risks more effectively. Doing so with speed and accuracy will ultimately lead to better and more stable pricing for consumers. This will open up more affordable products for the millions of middle-class consumers who are currently priced out of the market.

Innovation is also reducing another cumbersome barrier to entry: the application process. Most long-term care products traditionally require complete physicals, a visiting nurse to draw fluids and a lengthy application process, all of which can typically take months to complete. This can result in a frustrating consumer experience especially when, on average, almost 40% of applicants are declined coverage. However, there are products on the marketplace today that can deliver a decision in less than an hour. Thanks to innovation in risk selection and the application process, more consumers are getting approved and having a better experience.

A third area where innovation is making great strides is in helping insurance companies pay claims in a more timely, efficient and accurate manner. Policyholders benefit from this too. Advancements in automatized initial claims routing is key to this effort, as are analytical advances in identifying policyholders who aren’t yet ready to claim but need assistance in their home. Many carriers are now building wellness programs into their pre-claim process to identify these at-risk policyholders and help them improve their overall health. This effort allows the insured to continue to live at home longer and builds a more engaging customer experience.

There’s room to do more

These three areas will continue to be the focus for innovations in the long-term care space, but other opportunities are emerging too. Distribution, for example, is ripe for innovation around how consumers learn about and purchase long-term care insurance as well as how financial advisors can better illustrate the risk of an uncovered long-term care event for their clients.

Insurtech companies can reduce friction wherever it exists in the process and help carriers, distributors and consumers find the right products to cover their needs. The headwinds driving innovation — today’s enormous gap in retirement financial planning for long-term care — will continue to transform both the insurance industry and the booming insurtech sector for the foreseeable future, perhaps in ways we can’t yet imagine.

Larry Nisenson is chief growth officer of Assured Allies. He may be contacted at [email protected].