Long-term care insurance: What will it take to revitalize the marketplace?

No aspect of the insurance marketplace seems as fractured as the long-term care insurance market. The imbalance between aging adults who will need long-term care assistance contrasted with the lack of available products makes little sense in the face of normal supply and demand economics. In the case of LTCi, this abnormality has been building since the peak of LTCi sales in 2002, when more than 750,000 policies were sold in a single year.

In 2002, there were more than 100 companies with products in the market, with annualized premiums of over $2 billion. Last year, the industry sold fewer than 50,000 policies from fewer than a dozen carriers, despite the fact that 1 in 6 Americans are over the age of 65.

There are well-documented reasons for this decline, but what will it take to revitalize the LTCi marketplace? How do carriers reintroduce a product to consumers that presents a true value proposition for aging consumers? For carriers that want to fill this void, several key components can revitalize this marketplace, including product innovation and consumer education.

Product innovation is vital to LTCi resurgence, and includes product features and risk mitigation, both of which can protect a carrier from undue risk. Newer underwriting processes have helped carriers limit exposure by including electronic medical records, which analyze applicant prescription and medical data along with video underwriting sessions. These video sessions incorporate physical and cognitive tests to help carriers better identify morbidity risk that otherwise might be undetected. Data, clinical and actuarial sciences sit at the crossroads of these types of advancements and can certainly help with adverse selection, a key concern for carriers.

Data science is also being implemented by many carriers to understand how benefits are being used. According to AALTCI, more than $13 billion in claims was paid by carriers in 2022 to more than 345,000 policyholders. This provides plenty of data for carriers that know how to access and use this information. This is key to understanding benefit usage patterns and pricing the risk accordingly. Many innovative companies can help with this and it is key to better pricing and risk mitigation.

Policy features play a key role in attracting more consumers and limiting a carrier’s exposure. Newer products on the market limit policy benefits to better control their risk from expensive claims. At the same time, though, they allow more flexibility on where and how those benefits are consumed.

Another key for carriers is concentration risk or excessive exposure to one demographic. In the case of long-term care risk, this is mitigated by products that appeal to a large swath of the population and are affordable. Features such as “dial a premium,” which allows the agent to customize the benefit amount based on affordability, grants more consumers access to coverage. Carriers are also looking at LTCi through a continuum of care lens, which allows them to package other pre-claim benefits such as wellness programs and caregiving resources into the policies. These added programs allow the policyholder to age in their home, where the cost of care is lower and where most policyholders prefer to receive care.

Carriers can build the most consumer-centric products that provide incredible value for policyholders. Still, without a better consumer understanding around need and what they’re insuring against, there will be a tepid demand.

This lack of education and awareness is well-documented and is at the heart of the issue.

According to a KKF poll conducted in November, 45% of adults over age 65 incorrectly assume that Medicare would cover their long-term service and support costs.

Although part of educating the public falls on the industry, advisors also should play a key role, much like they do in the other areas of financial planning. The financial services industry has done an amazing job of helping clients navigate the main financial stages of life - wealth accumulation, preservation and distribution - but many advisors shy away from talking about how a long-term care event can decimate a client’s portfolio if they choose to self-insure.

Carriers must play a significant role in educating consumers and financial advisors on the risk of doing nothing. “Failing to plan is planning to fail,” Winston Churchill famously said, and that holds true for LTC planning. It’s estimated that only 3%-4% of Americans over the age of 50 own a  policy, which can be used to cover the $172,000 cost of an average LTC event, according to PWC.  The others will either rely on their savings or on family members to provide these services,

For those of us in the industry, we know the cost of inaction and the incredible burden placed on families to care for their aging loved ones. Our goal is to help strike the right balance of risk and opportunity for carriers so they can build and market great products for most consumers who will need our help in solving this dilemma of financing aging.

Larry Nisenson is the chief growth officer for Assured Allies. Contact him at [email protected].

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