LTCI: Standard Products and new Developments

Transcription

1

2 LTCI: Standard Products and new Developments Laure de MONTESQUIEU Scor Global Life Head of the International Research & Development Centre for Long Term Care Insurance

3 Introduction: Long-Term Care, a problem common to developed countries Life expectancies have increased especially of elderly people (Insee) Source: United Nations Department of Economic and Social Affairs/Population Division One of the biggest threats to the wealth of the elderly Only 15% of people think they can cover the costs of LTC Long-Term Care funding Shortfall of State benefits : large need of cover to face long-term care related costs Strong development of private insurance 2

4 LTCI: standard products and new developments 1 Most common LTCI product (French and US approaches) 2 Life insurance & LTCI combination products 3 Assistance and other innovations 3

5 1. Most common LTCI products (French and US approaches) Public scheme USA Medicaid / Medicare FRANCE PSD then APA Experience ~ 30 years ~ 25 years Annual Market Growth Current Market size Products / Benefits <0 p.a. on More than 7 million insured in-force Mostly reimbursement (of care services) % p.a. until 2006, stand still after More than 6 million insured in-force Cash benefits ( indemnity ) 4

6 Long-term care Insurance: new developments 1 Most common LTCI product (French and american model) 2 Life insurance & LTCI combination products 3 Assistance and other innovations 5

7 A possible combination of Life insurance and Long-term care insurance Stand alone Long-term care insurance perceived disadvantages: It is expensive No cash value is created Premium may increase in the future Underwriting that can be time-consuming When one concerns about Long-term care he might have less need for Life insurance Annuity product is held to make income payments after a maturity date but long-term care needs might arise prior to the maturity date of the annuity product Combo product / Hybrid product / Linked benefit product is any insurance product where the policy premiums provide insurance that can fund payments for long-term care services and some other type of insurance-related benefit Life insurance / LTCI Annuity / LTCI Disability/ LTCI LTCI as a rider All in one package 6

8 Life / LTCI combination products Accelerated Death Benefit Self Insurance Extension of Benefit Insurance No / few risk for the insurer Risk is supported by the insurer The beneficiary receives the Face Amount at the death of the insured The insured gets his premium back Underwritting LTC Event Refund of Premiums Death LTC Event Single Premium 7

9 Annuity / LTCI combination products Accelerated Benefit Self Insurance Extension of Benefit Insurance No / few risk for the insurer Risk is supported by the insurer Underwritting LTC Event Maturity date Death LTC Event 8

10 LTCI combination products Pros & cons for the insured Accelerated Benefit Extension of Benefit Return of Premium / Death Benefit = Win Win Win situation for the insured No «use it or lose it», chances of using the policy are 100% Most of the time these products are single premium: rates are guaranteed for life Some options can be added: Inflation protection Minimum Capital Guaranteed, such as 10% of the initial Face Amount Prices for the Long-term care coverage are affordable: First years are self insurance, cost of insurance depends on interest rates Extension of benefit is a long-term care insurance with 2/3 years deferred period Tax free benefits & tax-advantages on the reallocated assets Requires an upfront deposit Might not cover all the financial needs for long-term care, at the end of the benefit period 9

11 LTCI combination products From the insurer point of view The risk for the insurer is reduced As long as the Accelerated Benefit is not entirely used/depleted During that time, the risk depends mainly/only on interest rates Follow an insurance period, that considers a big deferred period (2-3 years usually) Insurer is then subject to the same risks as an LTCI stand alone (and use mutualisation) For example, when the claim occurs, the capital needed by the insurer for a full coverage is 70% higher than the one needed with a 2 years deferred period; 130% higher than the one needed with a 3 years deferred period (assumptions: 6 years benefit; 15% death first & second year; 3% interest rates; benefit paid yearly at the beginning of the period) Reduce the moral hazard risk The insured will first pay from his asset Acquire experience in various fields related to LTCI: claims management, underwriting, statistical experience Diversification Combo products decrease volatility for the insurer 10

12 Growth in the US market Tax benefit: the Pension Protection Act of 2006 Allows tax-free transfers between life insurance and annuity contracts for long term care insurance policy (under some conditions) As well as tax-free exchanges of one long-term care insurance policy for another Tax-free distribution of life insurance or annuity cash value to pay for long-term care Started in 2010 Growth in the US market (LIMRA study, 2012) Life combination products grew 56% in 2011, third consecutive year of double-digit growth Universal Life combo products: 67% growth in premium compared to 2010 Whole Life combo products: 16% growth in premium compared to 2010 Variable Universal Life combo products: 17% growth in premium compared to 2010 All in one package grew of 66% capturing 29% of the market in 2011/ Riders grew 29%, attaining 71% of market share Total new premium for Life combination products reached $2.2 billion in 2011, approximately 13% of total individual life insurance new premium 6 out of 10 policies are hold by women (very close to stand-alone LTCI repartition) 11

13 Disability / LTCI combination products Two different products with two different focus Disability Insurance LTCI Targeted population Young active workers People over 50/60 yo Use of the benefit Cover loss of earnings Cover LTC expenses Period of payments Depends on the market and the product Benefit trigger Inability to work Loss of ADLs but that are still related Reduce the anti-selection by creating the possibility to exchange the policy to a LTC benefit without undergoing an underwriting review LTC premium based on the age of exchange of policy Possibility to enhance the scope of the coverage, by including the loss of ADLs 12

14 Linked and Joint LTCI Coverage Linked LTCI Coverage: The first spouse taps into the benefit pool of the second if all the first spouse benefit amount have already spent on care Advantages: double the amount of money and time available to one of the insureds Disadvantages: The first policy must be exhausted before the second policy will offer benefits to the same insured Issue of cost: two separate policies must be purchased and then a shared acre rider must also be purchased allowing the coverages to be linked Joint LTCI Policies: Only one policy is purchased and both couples can draw from the policy simultaneously or separately when care in needed Advantages: Both spouses can make claim at the same time and draw benefits up to the daily or monthly maximum benefit allowed for by the policy Affordable: low yearly premium (it is unlikely, that both spouses will need extended LTC coverage) Disadvantages: If more care is needed than originally purchased, the insurance may not provide enough benefit 13

15 Long-term care Insurance: new developments 1 Most common LTCI product (French model) 2 Life insurance & LTCI combination products 3 Assistance and other innovations 14

16 Development of services and lump sum riders Services trough assistance contracts: At the entry in the contract: info and advices on everyday life (meal delivery, domestic help ), «life» check up, prevention check up (Home adaptation ), memory check up, support in case of LOA of a relative (help for administrative process, search for long-term care facility, search for psychological help ) In case of partial LOA: home adaptation advise, medicine delivery, assistance hotline (to be connected with the outside world), memory exercises In case of total LOA: support for life organization and quality of life, support for moving, support for choosing a nursing house Availability of dedicated websites on LTC and care information Lump sum riders: Equipment of house Help or Rest for the caregiver Broken bone Death of the caregiver Alzheimer capital benefit 15

17 «Help to helpers» insurance contracts Who are the helpers? (Based on the French market information) 60% of women Average age: 52 yo Most of the time helpers are ascendant relatives: 39% of helpers take care of its father or mother; 10% of its grand-parents; 10% of its father or mother in law 9 helpers out of 10 take care of their relative several time per week What kind of contracts for the helpers? Insurance contracts that anticipate unexpected events in the helper s life Help you in case of hospitalization For a certain number of hours per day For a certain benefit (help at home, assistant, companionship ) 16

18 Innovations Transformation of savings when LTC occurs Immediate LTC annuity The insured can choose to transform its savings or not The whole risk is based on the claims severity Life / LTCI combination product Savings product and LTC benefit If you die before 85, beneficiaries will receive the face amount If you are in good health, you can choose to get back your face amount and keep the LTC annuity guarantee, or to reinvest the face amount and double the LTC annuity 17

19 Innovations Life / LTCI combination product In case of life of the insured at the age of 75 Guaranteed capital at disposal of the insured In case of LTC, payment of a life annuity equal to 20% of the maximum between the guaranteed capital and the accumulated savings In case of death of the insured The guaranteed capital is paid to the beneficiaries if no LTC event The difference between the guaranteed capital and the benefits already paid The Long-term care benefit is financed by a 4% deduction on the accumulated savings (1% to finance the coverage, 3% as management fees) + 1,70% of the average savings manage Life / LTC combination product LTC rider can be purchased at the annuitization of the contract In case of a LTC event, the annuity will be enhanced 3% of the accumulated savings will be taken to pay the LTC cover Disadvantages of these products Cover only the total loss of autonomy The value of the LTC annuity is not guaranteed 18

20 Conclusion & Takeaways There is a need for Long-term care, and private insurance has an important role to play This role has to be in line with any public scheme However, stand alone Long-term care products might not be totally adapted to all markets & people It can be expensive People can feel sceptical toward a «use it or lose it» approach Some innovations are emerging to fit potential insured s needs: Combination products with Life insurance know a quick growth in the US Can be more comprehensive for the insured Can be less risky for the insurer Assistance and help to helpers seems to be a «must have» for new products 19

21 Thank You! Laure de MONTESQUIEU Scor Global Life 20