Long-term Care Insurance: A Product and Industry in Transition Presented to NAIC Senior Issues Task Force by Marc A. Cohen, Ph.D. LifePlans, Inc. Gaylord Convention Center in National Harbor, Maryland November 28, 2012
Presentation Topics Current overview of U.S. LTC Insurance Market Profile of Individuals Purchasing Policies Product Evolution Market exit among Carriers and Implications 2
Current LTC Insurance Industry Parameters Individual market Roughly 5-6 million individual policies in force. Total annualized in-force premium of over $8 billion. Roughly one dozen companies still active in market Annual sales in 2010 were 65% lower than in 2000. Between 2009 and 2011 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 3
Thousands Number of Insured Lives has been relatively flat since 2005 8,000 7,000 6,000 5,612 6,404 6,053 6,995 6,894 7,030 7,115 7,157 7,263 5,179 5,000 4,793 4,497 4,130 4,000 3,000 3,338 3,697 3,202 2,601 2,946 2,000 1,704 1,000 0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: NAIC, 2011 Year 4
Annual Sales of Individual LTC Insurance Policies have been declining since 2002 800 698 754 600 609 600 500 509 400 200 380 420 362 332 300 306 283 220 253 247 0 1990 1992 1994 1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Note: LifePlans analysis based on AHIP, LIMRA and LifePlans sales surveys, 2011. 5
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. 6
CHARACTERISTICS OF PRODUCTS AND PURCHASERS 7
Great deal of product change 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) 8
Policies are becoming more comprehensive, greater benefits, and average premiums are increasing Policy Characteristics Average for 2010 Average for 2005 Average for 2000 Average for 1995 Average for 1990 Policy Type Nursing Home Only Nursing Home & Home Care Home Care Only 2% 92% 6% 3% 90% 7% 14% 77% 9% 33% 61% 6% 63% 37% --- Daily Benefit Amount for NH Care Daily Benefit Amount for Home Care Nursing Home Only Elimination Period Integrated Policy Elimination Period $154 $142 $109 $85 $72 $153 $135 $106 $78 $36 86 days 80 days 65 days 59 days 20 days 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 9
Across all ages premiums are rising, but largest increase is at younger ages $3,949 $4,000 $3,294 $3,000 $2,000 $2,759 $2,604 $2,255 $2,341 $2,581 $2,003 $1,877 $2,146 $1,829 $1,213 $1,000 $919 $1,487 $1,528 $1,177 $0 Age 55-64 Age 65 to 69 Age 70 to 74 Age 75+ 2010 2005 2000 1995 Premium Increase: 1995-2010: age 55-64: 145%; age 65-69: 134%; age 70-74: 115%; age 75+: 84% Source: AHIP, 2011 10
Younger, wealthier and employed individuals are buying policies Characteristic 2010 2005 2000 1995 1990 Average Age 59 years 61 years 65 years 69 years 68 years %> 70 8% 16% 40% 49% 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 11
Most people buy policies to maintain lifestyle and consumption and not just to protect assets (2010) 40% 30% 33% 20% 18% 13% 18% 17% 10% 0% Avoid Dependence Protect Assets/Leave an Estate Guarantee Affordability Protect Living Standards One of Other Reasons Source: AHIP, 2011 12
Millions Incurred claims are growing more quickly than annualized premium as the policyholder base ages and sales of new policies decline $12,000 $11,000 $10,000 $9,000 $8,000 $7,665 $8,260 $8,797 $9,321 $9,727 $10,615 $10,380 $10,004 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $4,187 $1,556 $5,155 $1,870 $5,910 $2,388 $6,724 $2,765 $3,124 $3,380 $3,795 $4,240 $4,724 $5,102 $5,912 $6,350 $1,000 $- 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year Annualized Earned Premiums ($000) Incurred Claims ($000) Source: NAIC, 2011 13
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 have no disagreement with their company at claim time (94%), and the majority (77%) of do not find it difficult to file a claim (77%). Source: U.S. Department of Health and Human Services, 2010 14
RECENT TRENDS: SIGNIFICANT MARKET EXIT AMONG MAJOR CARRIERS 15
Purpose Study of Market Exit To understand what are the primary reasons why companies who actively marketed LTC insurance policies ceased selling such policies How has the industry changed over the last 15 to 20 years in terms of key aggregate market characteristics and performance indicators Method Date from the National Association of Insurance Commissioners (NAIC) Long-Term Care Experience Reports for 2000, 2009 and 2010 Sizing the market Key industry performance variables Development and administration of a survey to key executives in 26 companies Support Funded in part by the Assistant Secretary of Planning and Evaluation Office of Aging, Disability and Long-Term Care, Department of Health and Human Services In-kind support from the Society of Actuaries 16
Roughly a dozen companies are still selling a meaningful numbers of policies; in 2002, AHIP reported 102 companies selling policies Currently Selling 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 Closed Blocks 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. 17
The inability to hit profit objectives, concern about rate relief and high capital requirements have driven companies from the market Selected Reasons Product performance - not hitting profit objectives Concern about ability to get rate increases if necessary Percent Responses 69% 18 62% 16 Capital requirements 54% 14 Reputation risk 23% 6 Distribution issues 23% 6 New regulatory requirements 19% 5 Unfavorable public policy 4% 1 Note: Table does not include all reasons given. 18
Single most Important Reason that the Company left the Market: Capital Requirements Product performance - not hitting profit objects 15% 19% New senior management not interested in product New evaluation/assessment of the risk involved with the product and staying in the market Distribution issues 23% 12% Lack of confidence in ability to manage risk Could not get reinsurance or partner with whom to share risk 4% 8% 4% 4% 12% Concern about ability to get rate increases if necessary Capital requirements Other 19
Percentage Recent performance in the market also deteriorated somewhat: In four of the last six years the actual-to-expected loss experience has been over 100% Individual Year Cumulative Countrywide Experience Actual Losses to Expected Losses 120% 115% 110% 105% 100% 95% 100% 105% 104% 103% 97% 95% 95% 94% 94% 93% 95% 99% 104% 102% 99% 101% 100% 103% 90% 85% 80% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Year 20
Performance of companies who have exited and have closed blocks is less favorable than those still in market 100% 92% 81% 81% 75% 68% 50% 45% 55% 25% 29% 33% 0% % of Total Policyholders Actual-to-expected Incurred Claims (cumulative) Standard Deviation in Actual-to-Expected (cumulative) Coefficient of Variation in Claims per Covered Life In-market Closed Block Source: LifePlans Analysis of NAIC Experience Reports, 2011 21
Most companies indicate they are very unlikely to return to the market 8% 36% 12% 4% High (>75% chance) Medium (50%-74%) Low (25% to 49%) Very low (<25%) Not going to happen 40% 22
Circumstances under which Company would consider re-entering Market 50% 45% 46% 46% 40% 35% 30% 25% 36% 32% 32% 20% 15% 14% 10% 5% 0% Regulatory changes Changes to distribution Changes to the structure of the product Changes in consumer attitudes Changes in public policy (tax policy) Other 23
Selected Factors Potentially Influencing the Decision to Reenter the Market Selected Changes Definitely Maybe No Ability to file multiple sets of new-business premium rates the use of which is automatically determined by an external interest-rate index. The ability to file multiple sets of new-business premium rates the use of which is automatically determined by an external interestrate index for new-business premium rates and in-force premium rates. Allowing stand-alone LTC and/or combination-products to be funded with pre-tax dollars. 4% 32% 60% 4% 36% 56% 8% 25% 62% Being able to offer other combination products (for example, disability income with LTC, or critical illness with LTC rather than just life and annuity combination products. 4% 28% 68% Being able to offer a Universal LTC policy design so that like Universal Life, it would allow for premium flexibility, interest crediting, cash values, age and/or duration adjusted insurance charges (current and guaranteed) for LTC, and surrender charges. Note: Only listed are those changes that received >25% response of Maybe or Definitely 8% 20% 64% 24
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 : 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 Large number of policyholders in closed blocks poses challenges to carriers, consumers and regulators. 25