2006 Long Term Care Insurance Market Study 

Conducted by the Agent’s Sales Journal and the American Association for Long-Term Care Insurance

For this year’s Long Term Care Insurance Market Study, the Agent’s Sales Journal partnered with the American Association for Long-Term Care Insurance (AALTCI), the nation’s leading independent organization dedicated to professionals in the LTCI marketplace, to conduct our most comprehensive producer study ever.

We surveyed more than 1,000 insurance professionals across the country and asked them about their experience selling LTCI — the challenges they face, the opportunities they perceive, the expectations they have of their insurance company and marketing organization distribution partners, and more. The results reflect responses from personal producing agents who have sold at least one long term care insurance policy in the past 12 months.

We also asked agents to rate 15 of the largest LTCI insurance companies in 12 different categories, including the company that best meets an agent’s overall needs in this market. Respon-dents were asked to rate only those companies they were currently appointed with to sell LTCI, and the top five companies in each category are represented in our report card.

Following the market study is the Agent’s Sales Journal’s 2nd Annual LTCI Selling Guide, designed to help you with every facet of the LTCI sales process. Whether you’re an LTCI specialist or have yet to close your first sale, the purpose of the guide is to help you hone your skills with product knowledge, market insight, and sales tips from some of the industry’s most highly regarded authorities on LTCI.

Market barometer

Many in the long term care insurance industry have been scratching their heads trying to figure out why the market has not yet reached original expectations. Companies routinely enter and exit, sometimes only to later return to the business. Actuarial pricing assumptions of the past turned out to be inaccurate, and policies have been marred by unstable premiums. Despite this rocky past, producers are optimistic about the sales potential they perceive in this relatively young, slowly maturing market.

Nearly one in three (32 percent) producers active in the LTCI market report an increase in sales activity during the past 12 months. Even more encouraging, 70 percent expect their sales to increase during the next year.
“This study bears out what we’ve been hearing from our association members . . . that sales of long term care insurance are ahead of the prior year and that, for the first time in quite awhile, insurance agents and brokers are highly optimistic about the future of market growth,” says Jesse Slome, executive director of the AALTCI. ”These producers echo the association’s projection that the market for long term care insurance will grow from the current 7 million policyholders to some 14 million within the next five years.”

A large number of the producers who experienced heightened sales activity in the past year attribute the growth to an increase in their marketing efforts, combined with more awareness among consumers about the need for LTCI. “I began selling the concept of LTCI to children of the elderly,” said an agent in Minnesota who specializes in the worksite market. Her marketing efforts concentrate on her clients’ “need to see that their parents have a plan in place before they have the need to dissolve their assets.”

There are a number of converging factors contributing to producers’ favorable sales expectations. Among them is the massive wave of boomers approaching retirement, many of whom are shouldering the burden of caring for their own parents and are receptive to any solution that would help them avoid inflicting the same burden on their own children.

One independent agent from New Jersey, who just sold his first policy this year, plans to be very active in the market over the next year. “The reason that I am selling it actively is that my clients are now asking for it,” he explains.

Many producers report a growing awareness among consumers about the need for long term care coverage. As an independent agent from Port Charlotte, FL put it, “More people are becoming more educated about the need for LTCI. With people living longer and the cost of care increasing, LTCI policies become more valuable.”

One agent in Tennessee who has been in the business more than 20 years attributes the growth in his LTCI sales to the role the government is taking to promote LTCI. “The impact on Medicaid, if we do not increase our own budgeting for our own LTC, will collapse the system,” he says. “LTCI is a great product whose time has come, and the partnership laws . . . are a wonderful incentive.”

Another agent capitalized on this year’s Medicare Part D deadline to meet with more prospects to discuss retirement planning and the risk that long term care needs posed to his clients’ retirement savings. Many of those meetings resulted in discussions of LTCI. “The worse Social Security looks to them, the more they seem interested in the product,” another agent noted.

Still others report a spike in sales activity caused by the new Deficit Reduction Act, signed into law by President Bush on Feb. 8, 2006.

The legislation effectively tightened the rules on Medicaid planning, thereby making LTCI a more attractive option for many consumers.

Producer obstacles

The top three obstacles producers face are sales challenges: Clients perceive the product as too expensive (82 percent), clients procrastinate (50 percent), and clients don’t recognize the need for LTCI (49 percent).

In some cases, producers are creating their own problems by using antiquated sales approaches, according to Gary Katelman, national sales director for LTCI with Senior Market Sales in Omaha, NE. “Some agents are still using the spreadsheet approach when meeting with clients. Spreadsheets don’t sell LTCI,” says Katelman, who notes that there’s a shift taking place in the way LTCI is sold.

When talking about LTCI, agents who focus on the typical scenario involving nursing home confinement are missing the larger picture. “LTCI should be positioned as the glue that holds a retirement plan together,” says Katelman. “It’s an essential planning tool to protect the assets people have spent their entire working adult lives building.”

Given that cost is the number one sales barrier, there are a number of strategies producers use to lower premium levels, the top two of which are extending the elimination period (33 percent) and shortening the benefit period (32 percent).

“One of the most interesting survey questions asked what policy change a producer would first recommend to reduce the cost of insurance protection,” notes AALTCI’s Slome. “In recent years, the traditional answer would have been the daily benefit or removal of the inflation protection option. Clearly producers now understand the importance of inflation protection, and more are aware that a shorter benefit period or longer elimination period are better approaches to meeting client needs for affordability. They are taking the ‘something is clearly better than nothing approach,’ and it’s working for them.”

The fourth most common challenge facing LTCI producers, the insurance agent’s perennial challenge, is finding qualified prospects (29 percent). The two most effective prospecting methods for LTCI sales are referrals (41 percent) and cross-selling to existing clients (35 percent).

One common way to generate referrals is by developing strategic alliances. Indeed, many of the producers who reported an increase in sales activity this year attribute the growth to a strategic relationship forged with other financial professionals.

According to Slome, “The past 12 to 18 months have seen an important shift in the techniques utilized by dedicated long term care insurance specialists seeking prospects. Direct mail, traditionally the most effective primary source for LTCI leads, is being replaced by creating strategic alliances with financial professionals and other insurance agents. This is highly important information for producers looking to gain access to prospects and build their markets in the next 12 to 18 months. Strategic alliances take time to establish, but once in place, they yield results for long periods of time.”

The most popular professionals to partner with to generate LTCI referrals include accountants (30 percent), insurance agents not actively selling LTCI (25 percent), financial planners (21 percent), and elder law attorneys (19 percent).

“Accountants have long ranked as the leading source of referrals for long term care prospects,” Slome says. “However, the study clearly shows that producers are increasingly successful when partnering with financial planners and elder law attorneys. I suspect that subsequent surveys will demonstrate these two areas will grow in their significance.”

The most striking difference between how LTCI specialists answered the questions versus non-specialists is in the area of prospecting. Specialists are more likely to rely on a referral system (49 percent versus 39 percent) and even more likely to form strategic alliances with other financial professionals (83 percent versus 59 percent).

Consumer habits

If you’re looking for clues on what drives a prospect’s purchase decision, the main factors that lead prospects to buy LTCI coverage are the desire to avoid becoming a burden to their family members (41 percent), asset protection (24 percent), and preserving one’s independence (14 percent).

According to Katelman, there are two things that motivate a prospect to buy LTCI: First, they’ve developed a chronic health condition, in which case it’s too late to qualify for coverage. Second, they’re facing an issue in their own family, many times involving a parent. “When that happens,” Katelman says, “they become very motivated to buy because they’ve seen the devastation that can happen without proper planning, and they want to avoid it in the future.”

Despite the fact that the number one challenge producers face is that clients perceive the product as too expensive, products that allow for in-home care are much more important to clients than cost when evaluating a policy (36 percent vs. 16 percent). This does not surprise Lynn Devitt, a long term care planner with Newman Financial Services (Minneapolis) who was recognized as the country’s top LTCI producer in 2005. “Home is where care is going, and the market is responding,” says Devitt. “Companies have gotten very creative in developing products that allow policyholders to stay at home longer.”

What does concern Devitt is that policies offering inflation protection scored so low (3 percent) in importance to clients. “It’s the advisor’s job to educate clients about the need for inflation protection in every policy they sell.”

Policies with a high degree of flexibility (14 percent) and that are easy to understand (11 percent) also prove to be important factors for clients.

It is interesting to note that almost one-third (29 percent) of survey respondents currently have a client receiving LTCI benefits. Psychologically, when an agent witnesses firsthand a client going on claim, it can be a powerful sales motivator. As Slome points out, “Consumers who have experience with a family member or loved one needing long term care are significantly more likely to understand the need for insurance protection. Likewise, an agent witnessing what happens when a client benefits from their LTCI policy is far more likely to be both passionate and knowledgeable about the issue.”

Distribution partners

Respondents are contracted with an average of 3.7 LTCI companies, though most (86 percent) write the majority of business through one or two companies. The most commonly listed needs from insurance companies include leads (36 percent), a simpler application process (34 percent), products that are easier to understand (27 percent), an easier underwriting process (27 percent), and premiums that are more stable (26 percent).

Barbara Hanson, a California agent who specializes in long term care insurance, has noticed improvements in underwriting, which “is no longer such a mystery,” but says she would benefit from better marketing material, such as “better product brochures telling the whole story of the benefit to the client and the family” emphasizing how LTCI will improve the quality of life for both.

“When I leave with the application, they will want to read it and feel good about their purchase and future. There could be personal claim stories in there on ‘how it worked for me’ from actual claimants,” continues Hanson, who is pleased with the companies she works with but complains that “some companies do not even provide an ID card with their phone number on it for the client.”

Respondents broker their business through an average of 1.5 marketing organizations, and most find the sales support they receive from their marketing organization to be very useful (39 percent) or somewhat useful (42 percent). Producers’ needs from marketing organizations include leads (54 percent), better marketing and sales tools (34 percent), underwriting assistance (31 percent), more product training (24 percent), and access to multiple carriers (23 percent).

According to Tom Riekse Jr., executive vice president of marketing for LTCI Partners, a brokerage agency, an effective distribution model is in place to support producers, but there’s a lot of room for improvement. “The industry’s lagging a few years behind in terms of application and underwriting efficiency,” says Riekse. “It should be easier for a producer to place business.” Riekse explains that the process is improving but, until the relatively young LTCI industry fully matures, one of the most important services a wholesaler can offer is assistance with the underwriting and processing of business.

Poised for growth

As the study’s respondents attest, now is a good time to be selling LTCI. The boomer market, which is largely uninsured, has now reached prime purchasing age for LTCI at a time when many societal and legislative factors are contributing to a growing awareness of the need for consumers to take responsibility for their own health care needs.

In addition to training, producers who want to capitalize on this opportunity will need to develop their own marketing and prospecting systems. One of the most common methods that experienced LTCI specialists use is to develop a referral system by forging strategic alliances with other financial professionals.

From learning the basics to targeting niche markets, the LTCI Selling Guide that follows will help you make the most of this opportunity.

In June and July, the Agent’s Sales Journal, in partnership with the American Association for Long-Term Care Insurance, surveyed more than 1,000 licensed insurance professionals across the country. The names were selected from Agent Media’s LTCI Select Database*. Producers were invited by email to take the survey. The survey results reflect answers from personal producing agents who have sold at least one long term care insurance policy in the past 12 months.

Methodology

The survey was conducted in two parts. The first part focused on producers’ specific experiences in the marketing and selling of LTCI. Over 700 producers completed Part One. The second part explored producers’ attitudes toward and preferences for LTCI insurance companies. Over 700 producers completed Part Two. There was some overlap in survey populations in that some individuals completed both parts of the survey. The two surveys were conducted online at separate times.

Producer optimism has not been dampened by reports of declining sales and insurers exiting the LTCI market What factor is most important to clients when evaluating an LTCI policy? In the past 12 months, have your LTCI sales… Policies that allow them to stay at home for a long as possible 36% Increased 32% Lower premiums 16% Decreased 18% Flexible policies 14% Stayed the Same 50% Easy-to-understand policies 11% In the next 12 months, do you expect your LTCI sales to... Name recognition of insurer 8% Increase 70% Insurers with reputation for quality customer service 6% Decrease 3% Policies with inflation protection 3% Stay the same 27% Multi-policy discounts 1% Producer challenges, strategies, and marketing opportunities Other 5% What are the main challenges with selling LTCI? Producer needs from company and marketing organization distribution partners Clients perceive as too expensive 82% How many LTCI companies are you currently contracted with? Clients procrastinate 50% 1 14% Clients don't see the need 49% 2 19% Finding qualified prospects 29% 3 22% Underwriting problems 28% 4 18% Clients don't understand products 15% 5 14% I need more training 9% 6-10 12% Long sales process 7% 11 or more 1% Products don't meet client needs 2% What can insurers offer to help you sell LTCI more successfully? Compliance issues 1% Provide Leads 36% What have you found to be the most effective method for prospecting for new LTCI clients? Simpler application process 34% Referrals 41% Products easier to understand 27% Selling to existing clients 35% Easier underwriting process 27% Seminars 9% Stable premiums 26% Leads 7% Lower premiums 22% Direct mail 4% Products more in line with client needs 19% Worksite marketing 2% Better marketing, sales tools 18% Internet 1% Faster issue 17% Telemarketing 1% Direct access to underwriter 16% Which of the following professionsals do you partner with to generate LTCI referrals? More product training 14% None 38% Online tools 9% Accountants 30% Higher commissions 8% Agents not selling LTCI 25% Commission advances 3% Financial planners 21% Other production incentives 1% Elder law attorneys 19% How many marketing organizations/wholesalers do you broker your LTCI business through? P&C agents 16% 0 16% Health insurance agents 13% 1 39% Investment advisors 9% 2 35% Employee benefits specialists 6% 3 8% To lower the cost of LTCI premiums, which of the following would you propose first? 4 1% Longer elimination period 33% 5+ 1% Shorter benefit period 32% How many LTCI companies do you write the majority of your business with? Lower daily benefit 14% 1 43% Less or no inflation protection 13% 2 43% Home or facility-only policy 8% 3 11% What is your most helpful source of information about LTCI? 4 2% Trade publications 31% 5 1% Marketing org./wholesalers 25% How useful is the lTCI sales support you receive from marketing organizations /wholesalers? Insurance company home office 15% Very useful 39% Continuing education 8% Somewhat useful 42% Internet 7% Not useful 8% Other agents 6% I don't broker through one 11% Professional associations 3% What can marketing organizations/wholesalers offer to help you sell LTCI more successfully? Trade show, conferences 1% Provide Leads 54% Popular news media 1% Better marketing, sales tools 34% Other 3% Underwriting assistance 31% Consumer habits, preferences More product training 24% What is the primary factor that leads prospects to purchase LTCI? Access to multiple carriers 23% Avoid burdening family members 41% Online tools 19% Asset protection 24% More sales training 18% Preserve indpendence 14% Live telephone support 13% Peace of mind 10% Higher commissions 12% Sense of pride, dignity 3% Website development 7% Access to quality care 1% Participate in sales presentations 7% Aversion to Medicaid 1% Web-based conferences 5% Other 6% Commission advances 4% Other production incentives 2%

 

LTCI product features The biggest obstacle LTCI producers face is that clients perceive the product as too expensive. Producers can control cost to some extent by “right-sizing their clients’ protection.” “It was revealing to see that nearly half of producers now take a client’s assets into account when recommending a level of coverage,” says Jesse Slome, executive director of the American Association for Long-Term Care Insurance. “And, clearly, there is growing acceptance that shorter-term policies will offer adequate protection for many who do go on claim.” Many LTCI specialists recommend including some kind of inflation protection provisions in every policy sold. “It’s one of the most important aspects of the sale,” says Lynn Devitt, a long term care advisor in Minnesota. What elimination period do you most commonly sell? 0-30 day 16% 60-90 day 78% 180 day or longer 6% What elimination period do you most commonly sell 3 years or less 14% 4-6 years 55% 7-10 years 6% Lifetime 25% What percentage of your sold LTCI policies includes inflation protection options? Less than 1/4 16% 1/4-1/2 12% 1/2-3/4 15% Over 3/4 57% In the past year, which of the following did you sell more of? Policies offering expense-incurred reimbursement benefits 65% Policies offering cash/indemnity benefits 35% When recommending daily/monthly coverage, which of the following best describes your approach? Coverage to match current nursing home costs 55% Consider available assets to co-insure risk 45%

Specialty LTCI products Combo products, annuity or life insurance products bundled with a long term care provision, have grown in prominence this year. Although most producers have not sold one yet, the majority anticipate doing so in the coming year. Within the past year, have you sold a life or annuity product offering LTCI benefits? Yes 29% No 71% In the next year, do you anticipate selling a life or annuity product offering LTCI benefits? Yes 59% No 41% Despite the fact that nearly 80 percent of LTCI producers have not been involved in the worksite market, 60 percent are interested in selling LTCI to worksites. “LTCI is quickly becoming the number-one sought after executive benefit in the worksite,” says Gary Katelman of Senior Market Sales, a national brokerage agency. In the past year, which of the following have you sold? Executive carve-out LTCI to a business owner 15% Multi-life LTCI using individual policies to a company with 10+ employees 9% True group LTCI plan 4% Multi-life LTCI using individual policies to a company with 100+ employees 2% None of the above 78% Which of the following statement best reflects your current viewpoint? I am not selling multi-life/group LTCI, but am interested in doing so 60% I am not interested in multi-life/group LTCI sales 21% I currently offer multi-life/group LTCI and expect sales to increase 13% I currently offer multi-life/group LTCI and expect sales to remain steady 6%

Jamie Green is editor-in-chief of the Agent’s Sales Journal. For more information on this and other studies, call 800-933-9449 or email editor@agentmediacorp.com.