A survey has revealed that consumers place the need for long-term care insurance over that for critical illness insurance. At first glance, this comes as a surprise, because for years, the industry has been actively promoting the critical illness product.

According to a Leger Marketing survey unveiled at the Insurance and Investments Convention in Montreal this November, 75% of consumers living in Quebec believe that long-term care insurance (LTC) is a very important (31%) or a somewhat important (44%) component of their financial coverage.

Critical illness insurance (CI), on the other hand, scored 67% in these categories (31% very important, 36% somewhat important).

The question was: In your opinion, to what extent are the following products important in meeting your financial needs?

The survey had 1000 respondents and was conducted between October 10 and 22, 2006 in the province of Quebec.

Accident/illness insurance, life insurance, and disability insurance ranked at the top of the list of consumer needs, with, respectively, 83%, 82% and 78% of respondents saying they consider these as very or somewhat important.

The results, which show marked interest in a product whose sales have barely taken off, come as no surprise to the experts.

They agree that the LTC results would have been much lower if the survey had been conducted five or ten years ago. They also feel the market is now ripe for the LTC product.

According to Richard Letarte, vice-president in the Montreal office of Munich Re, Canada’s largest life reinsurance company, “The survey is very encouraging.... The population is beginning to realize that there is a need for LTC coverage. Until now, the perception has been that these needs were covered by the government.”

Mr. Letarte notes, however, that a stronger link must be established between the advisors and consumers. “Information about the product must be better communicated,” he continues. Above all, he says, advisors must understand the products well and the needs that they cover. Only then can the industry provide accurate information to the general public.

Mr. Letarte also believes that LTC opens the door to many business opportunities. “As advisors become more interested in it, they will include it in their clients’ needs analysis,” he explains. And, he says, once consumers have understood it through a needs analysis, product sales will increase.

A matter of time

At the end of 2005, only 47,000 Canadians owned LTC policies, according to a report by LIMRA International.
“The client pool is larger now, and many players are in the process of revamping their products,” explains Christian Dufour, senior director of sales, managing general agent network, actuarial and training at Quebec-based insurer La Capitale.

He estimates that new sales in Canada reached $16 million in 2006. And, while this is still modest, Mr. Dufour believes that this market will see significant growth over the next five years as products improve.

He adds that the survey confirms that “the clientele is more alert, more aware.” People have long believed that the government would take care of them. “But when the government gets involved, you have no say in where you go, and you still have to pay,” he warns. “People are becoming increasingly aware of this fact.”

The unpredictable future

Many believe that the uncertainty surrounding a hike in premiums is slowing sales. No product on the market completely guarantees LTC premiums. Sun Life Financial, among others, guarantees its premiums for five years.

Mr. Dufour defends the absence of a guarantee, explaining that no one can predict what might happen after five years. “We are still lacking experience in this area,” he states. “A fully guaranteed product? I don’t think so!”

When reinsurers establish the price structure of the product, they are working with too many unknowns to allow them to set premium guarantees over the long term, he adds.

The causes of Alzheimer’s, for example, are little understood, yet this disease is responsible for many people losing their autonomy. One Canadian in 13 over the age of 65 suffers from Alzheimer’s or a similar condition, he explains.

It is, therefore, too great a risk for reinsurers to reinsure a fixed premium product when they are unable to calculate the probability of a loss of autonomy beyond five years.

By way of comparison, it is much easier to model the costs of insurance associated with death, because it is a certain outcome.

Despite the current sluggish growth of this product, Mr. Dufour believes that Canada will soon take a page from the book of other countries, such as Germany, which encourage the purchase of private insurance products.

The Canadian government will follow suit within a few years, he maintains, in order to raise people’s overall awareness of the importance of having long-term care coverage. The government, he believes, will likely create tax incentive mechanisms, with the State overseeing care that will increasingly be provided by private centres.

In the meantime, insurers are preparing for this eventuality, with some already investing in health care institutions. Mr. Dufour states that La Capitale has participated in the financing of retirement facilities. The insurer plans to diversify its investments over the long term in this sector, which holds the promise of solid returns.