Although long-term care insurance products are at times a hard sell, sales are up. Product experience, however, remains modest. These are the main conclusions from Munich Re’s recent long-term care insurance convention.
A LIMRA survey found that this market segment garnered $83 million in premiums in Canada in 2009, growth of 6% since 2008. There were 70,500 insured, up 5% from 2008.
One market characteristic has remained stable: the product lacks experience. LIMRA tabulated only a handful of claims for this product, launched in 1999. This means that insurers do not have a broad horizon on which to measure claims, says Frédéric Jacques, Assistant Vice President, Living Benefits at Munich Re and a professional actuary.
In 2009, the North American market amounted to $8.74 billion in premiums, the LIMRA study reports, equal to a 1% increase since 2008. Insured totalled 4,800,000 in 2009.
The U.S. market is quite concentrated: ten companies captured 87% of the market, up 1% since 2008. The top five companies control 70%, a proportion unchanged since 2008.
Despite the scant experience in this market segment, Munich Re reports that claims are becoming more frequent, particularly because of Alzheimer’s disease. “Cases of dementia mushroomed from 16% to 30% in six years. They’re on an upward trend,” Mr. Jacques points out.
Well heeled clients
These products are particularly appealing to people in their early 50s. The clientele is almost evenly split between men and women, Mr. Jacques adds.
Denise Liston of Massachusetts-based LifePlans confirms that 53% of new insured are women.
Clients that buy long-term care are affluent, Ms. Liston adds. “Over 68% earn more than $75,000 per year, and 10% have a salary of over $100,000.”
The average annual premium amount is $1,400. Seventy-five per cent of policyholders have lifetime benefits, and nearly half of the policies sold are payable for life.
Mr. Jacques underlines the importance of the market. “Long-term care insurance is even more important as the global population ages. The costs associated with health care are rising,” he points out. “This population therefore represents untapped potential for advisors.”
Before issuing long-term care insurance contracts, advisors must be well aware of the clients’ physical condition, Mr. Jacques cautions.
“You have to ask the clients open-ended questions and let them speak,” Ms. Liston says. “Advisors must look at the client’s cognitive performance and medical history. For instance, you have to ask whether they are taking any medication. If so which? Because drugs are a telltale sign of whether the client has an acute or chronic disease. Advisors should also check whether the client’s weight is within the normal range. You have to ask whether the measurements were taken at home or at the doctor’s office.”
The physical condition of the client’s parents is another good indicator, Mr. Jacques adds.
Ms. Liston offers this tip: to determine the eligibility of relatively young clients, advisors can simply conduct a telephone interview. In contrast, she says, it is better to meet seniors face to face at home.
“Long-term care insurance products are not life insurance products, nor critical illness, disability or annuities. They are intended for people who can no longer perform two out of six daily living activities or who suffer from a cognitive deficiency (impaired memory or orientation in time, space, etc.), Mr. Jacques explains.
These products are not necessarily designed for clients ages 65 and up, but rather for those who develop medical problems and need care as a result, he continues. “That’s why these products are well suited to people between ages 50 and 55,” he says.
Long-term care insurance can cover care either at home or in a facility, or both. There are three types of benefits: indemnity (fixed amount paid in cash if the definition is met, as in the disability insurance model), indemnity payable for predefined care (listed) and reimbursement upon submission of an invoice for care or other expenses.
Note that these products do not cover clients suffering from nervous or mental disorders, those with alcohol or drug addiction, or those who perform an illegal activity or sustain an illness or injury resulting from war. Treatment the government pays for, such as hospital expenses, is also not covered, nor are suicide attempts and intentionally self-inflicted injuries.