Long Term Care Insurance: Uncertainty today …. what’s
next?
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John O’LearyPresident
O’Leary Marketing AssociatesDecember 11, 2012
O’Leary Marketing Associates, 2012
Why am I here?
Irene O’Leary Born Mar 7, 1918 Diagnosed 1993 @ age 75 Died Oct 23, 2004 11 years with Alzheimer’s
Rita Maffione Born Jan 29, 1926 Diagnosed 2001 @age 75 Died Mar 4, 2012 11 years with Alzheimer’s
• Long Term Care insurance (LTCi) market• Group LTCi situation
• Individual LTCi situation
◦Contributing factors
• Market and situational factors• Economics
• Healthcare
• LTCi and the future
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Today’s agenda
O’Leary Marketing Associates, 2012
LTCi an $11 billion category serving 7 million plus consumers
O’Leary Marketing Associates, 2012
Adapted from LIMRA 2011 LTCi In force market data
Dollars Lives Age 45 plus 2011 Sales (Billions) (Millions) % Penetration (Millions)
Group LTC $1.9 2.3 1.9% $181.1
Individual LTC $9.2 4.8 3.9% $545.9
Total LTC $11.1 7.1 5.8% $727.0
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Group Observations
O’Leary Marketing Associates, 2012
Group market: Key carriers exit
O’Leary Marketing Associates, 2012
Date Insurer Action
Aug 2012 Prudential Discontinues sales of group
Mar 2012 Prudential Discontinues all individual LTC sales
Jan 2012 UNUM Suspends all new group sales
Jan 2012 John Hancock Closes GLTC plans to new entrants
Jan 2012 Met Life Closes GLTC plans to new entrants
Fall 2011 CNA Suspends all new group sales
Fall 2010 John Hancock Suspends all new group sales
Fall 2010 John Hancock Files for rate increases on in-force customers (avg. ~ 45%)
Fall 2010 Met Life Files for rate increases on in-force customers (avg. ~ 45%)
Fall 2010 Met Life Suspends all group and individual LTC sales
2009 Med America Suspends GLTC sales; rate increases (avg. ~30%)
2009 UNUM Suspends Individual Sales
2006-2009 Aetna Exits market-transfers groups
2005 CNA Suspends individual LTC sales
Carrier exits result in large group “closed block” issue
O’Leary Marketing Associates, 2012
*Adapted from 2011 LIMRA Group In Force data** Includes FLTCIP and CALpers
Employer Groups (2011)* Groups Lives DollarsTotal Inforce 11,607 2,255,575 $1,921,200,000Total with Active Carriers** 201 527,086 $843,872,000Total Closed Block 11,406 1,728,489 $1,068,328,000% Closed Block 98% 77% 56%
• Lack of Competition
• Has created huge demand/supply imbalance
• Little room for “New “sales –cherry picking
• High number of “closed block” cases
• Employer/broker damage–highly skeptical
• Who, if anyone, can fill void?
• Group contributing factors –LOW INTEREST RATES exacerbated by:
• Long tail (employee average purchase age < 50 );
• Guaranteed issue; Low participation
• Fit with other “group products” i.e. capital requirements
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Group Issues
O’Leary Marketing Associates, 2012
• Unfortunately, Group Channel is in “dire straits”
• Group provides efficient and broad consumer access
• Old players unlikely to return
• Hancock possible exception
• Old business model hasn’t worked for many
• Infusion of new thinking, new models, new players
• Opportunities
• Closed block management
• New sales to ER s with closed blocks
• New sales to ERS who haven’t yet bought Individual Multi-Life; Transition product; others
• New approaches that balance consumer need with carrier risk
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Group Assessment
O’Leary Marketing Associates, 2012
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Individual LTCi Observations
O’Leary Marketing Associates, 2012
Individual LTCi: Dramatic rate actions make headlines
Headline Carrier Increase % Date
CalPERS approves 85% rate hike to long-term care insurance CalPers 85% 10/18/2012Long-term care insurance rates soar Hancock 90% 6/21/2012Cost of long-term care coverage goes through the roof Hancock 60% 4/13/2012Genworth Plans to Raise Some LTCI Rates 50% Genworth 50% 8/1/2012How is a 90% long-term care rate hike OK? Hancock 90% 3/18/2012
Long-term care insurance rates soar Mutual of Omaha 33%/24% 6/22/2012
Source: Long term care insurance articles in consumer press-Chicago sun times etc…
O’Leary Marketing Associates, 2012
• Important carriers have left the business, but key carriers remain• Companies include: Genworth, Hancock,
Transamerica, MedAmerica, Life Secure
• Mutuals include: Northwestern, Mutual of Omaha and New York Life
• Unlike group -over 80% of the business remains with active carriers
• There is a clear “market leader” - 40% plus share
• Can lead in pricing/risk management/innovation?
• Highly analytical, most claims experience
• Broadest distribution access
• Management committed to business 12
Individual market dynamics
O’Leary Marketing Associates, 2012
• AGGRESSIVELY MANAGING RISKS:
• Adjusting pricing: Across the board premium hikes; retro and prospectively; Upward adjustment of female rates
(NOTE: AFFORDABILITY ALREADY #1 BARRIER TO SALES)
• More restrictive underwriting: Family history; More uninsurable conditions i.e. schizophrenia, tobacco use ; Blood and fluids?
• Limiting benefits: Elimination of lifetime; cash benefits; limited pay options
• Reducing consumer discounts; haircuts on agent commissions
• Some interesting product initiatives –Hancock, Med America- Recognition of need to change 13
Remaining Individual Carriers
O’Leary Marketing Associates, 2012
• Short term- restricting product access to the “healthier and wealthier”
• Short term fix or long term strategy-Niche versus Growth
• Are affordable product options possible today?
• Can Underwriting be made more palatable?
NOTE *ACA IS GI FOR HEALTH
• Longer term
• There’s room for Innovation- Is there appetite?
• There’s a need for new players- Are there attractive opportunities?
• Other • Industry reputation
• Distribution commitment
• Under priced legacy business-continuing drag?14
Key issues
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Contributing factors to how we got where we are
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What’s behind carrier actions?
O’Leary Marketing Associates, 2012
•HISTORICALLY LOW INTEREST RATE
ENVIRONMENT
•LTCi-Already considered “Risky” due to long
tail
•Initial actuarial assumptions – too optimistic
• Lapse rates lower than assumed
• Morbidity higher
• Mortality lower
•Costly plan designs-i.e. Mandated offer- 5%
ABI
•Result: “Perfect Storm” for LTCi
What’s behind carrier actions?Company situational factors...
O’Leary Marketing Associates, 2012
Company Annual * EST Stock Price NYSE Notes Revenue % LTC (12/1/12)
(Millions $s)Genworth 10,238$ 22% $5.89 High % total business
Manulife (J Hancock) 50,233$ 4% $12.80 Includes FLTCIP portion
UNUM 10,260$ 6% $20.44 Primarily P&C
Prudential 49,036$ 1% $51.96 Low % total business
Met Life 70,262$ 1% $33.38 Low % total business
CNA Financial 8,908$ 6% $28.05 Primarily P&C
* 2012 Compustat
**Derived from industry LTC sales estimates and total business
REW
AR
D RISK
LO RISKLO REWARD
LO RISKHI REWARD
HI RISKHI REWARD
HI RISKLO REWARD
HI
LO
LTC Targe
t
LTC Future ?
What’s behind carrier decisions?
Look at the business risks
•High capital requirements•Questionable predictability•Long time horizon•High financial uncertainty•Low market penetration•Heavily Regulated •Strategic fit ?
Key Decision Variables
O’Leary Marketing Associates, 2012
Individual LTCi is at a “tipping point”
• Current actions reinforce a “niche” positioning
• Question: Will the industry undertake innovation required to meet broader range of consumer needs?
Opportunities:
• Better balance carrier risk with consumer needs
• Broaden product appeal beyond “healthy/wealthy”
• New thinking to find alternate ways to address emerging long term care crisis 19
Overall Assessment and opportunities
O’Leary Marketing Associates, 2012
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Market and situational factors
O’Leary Marketing Associates, 2012
Demand: Senior population doubles in the next 30 years
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
-
20,000
40,000
60,000
80,000
100,000
2010 2015 2020 2025 2030 2035 2040 2045
Age 65+ Population Growth Trends
Population age 65+ Percent 65+
O’Leary Marketing Associates, 2012
Table 12. Projections of the Population by Age and Sex for the United States: 2010 to 2050 (NP2008-T12) Source: Population Division, U.S. Census Bureau
Cost and need for long term care continues to accelerate
O’Leary Marketing Associates, 2012
Home Healthcare Assisted Living Nursing Facility $43,472.00 $39,600.00 $73,000.00
44 hrs per week Private room Semi-private room
2012 Median Annual US Cost of Care
2012 Genworth annual cost of care survey
0 > 1 year 1-2 years 2-5 years 5 plus years 31% 17% 12% 20% 20%
Estimated years of care for persons after age 65
Georgetown Univ. Feb 2012
1-2 years 2-5 years 5-10 years$39,600 - $146,000 $79,200 - $365,000 $198,000 - $730,000
Long term care liability ranges for ages 65 plus-assumes US medians
Future demand is growing; consumer choices shrinking
Consumer
demand for servic
es rising Cost of
Care High and
growing
Carriers opting out/rais
ing rates
CLASS Act
deemed not executableMedicai
d belt tighteni
ngReverse
mortgage
equity down Inadequate
Retiree Savings
The coverage
gap widens
O’Leary Marketing Associates, 2012
US Family economics- income and age
Changes in U.S. Family Finances from 2007 to 2010: Evidence from the Survey of Consumer Finances; Federal Reserve Bulletin June 2012
Income Percentile Total Bottom 20% 20-39.9% 40-59.9% 60-79.9% 80-89.9% top 10%# US Families (millions) 116.7 23.3 23.3 23.3 23.3 11.7 11.7Median annual income $45,800 $13,400 $28,100 $45,800 $71,700 $112,800 $205,300Mean annual income $78,500 $12,900 $27,900 $46,300 $73,600 $114,600 $349,000Median Net worth $77,300 $6,200 $25,600 $65,900 $128,600 $286,600 $1,194,300Mean Net Worth $498,800 $116,800 $127,900 $199,000 $293,900 $567,200 $2,944,100
Age head of household Total < age 35 Age 35-44 Age 45-54 Age 55-64 Age 65-74 Age 75 plus# US Families (millions) 116.7 24.5 21.2 24.6 20.4 13.4 12.5Median annual income $45,800 $35,100 $53,900 $61,000 $55,100 $42,700 $29,100Mean Annual income $78,500 $47,700 $81,000 $102,200 $105,800 $75,800 $46,100Median Net worth $77,300 $9,300 $42,100 $117,900 $179,400 $206,700 $216,800Mean Net Worth $498,800 $65,300 $217,400 $573,100 $880,500 $848,300 $677,800
• 75% of families don’t have sufficient net worth (including home equity) to self fund 2 years in a Nursing Home at US average
• Half of seniors couldn’t self fund 3 years of Nursing Home care from net worth
• Upper 10% -15% of families have sufficient income to pay for long term care protection.
• Many have sufficient assets to co-insure or fund a significant long term care event
• Likely family targets for long term care insurance:
• Priority Target-Top 20% ~23 million families
• Secondary Target- 50-80% ~35 million families
• Not a likely target- Bottom 50% ~58 million
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Takeaways family economics
O’Leary Marketing Associates, 2012
Healthcare costs per person skews heavily to age 65 plus
Average Spending Per
Person
Age (in years)
<5 $2,468
5-17 1,695
18-24 1,834
25-44 2,739
45-64 5,511
65 or Older 9,744
Sex
Male $3,559
Female 4,635
Source: Kaiser Family Foundation calculations using data from U.S. Department of Health and Human Services, Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey (MEPS), 2009.
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Healthcare observations
O’Leary Marketing Associates, 2012
• Healthcare is in the midst of a dramatic changes -in part, but not totally due to ACA
• In Massachusetts seeing emphasis on cost reductions-provider/insurer collaborations; focus on outcomes
• New payment delivery models- fee for service on the way out; pay for outcomes coming ….
• (Big) Data-genomics analyses; Electronic medial records; diet and activity monitoring
• Consumers being forced to be in charge• Higher deductibles and co-pays
• Innovative wellness programs becoming ubiquitous• Shape up• Healthrageous/ Wellocracy• Live + well-Genworth
News Flash: Scientists concerned with aging are now seeing lifestyle impacts
O’Leary Marketing Associates, 2012
Disease % LTC claims Impact of exercise, diet
Alzheimer's 21% As much as 50% reduction*Stroke 11% Exercise and diet reduces riskArthritis 11% Exercise relieves painCancer 10% Exercise and diet reduce risks**Circulatory 10% Exercise improves circulation***Injury 10% NANervous 7% NAMental 6% NARespiratory 5% Improves respiratory function Digestive 2% Mixed results
* Dr. Kristine Yaffe** Web MD*** especially important for Diabetics
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More healthcare observations
O’Leary Marketing Associates, 2012
• Increasing recognition that earlier knowledge and intervention can ameliorate later problems• Alzheimer’s issues begin way before symptoms• Dr. Deborah Blacker head MGH gerontology
“Research is uncovering relationships between Alzheimer’s and diabetes, high BP, high cholesterol, cardio and sleep disorders”
• Leading to a greater Healthcare focus on senior care and chronic conditions• That’s where the costs are• Two of the Boston leading hospitals have
homecare subsidiaries; others have programs
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LTCi and the future ?It depends…
O’Leary Marketing Associates, 2012
For long term care carriers risk mitigation is key
TightenU/W
ReduceBenefits
AdjustPremiums
Share Risks
ManageHealth
If lowers costs
Already High
Open to consider
Uncharted potential
LimitsAudience
But what about consumer needs?
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Assessment: Current approaches
O’Leary Marketing Associates, 2012
Current LTCi productsProduct Positives NegativesIndividual LTC Total LTC Financial Solution High risk to carriers
Persoanl selling know how High cost to consumersDistribution mechanisms in place Invasive Underwriting
Impact of Rates IncreasesReputation of product/carriers
True Group LTC Fits group benefits model High risk to carriersGroup benefits synergies Huge "closed" blockEasy access to EEs Employers, brokers burnedKnown enrollment, admin processes No competition-only one carrier
Low priority group benefitLow broker marginsLow EE participation
Assessment: Individual LTCi likely to remain a high end niche product without substantial changes; Group market begs for “disruptive innovation”
Current LTCi products
Multi Life Large # of small businesses Individual product riskFits known voluntary benefits model Tightening U/W Commisions support w/site activities Raising pricesTax advantages to SB owners Distribution: limited access to ERsGroup premium discounts "group" infrastructure lackingSimplified U/W
Product Positives Negatives
Assessment: Proving viable as a small employer product; not yet viable for mid and large sized employers without group infrastructure adds.
Risk limiting approaches Limiting carrier risk Positives NegativesLife or annuity with LTC rider Limits carrier risks Higher costs than if alone
Solves "what if I never use" objection Many are single payCan simplify marketing message Consumer must want bothMany companies offer Not yet a mainstream benefit
Benefit Bank (Hancock) Flexible plan design Adds complexity Limits carrier risk on Inflation Difficult to explainAffordable Individual risks
Transition MedAmerica Affordable premiums Limited total benefit Fast underwriting process Limited policy choicesTargeted marketing messages Partial/transitional solution
Assessment: Each approach holds promise, has potential barriers . Consumer feedback, marketing analysis, consumer research and segmentation may be able to hone future modifications.
Health Management
Assessment: While results are unproven, the latest research suggests strong correlations between healthy lifestyles and minimizing chronic conditions and diseases. Warrants further investigation .
Lifetime Health Combine long term Wellness with Care Financial Protection; Use HRAs and
Positives NegativesBetter consumer/insured health Engagement to date mixedLikely improves claims experience Experience unproven Helps insurers manage risk Carrots and sticks ?Positive marketing messaging Potential for exclusionConsistent with wellness trend Hard to determine actuarial value
Insured condition management
Positives NegativesBetter consumer/insured health Experience unproven Likely improves claims experience Hard to determine actuarial valueHelps insurers keep rates stable Changes insureds contractPositive marketing messaging Participation levels may be lowProvides measure of consumer control
biometrics to provide health contingent long term care protection
Add wellness and condition management as options for existing insurerd's policies to minimize need for future rate actions
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Thoughts to leave you with…
O’Leary Marketing Associates, 2012
• LTCi at a tipping point-niche vs. growth• Private Insurance just one solution-other
public/non-profit/private solutions • Wellness and Healthcare related to LTC• Stakeholder involvement broad • Opportunities for “disruptive innovation”
and out of the box thinking• Remember: the Consumer and that
funding is not unlimited
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Thank You
O’Leary Marketing Associates, 2012
John O’LearyPresident
OLeary Marketing [email protected]
978-258-3567978-382-8227 (mobile)
Questions or further discussion?