"We don't have any other option there," David Hillelsohn, brokerage manager for Reston, Va.'s Haslett Management Group, says in response to some zigging and zagging the carriers are doing in the areas of underwriting questions and participation requirements. Sure, some changes look better to the benefit broker than others, but Hillelsohn's point is that it's all good if it helps the industry find some stability.
"We have to convince the benefit adviser and the employers that that is what's necessary to create stability in our product line," he says.
Some of the changes won't require much convincing. The participation requirements are one such example.
"We are seeing companies that at one point are at 10 lives then they go to three, then they end up back at seven," Hillelsohn says. "It's not just in a single direction. We find that this is something that they are actively managing to try and get it right."
Starting small
Another benefit of lowering the participation requirement is that it could get more producers in the practice of selling long-term care insurance.
It's a way for producers to get "their feet wet," says Edmond A. Jette of Oxford, Mass.' Empower Services. The average LTC broker has had a hard enough time getting into the business, he's definitely not ready to tackle a 100-employee group, which would mean dealing with a board of directors and an HR professional, says Jette.
"[Carriers] figure if they get a little experience doing a couple of small ones, then they could jump into the 50-life case or the 100-life case," he says.
The lower they go on case-size, the easier it is to stomach the tweaking and tinkering that has become common in both the number and variety of underwriting questions required by the carriers.
But don't be too hard on the carriers, Hillelsohn says. They're just trying to figure it out, after all. They are still in the middle of the fabled learning curve. It's not like life insurance, where there is a century worth of experience for the carriers to draw upon. Just a couple of decades is all the LTC players have — and it's proving insufficient.
"Fundamentally, the carriers are still learning. It's impossible to say, 'this is where we are and this is where we need to be.' They look at the guidelines that they have had, see the usage that follows from that and they try to correct some of those mistakes," Hillelsohn says.
Correcting those mistakes might require boosting the number of underwriting questions from two to four or even six. New questions about medical devices may surprise some advisers. Experience may also lead carriers to add condition-specific questions because they have seen a higher incidence of claims within a shorter period of time or it could be the result of claims abuse. Experience must and should be the guide.
"They are getting a much better handle on underwriting," Jette says.
Tackling the variables
There are a variety of variables for the carriers. One is the age of policyholders, which Jette says is dropping from the late 50s to the mid 40s. That means they could be on the books for decades, multiple decades. Factor in compound inflation requirements and the carriers will have to build a mountain of reserves.
"I would say more than half of my people who bought LTC bought lifetime coverage," Jette says. "If someone goes on claims at 40 years of age, you only need a couple of those to really mess up your books."
That, says Jette, is also driving a change from per-day benefits to pool limits. Instead of $200 a day for life, a buyer might opt for $500,000 in total benefits.
Two for one
Another front in the change assault confronting both seasoned and novice LTC advisers is hybrid products.
The PPA has some in the industry pairing LTC and life insurance or LTC and annuities. The benefit? One buying decision for a multitude of products. The drawback?
"You are taking an already complicated product and making it more complicated and more expensive by trying to achieve multiple objectives," Hillelsohn says.
Ultimately, this move will help financial advisers and hurt the benefits professional. Why? Financial advisers are geared toward wealthier clients and more sophisticated products and programs.
Hillelsohn says carriers are skeptical about taking these programs to the American worker's break room.
"In fact, the carriers have those products right know and we've had employers asking for them and the carriers are not convinced that those products are suited for the worksite. To the point where they don't even want to quote them an offer, even if the employer's demanding it," Hillelsohn says.
