Highlights of “Challenging the Status Quo” Seminar
By Noah Gorman and Patrick MacLyman
Long-Term Care News, November 2022
As an increasing number of states explore public long-term care (LTC) programs, interest in private LTC solutions has heightened; however, the industry continues to face challenges that impact insurers’ ability to penetrate the market effectively. The recent SOA Product Development Section webinar, Challenging the Status Quo: Emerging LTC Product Designs, sparked discussion on how the LTC industry can overcome existing hurdles and evolve to meet consumer needs. This webinar featured the following speakers, with Dustin Plotkin from the actuarial consulting practice of Oliver Wyman serving as moderator:
- Jaime Mueller—Corporate Vice President, Product Development, New York Life Insurance Company
- Michael Hamilton—Vice President, MoneyGuard Product Management, Lincoln Financial Group
- Dan Kraft—Vice President, Product and Innovation, Trustmark Voluntary Benefits
The speakers, whose expertise covers both traditional and combination LTC products, examined the following hurdles affecting the LTC industry:
- Rate increase wariness and fatigue
- Affordability and accessibility
- Alignment of policyholder and insurer incentives
- Informal and family caregiver support
Rate Increase Wariness and Fatigue
Deterioration in key pricing assumptions has led to ongoing rate increase activity in the LTC industry over the last decade, particularly on contracts sold before the adoption of LTC rate stability regulation.[1] One by-product of this rate increase activity is that many would-be consumers associate traditional LTC products with rate increases, leading to widespread wariness. Combination LTC products can offer consumers a guaranteed premium, death benefit, return of premium and cash value, but webinar speakers also emphasized the importance of designing traditional LTC solutions that minimize the likelihood of future rate increases. As speaker Jaime Mueller observed, traditional LTC solutions with guaranteed premiums should be the industry’s “North Star” in this effort. In the interim, bringing back limited payment options (e.g., a 10-year premium term), while riskier for insurers than lifetime payment terms, could alleviate some of the rate increase wariness associated with traditional LTC products.
Affordability and Accessibility
While existing LTC policies face rising premiums, new LTC products continue to be out of reach for the middle market, highlighting challenges faced by the insurance industry in designing affordable and accessible LTC coverage that people find value in purchasing. Jaime Mueller suggested that expanding the range of funding options, including pay-to-maturity options, can make combination LTC products more affordable. Implementing cost-sharing mechanisms, such as coinsurance, and simplifying product features and benefit options may also create affordable LTC coverage that suits the needs of middle-market consumers. The webinar speakers emphasized that reengaging the employer/group insurance market and creating supplemental LTC products in partnership with publicly funded LTC programs could increase the accessibility of affordable LTC coverage for a large pool of individuals.
Alignment of Policyholder and Insurer Incentives
Aligning policyholder and insurer incentives is another hurdle that requires thoughtful product design and consumer education at the point of sale. Speaker Michael Hamilton noted that combination LTC products help to alleviate the “use it or lose it” nature of traditional LTC products, but insurers continue to explore options to better align incentives. Both insurers and policyholders would prefer to avoid a claim event; to that end, wellness programs reestablish a relationship between the insurer and insured and can help improve a policyholder’s aging experience via education and preventive care (e.g., home modifications, care concierge). Pilot wellness programs are being explored by carriers throughout the LTC industry, but the efficacy of these programs has not yet been proven.
Informal and Family Caregiver Support
Overwhelmingly, LTC policyholders prefer to receive care in their own homes. This preference, paired with an increasing reliance on (informal) family caregivers, creates an opportunity for new LTC product designs. Most in-home care is covered by LTC insurance options available today, but fewer options cover services provided by family caregivers, and coverage for the expenses borne by family caregivers has been largely unaddressed. To combat this hurdle, speaker Dan Kraft highlighted that new LTC product designs could reintroduce cash benefits that can be used to pay family caregivers for their time and expenses. Alternatively, new designs could vary the benefit amounts for informal care and professional care and provide more robust value-added benefits aimed toward family caregivers, including respite care, caregiver training, and legal support.
Conclusion
As consumer LTC awareness grows, the industry must evolve to overcome the hurdles highlighted during this webinar. Creative product development solutions, such as those identified by the industry experts on the panel, will be instrumental in expanding the LTC market and ensuring that the products offered are affordable and accessible for everyone.
Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries, the editors, or the respective authors’ employers.
Noah Gorman is an analyst at Oliver Wyman. Noah can be reached at Noah.Gorman@oliverwyman.com.
Patrick MacLyman is a manager at Oliver Wyman. Patrick can be reached at Patrick.Maclyman@oliverwyman.com.