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Long term care coverage: poised for distribution "break out"? Product has been slow to take off, but P-C agencies may be canidates for a bigger piece of the pie By Phil Zinkewicz Let’s face it. It’s not a happy thought, but it could become a reality. As baby boomers move closer and closer to retirement years, perhaps looking forward to spending the monies they have put aside to pay for that cruise to Alaska, that beach house in Southern California or even just lazing on their back porches, all of those monies could be wiped out in a very short time if a family member suddenly needs long term care. Long term care insurance (LTCI), of course, is the product designed to protect against such a financial catastrophe but, in recent years, sales of LTCI have been less than stellar. There are indications, however, that sales of the product may be in for resurgence, and this could be a boon, not only for life insurance agents and financial planners, but property and casualty insurance agents as well. The American Council of Life Insurance (ACLI) offers some sobering statistics that demonstrate the need for LTCI. According to the ACLI, the annual cost of long term care for an individual is projected to escalate to more than $200,000 by the year 2030. Medicaid’s annual nursing home expenditures could reach $134 billion by that year, an increase of 360%. Eighty million to 90 million Americans will be 65 or older by 2030, according to U.S. Census estimates. Many people believe that Medicare and Medicaid will cover all of a person’s long term care needs. According to the ACLI, this is wrong. Medicare provides only short-term, skilled nursing home care following hospitalization and limits its coverage of help at home to those who need skilled nursing care and rehabilitative therapy. Medicaid is the federal-state health insurance program for the poor. To be eligible for this program, one must meet strict rules regarding income and assets. Most middle-income families must deplete their life savings to receive nursing home and home health care under Medicaid. Despite the obvious need for LTCI, a recent Conning & Co. study shows that, while the long term care insurance industry is maturing, it is still searching for sustained profitability. Says Jim Smith, analyst at Conning Research & Consulting: “Long term care insurance is now a $6.7 billion industry, with a five-year compound annual growth rate of 17%. However, almost half of that growth has been fueled by rate increases, and new sales have begun to decline steadily. The industry continues to seek the right combinations of product innovation and distribution to respond to the demographic opportunity.” On the bright side, Stephen Christiansen, director of research at Conning Research, said that LTCI has begun to “break out” of its limited distribution network and is increas-ingly being understood to be part of a financial planning and lifestyle planning program, which may well be the path to sustained profitability. The idea of LTCI “breaking out” of its limited distribution system is an interesting one. Until now, the sale of LTCI has been primarily the province of life insurance agents and financial planners. Is there a possible role for property and casualty insurance agents in what may be a burgeoning market? Rough Notes put that very question to Pat Borowski, senior vice president of the National Association of Professional Insurance Agents (PIA National). “Long term care insurance is a new and evolving marketplace and product,” she said. “Although the product has been around for some time, it has basically been presented in a very limited outreach form and, frankly, it is not similar to life and health insurance products. It is not the kind of product that you purchase once and then you don’t have to worry about it until you get sick or die. People confuse it with life and health products, but it is really more like a property and casualty insurance product, although not completely. With long term care insurance, the buyer only gets the benefit if he or she upgrades the purchase periodically, just as the buyer of homeowners or auto insurance must, at renewal time, consider upgrades of property values and/or increases in liability exposure. Long term care is always evolving. LTCI is a highly dynamic product that changes, depending upon inflation factors. There are so many questions to consider. LTCI provides daily coverage for long term care. If I buy coverage that gives me $100 a day when I need it down the road, that might be sufficient in today’s economy, but what about when I retire? Perhaps I’ll need $200 a day, or $300 a day if I find myself in need of long term care. In other words, if I buy what I believe is a ‘Cadillac’ program now, will that still be a ‘Cadillac’ program when and if I need it?” Borowski said that LTCI is a product that continually needs reviewing, and that property/casualty agents have a discipline of regularly reviewing contracts with their insureds. “Professional property/casualty agents, who have constant, full portfolio relationships with their customers can definitely play a role in LTCI.” Ray Nowacki, of the Louisville, Kentucky-based Nowacki Agency, is a recognized expert on long term care insurance, and he says flat out that, for the P-C agent, LTCI can be “as lucrative as automobile, homeowners and commercial lines insurance, given the opportunity.” Nowacki’s agency sells life, health and, since 1986, long term care insurance; but, regarding LTCI, Nowacki says he deals with a good many property and casualty insurance agencies. “I am their LTC expert,” he says. “I do a lot of seminars and training programs for P-C agents in several states. I think every LTC carrier out there is disappointed in how the LTCI product has been marketed. The product has just not caught on as those insurance carriers thought it would.” Nowacki said that, just as the Conning study has observed, there has been a decline in sales over the last several years. “My own personal experience with long term care insurance has been pretty good. We grow every year. We do this by trying to build policies that fit younger people when it’s cheaper in the hope that our policies will accommodate what long term care expenses will be like 20 years from now. Hopefully, the coverage will pay for 80% of expenses they might incur.” When he discusses “younger people,” Nowacki says he is not talking about people in their 30s or 40s, but rather those 58 years old or thereabouts. “When I first started out in this business, the average age of the audience was 68. But now, the industry is targeting the ‘younger’ people in their late 50s.” Nowacki says that the LTCI industry is working to make the product more attractive to this group. One of the major problems in selling LTCI to these “younger people” is that they see the product as expensive and wonder what will happen if they spend the money and never have to use it. “The industry is dealing with that,” he says. “Some companies are offering a policy called ‘return of premium.’ That coverage says that, if someone buys the LTCI and then dies without using it, all the premiums that have been paid go to the insured’s survivor.” Governments, he says, are working to make the LTCI product more attractive as well. “In some states, premiums paid will come off the top of your state taxes, either as a deduction or credit. People who are self-employed can enjoy some deductibility of premium on the federal level too. If I am a C corp, I can legally have my company pay the premium for me and my wife and the premium is tax deductible to the corporation.” Nowacki allows that many believe that LTCI is expensive. “But dealing with a long term care situation for oneself or a loved one can be much more expensive. What I do is run a brokerage operation that deals with property and casualty agents—independent agents, agents that are tied to carriers, etc. I might go in and train an agent and work with that agent, or one of my producers might be assigned to an agent, all on a split commission basis. One reason that most property and casualty agents have shied away from the long term care insurance product is that it is complicated and changing all the time. It’s like a roller coaster ride, changes happening so quickly. It requires somebody that really spends his or her time understanding the various policies and their nuances. Any successful P-C agent can do it, but most don’t believe they have the time. They’re busy doing what they do best. But I show them how, by working with my organization, they can form a little specialist department within their agency. If an agent in a P-C operation spots a likely prospect, we will work with the agent in developing a program to fit the prospect’s pocketbook while providing for the insured’s potential needs in a long term care situation. Things that must be considered are how long a policy will last and whether there is an inflation factor built in.” Nowacki recommends strongly that property and casualty insurance agents look into the LTCI market. “Successful P-C agents can enjoy a pretty healthy cash flow. When I speak before agents at seminars and annual meetings, I tell them, ‘If you don’t do it, then somebody else will.’ Moreover, if somebody else does sign up an LTCI client that could have been theirs, that jeopardizes the P-C side of an agency’s operations.” *
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