How things are shaping up in the LTCI market

As health care costs increase, retirement funds dwindle and life spans lengthen, more Americans  are in need of long-term care funds. Three top producers discuss the long-term  care insurance market and share their strategies  for tapping it.

Matthew D. Brotherton, CLTC, is president of 1752 Financial Solutions in Richmond, Va.

Mark S. Jones, LUTCF, now serves as president of Remington Insurance Group, an insurance marketing group in Houston.

Arthea S. (“Charlie”) Reed, Ph.D., CLTC, is the owner/president of Long-Term Care Insurance Connection, which specializes in long-term-care insurance and retirement solutions.

That “age wave” we’ve heard about for so many years is still crashing upon our demographic shores, and our economic and political scenes are both showing the effects. This nation has a huge number of people reaching retirement age, having lived much longer than the generation before them, which is stressing both our Social Security and private retirement systems. In addition, because of the longer lives and greater demand for senior health services, health care costs continue to spiral ever higher. Compounding those demographic and subsequent economic issues is the fact that we have had both a recession and a severe financial crisis to deal with. In the midst of these obvious and serious problems, we see our political leaders pointing fingers at the other guy. They’re consistently coming up with plans that seem to ignore the real problems or create new problems for us to deal with. In fact, we seem to be at a point in our nation’s history where there is true lack of sound, practical political leadership all around. If you let yourself focus on that for too long, it’s easy to become disheartened. But what is encouraging, in my view, is that there are strong industry leaders who continue to try to solve real problems, and our business is full of them. To help ease the burden of increasing health care costs at a time when people are living longer, we have a wealth of good long-term care products. And we have a lot of very good people delivering the message about those products to the people who need them. In this month’s Producer Roundtable, I talked to some of the more successful producers in the LTCI market about how their business is shaping up this year and how they are moving their businesses forward. Here are the producers who shared their thoughts: Matthew D. Brotherton, CLTC; Mark S. Jones, LUTCF; and Arthea S. (“Charlie”) Reed, Ph.D., CLTC.


How is 2011 panning out?

Charles K. Hirsch, CLU: We’re well into the year at this stage, and I’m wondering whether 2011 has shaped up to be the kind of sales year you expected it to be for your LTCI business? Has it been better, worse or about the same? And what are your thoughts on why it’s unfolded the way it has for you?

Matthew D. Brotherton, CLTC: Going into 2011, I had a pipeline of groups that were ready to move forward in offering LTC insurance. I had been working on these relationships over the past year. The employers realized it was the right time to move forward. They had surveyed their employees to ensure there was interest in pursuing a long-term care insurance program. For many reasons, the employees have purchased the long-term care insurance offered at work. For many, it was the simplified underwriting process, others the additional discounts, and still others liked the simplicity of having it available as a benefit at work. I have focused about 40% of my time continuing to prospect new employers, educating the existing employers — and their employees — and continuing to market the discounted LTCI plans to the statewide associations I have secured over the years.

Mark S. Jones, LUTCF: Our year has been better than 2010 for several reasons. First, most of our current client base and qualified prospects are becoming more aware of the long-term care need, fueled by media attention and/or a personal experience with an aging family member or close acquaintance. Almost every baby boomer has a story to share, and the financial commitment for long-term care is generally more than people realize.

Second, the skittish economy and low investment returns over the past several years have caused people to significantly re-evaluate their long-term thinking.

And third, the parents of baby boomers are living much longer than expected, and in many cases, this applies to grandparents as well. It’s no longer unusual to have a 58-year-old prospect discuss their 80-year-old parent now needing some assistance, as well as their 99-year-old grandmother’s monthly expenses at a nearby facility.

Althea S. (“Charlie”) Reed, Ph.D., CLTC: I work in both the individual and group LTC markets, and they couldn’t be more different.

The individual market has been flat. Lots of people are very worried about the economy. Spending anything extra, including on things that protect against risk, is difficult for many folks today. At the same time, I am establishing more limited-pay plans than I have in the past — paid at 65 and 10-pay. There are two reasons for this. First, my primary company has just introduced a new limited-pay policy. And second, my primary individual client base is made up of physicians and owners of closely held businesses. They are looking for tax savings, and LTC works well in this market. These clients also like the idea of paying off the policies before they retire. They are worried about retirement, Social Security and Medicare.

The group market is booming for several reasons. First, the CLASS act — concern about introducing LTC before having to respond to the government plan — this is primarily true in voluntary plans. And second, my business model was to market myself, my company and my back-office to other Northwestern Mutual representatives around the United States to be introduced to potential large-group clients. That process really began to bear fruit in 2009, just as the economy was in free fall. In 2009 and 2010, we had lots of conversations with prospects, but almost no new corporate-paid business. This year, we have seen a turnaround. What we are finding is, if you are talking to the right businesses and the correct people in those businesses, they have money to spend and are looking to save tax dollars. The key is talking to businesses and organizations making money and discussing LTC with the people who make the decisions about spending that money.


The LTCI product development front

Hirsch: How has new product development in LTCI helped or hindered your LTCI sales efforts? Said in another way, are there product innovationslike the new LTCI hybridsthat have significantly impacted your business?

Jones: Traditional LTCI has a significant place in the market, and it creates the initial discussion, but we’re very bullish on the hybrids and prefer them in many cases. Some have been around for more than 20 years and have exhibited an excellent track record for consistency and stability. In my opinion, some hybrids create the most efficient and near-perfect three-legged strategy stool — life insurance for a beneficiary, long-term care benefits for the insured and a refund of premium for the owner should the situation change in the future. Reallocating an existing low-interest or dormant cash asset makes a great deal of sense in many situations because someone will benefit from the hybrids we utilize. With traditional LTCI, you have a 40% to 50% utilization rate, depending upon which statistical source you use, meaning 60% to 50% of insureds will never file a claim. Plus, it’s becoming more difficult — or expensive — for some high-quality carriers to lock in premium rate guarantees for traditional LTCI.

Reed: Although I have clients who ask about them, new products like the LTCI hybrids have had very little impact on my business, primarily because I have chosen not to market them. I have a strong commitment to permanent life insurance because I know what it has done for my personal portfolio. I think life insurance works best as life insurance, and long-term care insurance works best as long-term care insurance — individual and separate investments.

Brotherton: Over the past few years, insurance companies have developed hybrid LTCI products. They have been a nice complement for clients. If anything, they have helped open the conversation of the client’s current life insurance plans, investments and their plans for the potential long-term care need.

These hybrid products are not the right fit for all clients. But in the right situation, if the product is designed correctly, they have a place in a client’s portfolio. The key is to properly explain the program to clients. There are more moving parts than a traditional LTCI plan.


Top LTCI prospecting approach

Hirsch: Even though public awareness of the need for LTCI appears to be increasing, I assume that you still need to help prospects feel the importance of being adequately protected. Can you share an approach that you’ve used that has been particularly effective in helping your prospect understand the need for LTCI?

Reed: I work with colleagues in the area of retirement planning. Through the software we use, we are able to show what a long-term care need will do to someone retiring at age 60 or older and not needing care until age 80 or older. Even a relatively short-term care need of three years for one person, for example, can force a reduction of income by more than 50% for a couple with $2.5 million to $3 million they can devote to retirement income.

Brotherton: More and more clients and prospects of mine fall into the Sandwich Generation. According to the Pew Research Center in 2010, just over 1 in 8 Americans aged 40 to 60 is both raising a child and caring for a parent. At some point these prospects and clients realize that they need to take care of themselves. It might be an article they read, a story on the news, a conversation with their financial planner or coworkers, or the fact that the benefit is being offered at work that prompts them to take action. These Sandwich Generation folks also don’t want to put their kids in the situation they are in with their parents.

Most of my long-term care business comes from working with employers. With the help of the human resource team, we develop an educational strategy to teach the employees about long-term care insurance. Over a three- to four-month period of education, many employees start to think twice about purchasing the product. They like the easy underwriting that can be available, the discounted premiums and the simplicity of purchasing a plan through payroll deductions. Depending on the insurance carrier used, the discounts can also extend to family members. That helps open up an additional source of clients as well.

Jones: We ask three very simple questions and follow with appropriate responses:

“How’s your current health, and are your parents still alive?” Healthy people in their 50s and 60s often live into their 80s and 90s, and genetics can play a key role.

“Have you had any personal experience with the costs associated with long-term care?” Their true knowledge base is exposed fairly quickly.

“Are you aware if you eventually need any type of long-term care, there are only three funding choices for you to consider?” First, some sort of government-funded plan, such as Medicaid, or your family members. How reliable is that option? Second, a personally owned LTC-type insurance policy — which places the owner/insured in control. Third, self-insure — the use of your personal assets. If self-insurance is the preferred choice, the follow-up question then becomes, “Which assets will you liquidate first?”


How is health care reform impacting LTCI market?

Hirsch: As the health care reform act continues to unfold and different provisions are scheduled to come into effect, how are you seeing it affect your LTCI business?

Brotherton: I have several alliances with benefit brokers. I have started the education process with that group of advisors. Those alliances have strong relationships with clients and are familiar with the health care reform act. I present myself as a resource for them and their business clients. This approach has helped open doors, start the conversation and close business. The businesses are not too happy with the reform, and they do not seem satisfied with waiting for D.C. to offer a long-term care insurance program. I am trying to stay ahead of the curve and be proactive with educating the advisors and their clients.

Jones: We’re finding the fractionalization of the political climate, coupled with the consistent economic uncertainty in so many areas, to actually be an ally in the decision-making process. Many of our prospects are in serious re-evaluation mode and are realizing their best choice is one where they are in control. If they can simply shift or reallocate an existing low-yielding or dormant asset to something that creates an immediate leveraged multiple, the transition creates a very low risk in acquiring LTC coverage.

Reed: I certainly face questions about how it might affect LTCI, but no one has elected not to purchase LTCI because of anticipated government health care reform. Most of my clients are more concerned they will see a reduction in what they will have available for health care rather than an increase in benefits. In fact, many of my clients are already realizing they must spend more of their personal money for care than previously. Most of my clients recognize if they don’t cover the need themselves, no one else will do it for them. Fortunately, I tend to work with realists.


Additional LTCI market developments

Hirsch: Any further thoughts about the current state of the LTCI market?

Jones: Annuities that qualify under the 2006 Pension Protection Act are excellent alternative tools for helping fund LTC expenses. If insurability is an issue for traditional LTCI or even hybrids, a PPA-compliant annuity can be funded and made accessible, income tax free, for qualified LTC expenses. Older deferred annuities with sizeable gains should also be evaluated for a possible 1035 exchange. Even though these are modestly underwritten — and a person can be declined — it is not to the extent of a traditional LTCI policy.

Reed: My clients tend to be aware of decreasing benefits and increasing premiums that have plagued much of the LTC market. They want to know how they can be sure the same will not happen to the plans they have purchased. I truly feel the “unrest” in the LTC insurance industry has been more detrimental to increased LTCI sales than any other factor.

Brotherton: This is a great time to be involved in the long-term care insurance marketplace. People who thought they could self-insure now think about LTCI. Financial advisors, attorneys and CPAs realize their clients’ assets are not as high as they used to be and now would benefit from protection with an LTC insurance policy. Also, brokers and those who did not work in the LTC insurance market are looking for ways to generate extra revenue. If you realize your clients need long-term care insurance but don’t want to do it alone, don’t hesitate to bring in a specialist. Or bring in a junior agent to work your book of business and split business with the new agent. Either way, talk about the product — or hybrid — with your clients, note your file and help protect your clients against the unexpected.

Written by Charles K. Hirsch, CLU.  Charles is a contributing editor to Life Insurance Selling.


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