Sharpening the focus on a dynamic year for LTCI
Three top-level advisors share what’s working for them in the current long-term care insurance market.
By Charles K. Hirsch, CLU from the November 1, 2012 issue of Life Insurance Selling • Charles K. Hirsch, CLU, is a contributing editor at Life Insurance Selling.
From a high-level view of the long-term care insurance (LTCI) business, most observers would agree that 2012 has been a relatively turbulent year. Companies have left the business, and others have raised their rates substantially. New products have been introduced, and other products have been pulled from the market. The profitability of long-term care insurance products as a whole seems to be in a re-evaluation phase. Products have been tweaked, and some of those tweaks have included commission adjustments.
As we near the end of the sales year, though, we wanted to address long-term care insurance from the perspective of the salesperson. To be more precise, we wanted to sharpen the focus to ground level in order to get the inside view from some of the top long-term care insurance producers in the business.
Here to discuss what’s working and what isn’t working in long-term care insurance sales — and to provide some practical sales tips along the way — are the following panelists: David E. Appel, CLU, ChFC, AEP; Stephen N. Mathieu, CLU, ChFC, RHU; and Debra Newman, CLU, ChFC, LTCP.
David E. Appel, CLU, ChFC, AEP, is managing partner of Appel Insurance Advisors in Newton, Mass. A 1992 graduate of the Whitman School of Management at Syracuse University, Appel takes a consultative, service-oriented approach to personal and business insurance planning. His primary focus is in helping clients protect their families and businesses from the financial pitfalls of death, disability and long-term care. He also assists with, through other advisors, clients’ savings and generation-to-generation wealth transfer goals. He is a 16-year qualifying and life member of the Million Dollar Round Table (MDRT), with three consecutive Top of the Table qualifications and eight Court of the Table qualifications.
Stephen N. Mathieu, CLU, ChFC, RHU, is founder, president and investment advisor representative of Legacy Financial Solutions in Manchester, N.H. He received his bachelor’s degree in accounting from the University of Massachusetts in 1979. Mathieu is a member and past president of the N.H. Society of Financial Service Professionals, and has served as continuing education chairman for both the society and for the N.H. Association of Insurance and Financial Advisors. He is a 20-year member of the MDRT with one Top of the Table and 10 Court of the Table qualifications. Mathieu was recently named a Five Star Wealth Manager by New Hampshire Magazine for 2012, rated highest in overall satisfaction by clients, peers and industry experts.
Debra Newman, CLU, ChFC, LTCP, is a pioneer of the long-term care insurance industry and founder of Newman Long Term Care, one of the largest and most successful long-term care marketing organizations in the country. Her focus is on helping people understand that planning ahead will allow them to finish life well. Nationally recognized on long-term care issues, Newman frequently speaks to insurance, financial services and government groups as well as consumers. Newman has extensive leadership experience in numerous industry organizations, including chair of the board of directors, LIFE Foundation; president, Minnesota chapter of the National Association of Insurance & Financial Advisors (NAIFA); past national president, Association of Health Insurance Advisors; and past president, NAIFA Minneapolis.
Evaluating 2012 in LTCI
Charles K. Hirsch, CLU: As the end of the sales year approaches and you take a look back at your results, has 2012 been as strong a year for your long-term care business as you had hoped?
David E. Appel, CLU, ChFC, AEP: 2012 has been a rebound year for Appel Insurance Advisors in the long-term care insurance market. After average results in 2010 and 2011 compared to prior years, we could easily see a 50 percent increase in policies and revenue as it relates to LTCI in 2012. Baby boomers continue to see the consequences and cost of care for their parents, so they are now more inclined to explore what options may be out there for themselves to avoid the potential financial destruction of their own estates.
Stephen N. Mathieu, CLU, ChFC, RHU: It wasn’t a strong year, but it was within the range of our expectations. The key is to look at the clients’ income, assets and profile to determine if they fit the criteria for the need for long-term care. One of the steps to solve the LTC problem is to have the discussion with your clients to urge them to solve their “problem.” Our volume last year was similar to this year, and unless Congress and the president make major changes before we hit the fiscal cliff in December, we are expecting a very significant decline next year.
Debra Newman, CLU, ChFC, LTCP: Yes! Consumers are finally figuring out that they need to do this. I’m working more and more with younger people. I’ve also been working more in the worksite market, working with new groups and helping re-enroll some existing employer groups. What I’ve noticed with those groups in particular is that the employees are realizing this is not just a benefit for themselves, but it’s something that their spouse or partner should be planning for as well. I’ve seen much better participation in worksite LTCI in the past year.
I think we are seeing an increase in consumer awareness around the need to plan for future care. I’ve seen an increase in positive press around LTCI, and with government awareness campaigns coming online in some states, people are hearing from multiple sources that this is a problem they will need to solve. And a great many of them are open to finding the right solution using insurance.
The year has been strong for us on the wholesale side of our business as well. As part of our strategy in planning for 2012, we set out to be one of the top five MGAs in the National LTC Network. The network is made up of 25 of the largest LTCI distributors in the country. I am proud to say that with three of the network carriers, we were ranked No. 1, No. 3 and No. 5. Our business is up more than 40 percent over 2011. We attribute part of this to reorganizing our company to be a more proactive force. We have regular contact with most of our clients, reaching out to them with new tools and new concepts to help them get this message out in front of more people. We have also attracted some larger financial planning firms that are now using us as their resource for long-term care insurance.
Hirsch: What do you find to be the most challenging aspects of the long-term care market right now, and what practical steps are you taking to overcome those challenges?
Mathieu: The price increases in products is having a huge impact on the ability of most retirees to afford long-term care insurance. We are finding fewer than 1 in 10 who are at or near retirement have enough income to afford the LTCI premiums necessary to insure their risk. This is a difficult challenge to overcome. Reducing the benefit period is the primary way we have reduced costs to make products affordable for our clients. Going from a four-year benefit period to a two- or three-year benefit would be the first step. We prefer to keep an inflation adjustment rider on the policies, as well as a deductible — elimination — period that does not exceed 90 days. Beyond that, we do our best to create reliable funding sources that will enable clients to meet their financial obligations on a current basis, consistent with the lifestyle they want to live, while simultaneously providing them with the LTC protection they desire. In today’s low interest rate environment, this is becoming a bigger challenge.
Newman: We have to continue to fight against agent apathy. Studies show that the vast majority of advisors are not speaking to their clients about long-term care, while many of those very same clients indicate that they want to speak to someone about this area of their planning. Planners have clients who want and need this product, but because they don’t have the time or resources to devote to this part of their business, they unknowingly cause their clients to purchase elsewhere. Years ago, we pioneered the concept of creating a partnership with these agents and one of our LTCI specialists. Our Business Alliance enables those advisors to solve their clients’ needs while letting us act as the long-term care insurance division of their firm. With the ability to now do this via Skype, webinar, screen-sharing or teleconference, we now are able to provide a virtual LTCI specialist to agents located anywhere in the country.
Another area we’ve focused on is making it easier for advisors to share the LTC planning message with their clients. We realized that having a discussion with their clients about LTC ranks right up there with having the drug talk or the birds-and-the-bees talk with their kids. So, what we’ve done is created a 12-month marketing campaign that focuses on a different LTCI-related theme each month. In any given month, we provide agents with bylined articles, blog/newsletter content, social media blurbs, prospecting letters and posters that all focus on the same central theme. That way, all communications from the agent will carry the same message, and over the course of a year, their clients hear 12 different messages about the role of LTCI. With 12 different messages, at least one is likely to resonate with the right clients.
Another challenge for those of us focused heavily on LTCI is the constant feeling that the other shoe is going to drop. With what seems like constant media coverage of rate hikes and carriers exiting the market, it could look like the end of the world. What we forget is that the incidental producer is not weighed down by that information, and the vast majority of consumers aren’t aware of those changes. For those really concerned about recent changes, I like to put it in perspective to similar growing pains in the disability income market years ago. They know that after the DI carriers figured it out, there remained a core group of strong carriers dedicated to that market. That is the direction that LTCI looks to be going as well.
Appel: For a firm such as ours that likes to shop multiple carriers for clients — whether it’s life, disability or LTCI — one of the most challenging aspects in the LTCI market is the shrinking number of carriers offering products, as well as finding the most competitive products that do remain in the marketplace. In order to overcome this challenge, we continue to keep a finger on the product marketplace and make sure we have the most up-to-date changes on products or carriers exiting the marketplace, as well as keeping a pulse on new products emerging for clients.
Hirsch: Do you find the hybrid type of long-term care products to be effective for your clients? Why or why not?
Newman: They have become a larger part of our business. These products produce incredible leveraging for the insured, and they end the use-it-or-lose-it concept. However, these best fit those with a sizeable amount to invest. We find this often fits well for those in banking channels or those who are comprehensive financial planners, as they best know their clients’ complete financial picture and whether this might be a better fit than traditional long-term care insurance. Again, the biggest hurdle is establishing the need for long-term care insurance. Then it’s just a decision on whether you want to finance it with traditional LTCI or a policy linked with life insurance or an annuity.
Appel: Yes, in the past two years we have seen our clients start leaning toward hybrid products versus traditional LTCI products. They like the idea of fixed premiums that can go along with permanent life insurance. The hybrid product or LTCI rider can dispel the objection of what happens if the coverage for traditional home health care or LTCI is never used. With products that carry death benefits as part of the package, they have the ability to return the premium to the beneficiary family in the form of a death benefit.
Mathieu: I don’t find the hybrid type of LTC products to be effective for my clients. In most cases, the hybrid LTC products are ineffective in meeting the needs of clients. Personally, I think, in the vast majority of cases, there is a lot of hype, but they will never deliver a real benefit.
For example, a 65-year-old husband and wife have $300,000 in investable assets, a $250,000 home and a combined annual retirement income — Social Security and pensions — of $36,000. An agent sells them a $150,000 annuity with a guaranteed withdrawal benefit and an income-doubler. Let’s assume the withdrawal benefit is 6% for life at the time the insured spouse is entered into a nursing home. That’s $9,000 a year, which is doubled to $18,000. At a nursing home cost of $100,000 a year, three-quarters of the way through the second year of institutionalization, the institutionalized spouse must begin to draw down the principal of the annuity, thus wiping out the promised benefit. Approximately three and a half years into internment, all of the money is gone.
If that couple bought two LTC policies with shared benefits, a four-year benefit period, used the income on an FIA with an income rider or took the interest from a $100,000 bond fund, it could possibly be enough to fund two conventional policies and deliver far more benefits to the family.
To summarize, in my opinion, you get little or no benefit from these purported benefits — in most cases. The same holds true on hybrid life insurance/LTC products. Unless you have significantly funded these assets in the beginning, they could be wiped out quickly if the monthly cost of the nursing home substantially exceeds the monthly benefit. For that reason, we strongly recommend a traditional daily benefit type of policy, which will reimburse up to a specific dollar amount each day/month.
Hirsch: Can you talk a little about your most effective methods for prospecting in the long-term care insurance market? What methods do you use to find prospects, and even more importantly, what methods work in separating you from your competitors in the minds of your prospects?
Appel: Our prospecting in the LTCI market comes down to two proven methods: referrals from our satisfied clients, as well as a consistent flow of referrals from other professional advisors, such as attorneys, CPAs, investment advisors and fee-based financial planners. We don’t conduct seminars in this space, nor do we do any advertising. I believe we separate ourselves from our competition by not dabbling in this market. Our firm’s focus is on “people insurance” only, and we offer no investment-related products or annuities. We have a tight niche expertise in life, disability and LTCI, either individually or corporately. We will continue to have success in this market since our referral sources know that if they send a client to us for LTCI advice, the client will have a learning experience and presentation worthy of them making an informed decision. They are always happy they were introduced to us.
Mathieu: We ask every prospect and client who is 50 years old or older to tell us about their plans as to how they would handle an LTC situation. We ask if they’ve ever had a parent in an LTC facility, and if so, how they were able to pay for the care. This question can be uncomfortable to answer, but it forces clients to face up to the facts. We obtain new prospects through referrals, seminars, a radio program and involvement in local community activities. As far as separating ourselves from competitors, there are few in our business who go to the extent we do in planning our clients’ affairs. We are independent brokers who shop the market, trying to find products that best suit the needs of our clients. Our approach is to keep meeting new people and to keep telling our story.
Newman: As a consumer-centered organization, we have always done quite a bit of direct-to-consumer work. Our retail initiatives include a mix of radio advertising, online PPC advertising and involvement in senior and wellness expos. For the first time, we are sponsoring a radio show on care giving. We often have people call in from one campaign, telling us they heard about us somewhere else. Our goal is to be everywhere our ideal prospects look, so when they are in the right place to make a decision, we are the place they call first. We mix our paid advertising with trying to get as much earned media as we can, always trying to get fresh perspectives and information out to the media. We get more feedback and legs off of a newspaper article, and those help show our expertise.
What has always set us apart from our competitors is our education-based selling. Over the years, we have produced consumer educational tools ranging from audiotapes to CDs to DVDs. These pieces are great giveaways for our retail promotions. They not only help establish the needs and get the prospect part way through the discovery and education phase of the sale, but also, because we self-produce these pieces, it gives us an extra layer of credibility as an LTCI resource. It makes a big difference to give away an educational piece, and it makes an even bigger difference to do so in a way that demonstrates our own expertise. Finally, and maybe most importantly, our trademarked tagline says it all — “Long Term Care Insurance is All We Do!”
We have focused exclusively on long-term care planning for more than two decades, so our clients and the brokers with whom we partner are comfortable that not only are we knowledgeable, but also that we are not coming in to sell them every insurance product under the sun.
The last word
Hirsch: Any further thoughts?
Mathieu: There are certain common traits for virtually all sales of LTC products. First, the client must believe in personal responsibility. They want to pay their own way and take responsibility for their own care. They are self-reliant and do not want the government intervening in the delivery of their care. Second, people who buy these policies are usually protecting assets for the benefit of their families. They want to make sure they leave something behind. They generally have a strong family connection. Third, if there is not a strong family connection, you will almost always find a strong connection to their community and interest in charitable causes. Absent these traits, LTC is a difficult sell.
Newman: I’d like to comment on employer-sponsored LTCI. More and more people are becoming interested in worksite LTCI solutions. With players like UNUM and Prudential leaving that market, it has opened up a whole new audience to individual plans purchased through employers.
Also, one more comment on pricing — LTCI has gotten expensive. Many clients have been scared off by the large premiums required to purchase “Cadillac” plans. We are trying to introduce LTCI as a planning solution to younger people. We’ve discovered that can be difficult with traditional plan designs with a five percent compound inflation rider. We have embraced new plan concepts, such as John Hancock’s Benefit Builder, which protects insurability for the clients. We have focused on the concept that something is better than nothing, and we want to work with each client to discover the planning option that is best for his or her unique situation.
Appel: Most of the clients and prospects referred to us have a net worth in the neighborhood of $1.5 million to $10 million. I’m a big believer that people of wealth have a need for LTCI. Using a very small percentage of their overall asset base can secure a large block of capital that could be used for home health care or nursing home care expenses. I have been in the insurance business for 20 years and placing LTCI for the same number of years. I have had 19 LTCI claims, so I have seen this product in action and truly believe it’s extremely important for most families to explore to see if it fits in with their plan.