Long Term Care Insurance Market Conduct

( Insurance Marketplace Standards Association Conference - The Ritz Carlton in Buckhead Atlanta, Georgia long term care insurance - An Agent's Perspective )

As you may know, the long term care market is the fastest growing segment of the insurance industry. In fact, "...experts predict that long term care insurance will grow from a 3 to 5% current market penetration to over a 20% market penetration in 10 years". The topic of long term care insurance is on the forefront of the industry and on the minds of many individuals age 50 and over. The long term care subject is virtually written about or reported on weekly, if not daily. The market potential is fully recognized by the general insurance agent. With that in mind, the agent, agency, and company marketing long term care insurance has a huge responsibility to treat the consumer with professionalism, empathy and, above all, due-diligence.

Click below to read the Basic LTCi Issues:

The typical long term care insurance buyer has the assets and discretionary income. The desire to cross market long term care insurance is completely understandable and encouraged by everyone in the industry. With the cross-selling desire should come proper training and understanding of the product which "opened the door". The long term care insurance market is the desired market of penetration. Average premiums are probably higher than what many agents are accustomed to generating. As a result, the agents are generally paid a higher per case commission. It should be understood that long term care insurance is a product that still has to be sold. The levels of commissions are completely justified since this product's marketing costs are still very high, considering this product is still not yet a commodity. An example of a client and the potential long term care insurance sale is Husband & Wife-ages 66 and 62. Income $25,000+ with $100 to $150k in assets. Average industry long term care insurance Premium $1, 517 Annually Per Person or $3,034 Per Household @ 60% First Year Commission Level or $1,820 FYC.

Developing the agents desire to sell a product to a consumer without fully understanding the product that he or she is selling can facilitate misinformation, incomplete disclosure and confusion for the clients or buyers.

The seasoned long term care insurance professional can remember when the policies were not as fully developed as they are today. However, the previous generation of policies have brought along a wealth of information that has led to the innovation that we see today in various long term care benefits and products. As with any industry or product, competition, marketing, and customer needs and desires are what enhance product development. Over the next few years we will see many more truly innovative products and policy features. This is an ideal time for agents to become thoroughly abreast of the long term care insurance industry and recognize the importance of long term care insurance.

What concerns many professional long term care insurance specialists is the ethics, competence and overall sales practices of those novice agents within the long term care insurance industry. Phyllis Shelton, President, long term care insurance Consultants articulates the problem clearly... "There is a surprise threat to this incredibly rosy picture, however, and that's the Long Term Care Insurance industry itself. The train bearing unlimited Long Term Care Insurance sales opportunity may pull into the station and we may miss it because we are too busy fighting among ourselves -- over the tax-qualified Long Term Care vs. non-tax qualified issue -- over when -- or IF -- to sell an inflation benefit -- over when, or if, to sell a standalone home health policy -- over what is considered to be a reasonable commission -- over what is a reasonable premium -- over what is considered reasonable underwriting

. . . and the list goes on".

Ms. Shelton, goes on the say "Rate stability still looms as the imminent threat, subject to short-term or long-term thinking concerning pricing, benefit design and accessibility, and underwriting policy. The new contingent Nonforfeiture provision passed by the NAIC in June, 1998, will help the overall picture, but it's still up to us to resist the natural temptation to sell policies at below-market pricing that pay benefits quickly and worry about rate increases later". The senior or "seasoned" American is already skeptical and untrusting of many insurance agents. Only through proper agent product training and ethical sales & marketing practices can the long term care insurance industry gain positive recognition in the minds of the current Senior American and looming Baby Boomer target markets.

Both the large financial services organizations, and the nationally recognized long term care insurance marketing distribution systems, brokerage agencies and the independent broker and/or captive agent need to be better trained on the market and products. Inappropriate sales practices need to be curtailed and disciplinary action should be enforced, when necessary. The following are a few examples of what I have seen in the field as an agent that could cause potential problems for the agents and industry in the future. In each of these examples, I believe that through proper training and the implementation of ethical sales practices, these situations might not have arisen.


Click below for Casy Studies of LTC Insurance Agent Behavior:

Case Study (1)

In 1998 an insurance competitor who markets annuities, was able to set an appointment with one of my long term care insurance clients. During the interview, the agent was able to uncover that the client had purchased long term care insurance. The program was a state of the art program that covered 100% of the daily benefit selected for both home and facility care. The program was also designed around an Unlimited Benefits Period for the spouse with a 3 year Limited Benefit "pool of money" program for the retired military officer. Understanding military retirees and their retirement "survivor pension benefit" option, one can ascertain why the spouse selected an Unlimited Benefit long term care insurance program and the military retiree selected a Limited 3 Year Benefit program.

The agent obviously recognizing that he had an opportunity to replace my program keyed his presentation around the client's premium. The agent recommended a program that cost less than the one currently in-force. Replacement does serve a purpose when it is in the best interest of the consumer. Unfortunately in this case, the agent neglected to file a "replacement form" which happens to be a violation of insurance sales practices in Florida and he neglected to present a fair product comparison. He recommended a program that paid for home health care ONLY. Another consideration that needed to be taken into account but was not addressed by the agent was how this particular company paid claims. The replacing company paid benefits based on what was considered the "usual and customary" charges in a designated area. The agent inferred that since the product would pay for "assisted" living, it would therefore pay for "facility" care. This policy was actually a stand-alone home health care policy that paid for assisted living and not nursing facility care. Stand-alone home health care policies have a place in the market when presented properly and when the client fully accepts the potential risk of not insuring for facility care. With many agents, home health care is sold because it is easy to focus on the clients desire for home care and fear for nursing facility confinement.

After receiving a call from my clients letting me know that they wanted to cancel their existing program, I was able to set another appointment to review what this agent had recommended. During my appointment I suggested that my clients call the replacing insurance company and ask the company representative directly what the program benefits paid. From this one call, it was determined that this was indeed incorrect and the existing case was conserved. The agent either didn't understand what his policy paid or he was not properly trained.

Case Study (2)

Another situation developed in 1998, when I was in competition with an agent that represents one of several companies I also represent. I had presented a 4 year Integrated long term care insurance Program with a 20 day Elimination Period. The premium for the benefits I recommended was roughly $4100 annually. The competing agent recommended a program with another company. He recommended a program that would pay for 2 years of Long Term Care services. This particular company's program had a unique benefit that states if the insured received 2 years of care "at home", he/she is also guaranteed 2 additional years in a nursing facility. The premium was roughly $3600 annually. The agent inferred that the insured will have a total of 4 years coverage. This is not entirely correct. If the insured were to receive care in a facility, his coverage would then end after 2 years of care. If he were to receive care in his home and care was then necessary beyond 2 years, he would then have no choice but to go to a nursing facility in order to continue to receive benefits from the policy. Once again, proper training and agent guidance would most likely have prevented misinformation from being conveyed to the consumer.

Case Study (3)

A prospect wanted to get another opinion on his and his wife's existing long term care insurance coverage. They had purchased a program from an exceptionally reputable mutual life insurance company in 1991 and from another agent that is no longer in the insurance industry. This particular program was designed around a single "pool of money" with a 6 Year Benefit Period. The program would pay 100% of the daily benefit for Nursing Facility Care and 50% for Home Health Care services. The program had a 100 Day Elimination Period w/ a C.P.I Inflation Benefit.

During the interview with this couple they indicated that they had taken an application for long term care insurance with another insurer that is known in the industry for insuring risks that most other companies will not insure. There is definitely a marketplace for insurance companies that accept 'substandard' risks and I do not have a problem with these particular types of insurance companies. The potential problem here... "was the agent replacing this existing coverage doing so because it was in the best interests of the clients?" Since this couple had purchased their original long term care insurance in 1991, the wife's health had deteriorated substantially, and it would be very unlikely for her to purchase long term care insurance except from this particular replacing company.

I felt that it was not in their best interests to replace a program that had been in effect since 1991, especially since Mrs. Prospect's health had deteriorated. I explained that the company that had originally insured them in 1991 was obligated to pay claims regardless of current health considerations. In addition, if Mrs. Prospect replaced her existing coverage, she would have to address a new Incontestability Period. Another concern to me was that since this particular replacing company is extremely liberal in its' underwriting practices and since it has had a history of rate increases, Mrs. Prospect might be jeopardizing her future Long Term Care services. If her rates increased to a point where she could no longer afford them, she might attempt to once again replace this program and face the issue of un-insurability. She would either have to lapse this policy or continue to pay premiums which she might not be able to afford on a fixed income. My recommendation was that they keep their existing coverage that was purchased in 1991 and consider purchasing a "Stand Alone Home Health Care" program that would enhance their existing coverage. The only weaknesses noted in their existing program were the 100 Day Elimination Period (okay for facility care, not always appropriate for Home Health Care), 50% Home Health Care Benefit and the C.P.I Benefit Increase Option. The particular program I recommended was a Stand-Alone Home Health Benefit for an additional $50 Per Day with a 30 Day Elimination Period. This program also offered a "Contingent Rider" which would pay the uninsured spouse's benefits if the Primary Insured also required services. The client understood that this particular program would not pay for HHC services if the wife was the only individual receiving care---but their existing Long Term Care program would still be in effect. The new premium was $645 annually. This particular situation would probably never have occurred if the original writing agent had presented a program in 1991, when the clients were in their middle 60's, that properly addressed their concerns with inflation, home health care costs and deductible. Did the original agent under sell his client? Possibly. The question is why? Was the agents properly trained on how the C.P.I Inflation Option worked? Did the agent understand and explain to the clients that a 100 Day Elimination Period means 100 Days of Service? Did the agent illustrate to the clients the 'real costs' for in-home health care services in 1991?

Case Study (4)

I was contacted by a couple interested in long term care insurance coverage. After considerable discussion and after reviewing their incomes and assets and addressing their health history and individual comfort levels, we developed the following program. Issue ages 71 & 69 (Husband's health history- triple bypass in 1995, Wife-Non-Insulin Diabetic). I recommended a Tax Qualified policy with a Benefit Period of 4 Years @ $120 Per Day ($175,200 Pool of Money), 60 Day Elimination Period (Accelerated for HHC)- 100% Paid of HHC & Assisted Living -5% Simple Benefit Increase Option- Restoration & Survivorship Benefits. Annual Premium roughly $4500.

Later they were contacted by a competitor and informed that he could save them over 50% in annual premiums if only he had the opportunity to visit with them in their home. The clients called me, concerned that I over-charged them and indicated they had scheduled an appointment with this agent to review their long term care insurance policies. I asked if it was okay for me to attend this meeting with the other agent. When the agent arrived, I indicated that I was their agent and that I would like to see what he had to offer. The agent reviewed their existing coverage and stated that he would have recommended an Unlimited Benefit at $100 Per Day with a Zero Day Elimination Period with a C.P.I. Inflation Option. He went on to state that since their existing coverage was a Tax Qualified policy, the company would not pay benefits until the 90 Day Certification days were satisfied. The premiums for these benefits were roughly $850 annually less expensive than their current program. This company has among the lowest possible ratings of any insurance company in the long term care insurance market. I brought this to the client's attention and in front of the agent. The agent simply stated that "ratings don't matter because if the company went out of business, the insureds would be covered under the State of Florida's Guarantee Trust Fund". In Florida, it is an insurance violation for an agent to use the Guarantee Trust Fund as a selling tool.

Now, the philosophical differences between marketing Tax Qualified or Non-Tax Qualified long term care insurance programs is not going to be resolved anytime soon. But agents need to recognize that a 90 Day Certification does NOT mean a 90 Day Elimination Period. They also need to understand that simply because a policy is TQ doesn't mean that the benefits are more difficult to access. In fact, most of the well respected long term care insurance leaders in this market will allow a client to exchange a TQ program for a Non-TQ programs while on claim. This exchange is allowed if it is perceived that benefits are not being paid because of the TQ status of his/her policy. What should concern agents, agencies and companies about marketing Non-TQ policies is not the issue of taxation on benefits received from a Non-TQ policy. The concerns should be suppose an agent sold a Non-TQ policy and the client filed a claim and then filed a tax return submitting the long term care insurance 1099 and IRS Form 5583. These forms indicate that benefits received were derived from a Non-Qualified long term care insurance program. The client is then audited by the IRS. The client retains an attorney and/or CPA at his/her cost. The client will probably be adjudicated from any situation resulting from the long term care insurance 1099 filing. But, during the audit the IRS finds other discrepancies which would not have been found if the agent had recommended and sold a TQ policy. What about the costs that were incurred by the client for having to retain an attorney and/or CPA? Who is responsible here and was the client properly served by the agent?

The Long Term Care market is a very complex market that requires constant retraining and continued education. A major problem with a lot of insurance agents that sell long term care insurance insurance is that they neither understand the benefits and features of the programs, nor do they truly understand the needs and desires of the consumer. Many agents not only misunderstand the long term care insurance programs they represent; they also misunderstand their competition. This is sometimes apparent when I encounter agents that are captive or represent generally one company's product. Not understanding a competitor's programs allows for misrepresentation and product/company bashing. This creates confusion and distrust among the buying/shopping public.

Education and training are the keys to successful relationship selling in the long term care insurance market. Agents must know not only their products but also their competitions. Understanding that no one company is best suited to every client is also a very important consideration. Understanding the companies and products will allow agents the opportunity to develop programs and make company recommendations around the individual comfort levels of the clients. This market requires a great deal a patience. The average consumer needs to be taken through a learning curve. They have purchased many types of insurance throughout their lives and assume that this insurance will be the same. Even though long term care insurance is still a risk transfer, it does require much more explanation including an explanation of benefits, policy features, definitions, benefit triggers, tax ramifications, claim procedures, etc. The actual interview can take anywhere from 1 to 2 hours depending upon the client. Many insurance agents do not want to take the time necessary to explain these benefits to the clients, nor will they take the time to learn the various policy features or the competition's products. They simply want to sell the "policy of the day" and get out of the home. In my opinion, this is a mistake that will only cause more heartburn for the industry and for the client.

Another concern that should be addressed by not only the consumer but also the agent is company stability and overall financial ratings. In many cases, both the consumer and the agent are more concerned with initial premiums than with future premiums and company strength. As an independent broker, I can represent almost all long term care insurance insurance companies in the industry. I have chosen to represent only a few of the well-recognized industry leaders. Most of these companies are priced competitively with one another.

What concerns me are those companies that have extremely lower premiums than the recognized industry leaders. It appears to me that these companies are under-pricing their programs to attract buyers and to foster relationships with agents that sell programs based on premiums. If these agents are not careful, they may find themselves in the same situation as many of the property and casualty agents that sold insurance programs to individuals residing in South Florida when hurricane Andrew hit. Many of those small, inexpensively priced insurers are no longer in the business. In 10 to 15 years, when the long term care insurance companies really start to experience claims, these types of companies could face desperation.

Selecting a policy solely on today's premiums will probably make the consumer more susceptible to rate increases or possible company failure. The consumers need to take into consideration-- "you get what you pay for...".

There are roughly 125 companies selling long term care insurance. Of these companies there are approximately 10 that control the market share.

Of course, here may be other companies entering the market, and rightly so, but the agent and the consumer must recognize that the company selected must have ample financial resources and/or a strong financial stability to pay claims down the road. A company's financial rating should be fully disclosed by the agent, and the companies should price their products accordingly.

The future of the long term care insurance industry is very promising. It is an ideal time for agents to become thoroughly abreast of this industry and recognize the importance of long term care insurance. Even though this product is not for everyone, it is now finally being recognized as a true financial planning tool. The time is now right for not only the industry to set ethical standards, but for agents to do so as well.

In closing, product disclosure is a must. There are a number of other issues that should be addressed by the agents when recommending programs, such as * Are the daily benefits adequate today and in the future or is the client considering co-insurance? * Does the client understand the Elimination Periods with both a Nursing Facility/Assisted Living and Home Health Care "day of services"? * What are the various inflation benefit increase selections and how do they work? Agents and companies that market the C.P.I. Inflation Option to those under the age of 65, take heed. This might very well result in litigation in the future. * Restoration--- Does the client realize that they must be "treatment free" for a period of time in order for benefits to be restored? * Has the clients been informed as to the financial rating of the recommended company? * Does the client understand the difference in "reasonable and customary" charges, indemnity benefit or actual charge reimbursements for services rendered? * Does the client understand that typical "caregiver training" benefits do not mean that the company will actually pay the client's friend or family member for providing for his/her care? * Does the client understand that if a 50%, 75% or lesser HHC benefit is selected that only that percentage of the Nursing Facility Daily Benefit will be paid for HHC services? * Is the policy a "managed care" policy? Does the client have to use a "care coordinator" in order to access benefits? * Does the client realize that if a managed care policy is purchased and a care coordination is not used, benefits may be reduced or denied? * Does the client realize that "homemaker" services may only be covered if implemented into the plan of care or needed in conjunction with "activities of daily living"? * Does the client recognize the risk if a HHC Only policy is purchased over a long term care insurance policy? Has the agent adequately explained this and obtained a disclaimer? * When replacing a policy, is it in the best interest of the client? * Does the client understand that "Alternate Plan of Care" is not home health care and that it must be agreed upon by the doctor, client and insurance company? (Definition differs from company to company) * Should selecting a company be based on third party consumer articles misrepresented by an agent?