With Prudential's recent exit from the market, I am getting constant questions about the future of the industry. Why should I sell this? Is it viable? Who is left? All are valid questions. Let's break down how we got to this point and then discuss where we go from here.
Long-term care, like all other insurances, is priced based on a number of assumptions. How many people will keep the coverage; how many will use the coverage; how long will they use it, etc. When insurers priced LTC insurance, they got pretty much every assumption wrong. Less than 1% of insureds lapse their policies. There are many more claims than they were expecting. Claims are lasting longer and are more expensive than they ever anticipated. You add all of this up and combine it with the fact we are in an unprecedented period of low interest rates; you get THE PERFECT STORM.
So what do we do? Do we pack it up and call it a day? We as agents and brokers exist to serve our clients. To protect them from the potential financial risks they face in life. As long as there is a need for long-term care in this country; we need to find ways to protect our clients from the high costs associated with that care.
Here is how:
1. LTC Alternatives
Many new products have been developed for those who do not like traditional LTC insurance. Special life insurance contracts and annuities are great funding methods. And now that there are "hybrid" products that don't require a Lump Sum premium, the market for these products will grow at even a faster rate.
2. Change in Policy Design & Structure
The simple fact of the matter is that if traditional LTC carriers don't change the way their policies are structured, they can't survive. Provisions like 5% Compound, Lifetime Benefits, and 100% coverage are unsustainable. A fundamental change in policy design is a must.
3. Agents & Planners Must Buy In
The last time a company came out with a different, more feasible policy design, many "LTC purists" refused to sell the product. We have to understand why companies are making design changes and support them.
The bottom line is this: The need is there. Insurance companies are going to have to make changes in order to remain viable and cover this need. It is up to us to accept these changes and continue to keep working with our clients to help insure them against the costs associated with long-term care. If we don't, the industry is gone and our clients are left with one remaining option: self-insuring.