long term care insurance: uncertainty today …. what’s next?

Long Term Care Insurance: Uncertainty today …. what’s

next?

1

John O’LearyPresident

O’Leary Marketing AssociatesDecember 11, 2012

O’Leary Marketing Associates, 2012

Why am I here?

Irene O’Leary Born Mar 7, 1918 Diagnosed 1993 @ age 75 Died Oct 23, 2004 11 years with Alzheimer’s

Rita Maffione Born Jan 29, 1926 Diagnosed 2001 @age 75 Died Mar 4, 2012 11 years with Alzheimer’s

• Long Term Care insurance (LTCi) market• Group LTCi situation• Individual LTCi situation◦Contributing factors

• Market and situational factors• Economics • Healthcare

• LTCi and the future

3

Today’s agenda


LTCi an $11 billion category serving 7 million plus consumers


Adapted from LIMRA 2011 LTCi In force market data

Dollars Lives Age 45 plus 2011 Sales (Billions) (Millions) % Penetration (Millions)

Group LTC $1.9 2.3 1.9% $181.1

Individual LTC $9.2 4.8 3.9% $545.9

Total LTC $11.1 7.1 5.8% $727.0

5

Group Observations


Group market: Key carriers exit


Date Insurer Action

Aug 2012 Prudential Discontinues sales of group

Mar 2012 Prudential Discontinues all individual LTC sales

Jan 2012 UNUM Suspends all new group sales

Jan 2012 John Hancock Closes GLTC plans to new entrants

Jan 2012 Met Life Closes GLTC plans to new entrants

Fall 2011 CNA Suspends all new group sales

Fall 2010 John Hancock Suspends all new group sales

Fall 2010 John Hancock Files for rate increases on in-force customers (avg. ~ 45%)

Fall 2010 Met Life Files for rate increases on in-force customers (avg. ~ 45%)

Fall 2010 Met Life Suspends all group and individual LTC sales

2009 Med America Suspends GLTC sales; rate increases (avg. ~30%)

2009 UNUM Suspends Individual Sales

2006-2009 Aetna Exits market-transfers groups

2005 CNA Suspends individual LTC sales

Carrier exits result in large group “closed block” issue


*Adapted from 2011 LIMRA Group In Force data** Includes FLTCIP and CALpers

Employer Groups (2011)* Groups Lives DollarsTotal Inforce 11,607 2,255,575 $1,921,200,000Total with Active Carriers** 201 527,086 $843,872,000Total Closed Block 11,406 1,728,489 $1,068,328,000% Closed Block 98% 77% 56%

• Lack of Competition• Has created huge demand/supply imbalance• Little room for “New “sales –cherry picking

• High number of “closed block” cases• Employer/broker damage–highly skeptical • Who, if anyone, can fill void?

• Group contributing factors –LOW INTEREST RATES exacerbated by:• Long tail (employee average purchase age < 50 );• Guaranteed issue; Low participation• Fit with other “group products” i.e. capital

requirements

8

Group Issues


• Unfortunately, Group Channel is in “dire straits”• Group provides efficient and broad consumer access• Old players unlikely to return • Hancock possible exception

• Old business model hasn’t worked for many• Infusion of new thinking, new models, new players

• Opportunities • Closed block management• New sales to ER s with closed blocks• New sales to ERS who haven’t yet bought

Individual Multi-Life; Transition product; others• New approaches that balance consumer need with

carrier risk

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Group Assessment


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Individual LTCi Observations


Individual LTCi: Dramatic rate actions make headlines

Headline Carrier Increase % Date

CalPERS approves 85% rate hike to long-term care insurance CalPers 85% 10/18/2012Long-term care insurance rates soar Hancock 90% 6/21/2012Cost of long-term care coverage goes through the roof Hancock 60% 4/13/2012Genworth Plans to Raise Some LTCI Rates 50% Genworth 50% 8/1/2012How is a 90% long-term care rate hike OK? Hancock 90% 3/18/2012

Long-term care insurance rates soar Mutual of Omaha 33%/24% 6/22/2012

Source: Long term care insurance articles in consumer press-Chicago sun times etc…


• Important carriers have left the business, but key carriers remain• Companies include: Genworth, Hancock,

Transamerica, MedAmerica, Life Secure• Mutuals include: Northwestern, Mutual of Omaha and

New York Life• Unlike group -over 80% of the business remains with

active carriers• There is a clear “market leader” - 40%

plus share• Can lead in pricing/risk

management/innovation?• Highly analytical, most claims experience• Broadest distribution access• Management committed to business

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Individual market dynamics


• AGGRESSIVELY MANAGING RISKS:• Adjusting pricing: Across the board premium hikes;

retro and prospectively; Upward adjustment of female rates

(NOTE: AFFORDABILITY ALREADY #1 BARRIER TO SALES)

• More restrictive underwriting: Family history; More uninsurable conditions i.e. schizophrenia, tobacco use ; Blood and fluids?

• Limiting benefits: Elimination of lifetime; cash benefits; limited pay options

• Reducing consumer discounts; haircuts on agent commissions

• Some interesting product initiatives –Hancock, Med America- Recognition of need to change 13

Remaining Individual Carriers


• Short term- restricting product access to the “healthier and wealthier”• Short term fix or long term strategy-Niche versus Growth• Are affordable product options possible today?• Can Underwriting be made more palatable? NOTE *ACA IS GI FOR HEALTH

• Longer term • There’s room for Innovation- Is there appetite?• There’s a need for new players- Are there attractive

opportunities?• Other • Industry reputation • Distribution commitment • Under priced legacy business-continuing drag?

14

Key issues


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Contributing factors to how we got where we are


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What’s behind carrier actions?


•HISTORICALLY LOW INTEREST RATE ENVIRONMENT•LTCi-Already considered “Risky” due to long tail•Initial actuarial assumptions – too optimistic

• Lapse rates lower than assumed• Morbidity higher• Mortality lower

•Costly plan designs-i.e. Mandated offer- 5% ABI•Result: “Perfect Storm” for LTCi

What’s behind carrier actions?Company situational factors...


Company Annual * EST Stock Price NYSE Notes Revenue % LTC (12/1/12)

(Millions $s)Genworth 10,238$ 22% $5.89 High % total business

Manulife (J Hancock) 50,233$ 4% $12.80 Includes FLTCIP portion

UNUM 10,260$ 6% $20.44 Primarily P&C

Prudential 49,036$ 1% $51.96 Low % total business

Met Life 70,262$ 1% $33.38 Low % total business

CNA Financial 8,908$ 6% $28.05 Primarily P&C

* 2012 Compustat

**Derived from industry LTC sales estimates and total business

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LTC Targe

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LTC Future ?

What’s behind carrier decisions?

Look at the business risks

•High capital requirements•Questionable predictability•Long time horizon•High financial uncertainty•Low market penetration•Heavily Regulated •Strategic fit ?

Key Decision Variables


Individual LTCi is at a “tipping point”• Current actions reinforce a “niche” positioning • Question: Will the industry undertake

innovation required to meet broader range of consumer needs?

Opportunities: • Better balance carrier risk with consumer

needs• Broaden product appeal beyond

“healthy/wealthy”• New thinking to find alternate ways to address

emerging long term care crisis19

Overall Assessment and opportunities


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Market and situational factors


Demand: Senior population doubles in the next 30 years

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

-

20,000

40,000

60,000

80,000

100,000

2010 2015 2020 2025 2030 2035 2040 2045

Age 65+ Population Growth Trends

Population age 65+ Percent 65+


Table 12. Projections of the Population by Age and Sex for the United States: 2010 to 2050 (NP2008-T12) Source: Population Division, U.S. Census Bureau

Cost and need for long term care continues to accelerate


Home Healthcare Assisted Living Nursing Facility $43,472.00 $39,600.00 $73,000.00

44 hrs per week Private room Semi-private room

2012 Median Annual US Cost of Care

2012 Genworth annual cost of care survey

0 > 1 year 1-2 years 2-5 years 5 plus years 31% 17% 12% 20% 20%

Estimated years of care for persons after age 65

Georgetown Univ. Feb 2012

1-2 years 2-5 years 5-10 years$39,600 - $146,000 $79,200 - $365,000 $198,000 - $730,000

Long term care liability ranges for ages 65 plus-assumes US medians

Future demand is growing; consumer choices shrinking

Consumer demand for

services rising

Cost of Care High and growing

Carriers opting out/raising rates

CLASS Act deemed not executable

Medicaid belt tightening

Reverse mortgage

equity down

Inadequate Retiree Savings

The coverage

gap widens


US Family economics- income and age

Changes in U.S. Family Finances from 2007 to 2010: Evidence from the Survey of Consumer Finances; Federal Reserve Bulletin June 2012

Income Percentile Total Bottom 20% 20-39.9% 40-59.9% 60-79.9% 80-89.9% top 10%# US Families (millions) 116.7 23.3 23.3 23.3 23.3 11.7 11.7Median annual income $45,800 $13,400 $28,100 $45,800 $71,700 $112,800 $205,300Mean annual income $78,500 $12,900 $27,900 $46,300 $73,600 $114,600 $349,000Median Net worth $77,300 $6,200 $25,600 $65,900 $128,600 $286,600 $1,194,300Mean Net Worth $498,800 $116,800 $127,900 $199,000 $293,900 $567,200 $2,944,100

Age head of household Total < age 35 Age 35-44 Age 45-54 Age 55-64 Age 65-74 Age 75 plus# US Families (millions) 116.7 24.5 21.2 24.6 20.4 13.4 12.5Median annual income $45,800 $35,100 $53,900 $61,000 $55,100 $42,700 $29,100Mean Annual income $78,500 $47,700 $81,000 $102,200 $105,800 $75,800 $46,100Median Net worth $77,300 $9,300 $42,100 $117,900 $179,400 $206,700 $216,800Mean Net Worth $498,800 $65,300 $217,400 $573,100 $880,500 $848,300 $677,800

• 75% of families don’t have sufficient net worth (including home equity) to self fund 2 years in a Nursing Home at US average

• Half of seniors couldn’t self fund 3 years of Nursing Home care from net worth

• Upper 10% -15% of families have sufficient income to pay for long term care protection.

• Many have sufficient assets to co-insure or fund a significant long term care event

• Likely family targets for long term care insurance:• Priority Target-Top 20% ~23 million families• Secondary Target- 50-80% ~35 million families• Not a likely target- Bottom 50% ~58 million

• -25

Takeaways family economics


Healthcare costs per person skews heavily to age 65 plus

Average Spending Per

PersonAge (in years)

<5 $2,4685-17 1,695

18-24 1,83425-44 2,73945-64 5,51165 or Older 9,744

Sex

Male $3,559Female 4,635

Source: Kaiser Family Foundation calculations using data from U.S. Department of Health and Human Services, Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey (MEPS), 2009.

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Healthcare observations


• Healthcare is in the midst of a dramatic changes -in part, but not totally due to ACA

• In Massachusetts seeing emphasis on cost reductions-provider/insurer collaborations; focus on outcomes

• New payment delivery models- fee for service on the way out; pay for outcomes coming ….

• (Big) Data-genomics analyses; Electronic medial records; diet and activity monitoring

• Consumers being forced to be in charge• Higher deductibles and co-pays

• Innovative wellness programs becoming ubiquitous• Shape up• Healthrageous/ Wellocracy• Live + well-Genworth

News Flash: Scientists concerned with aging are now seeing lifestyle impacts


Disease % LTC claims Impact of exercise, diet

Alzheimer's 21% As much as 50% reduction*Stroke 11% Exercise and diet reduces riskArthritis 11% Exercise relieves painCancer 10% Exercise and diet reduce risks**Circulatory 10% Exercise improves circulation***Injury 10% NANervous 7% NAMental 6% NARespiratory 5% Improves respiratory function Digestive 2% Mixed results

* Dr. Kristine Yaffe** Web MD*** especially important for Diabetics

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More healthcare observations


• Increasing recognition that earlier knowledge and intervention can ameliorate later problems• Alzheimer’s issues begin way before symptoms• Dr. Deborah Blacker head MGH gerontology

“Research is uncovering relationships between Alzheimer’s and diabetes, high BP, high cholesterol, cardio and sleep disorders”

• Leading to a greater Healthcare focus on senior care and chronic conditions• That’s where the costs are• Two of the Boston leading hospitals have

homecare subsidiaries; others have programs

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LTCi and the future ?It depends…


For long term care carriers risk mitigation is key

TightenU/W

ReduceBenefits

AdjustPremiums

Share Risks

ManageHealth

If lowers costs

Already High

Open to consider

Uncharted potential

LimitsAudience

But what about consumer needs?

33

Assessment: Current approaches


Current LTCi productsProduct Positives NegativesIndividual LTC Total LTC Financial Solution High risk to carriers

Persoanl selling know how High cost to consumersDistribution mechanisms in place Invasive Underwriting

Impact of Rates IncreasesReputation of product/carriers

True Group LTC Fits group benefits model High risk to carriersGroup benefits synergies Huge "closed" blockEasy access to EEs Employers, brokers burnedKnown enrollment, admin processes No competition-only one carrier

Low priority group benefitLow broker marginsLow EE participation

Assessment: Individual LTCi likely to remain a high end niche product without substantial changes; Group market begs for “disruptive innovation”

Current LTCi products

Multi Life Large # of small businesses Individual product riskFits known voluntary benefits model Tightening U/W Commisions support w/site activities Raising pricesTax advantages to SB owners Distribution: limited access to ERsGroup premium discounts "group" infrastructure lackingSimplified U/W

Product Positives Negatives

Assessment: Proving viable as a small employer product; not yet viable for mid and large sized employers without group infrastructure adds.

Risk limiting approaches Limiting carrier risk Positives NegativesLife or annuity with LTC rider Limits carrier risks Higher costs than if alone

Solves "what if I never use" objection Many are single payCan simplify marketing message Consumer must want bothMany companies offer Not yet a mainstream benefit

Benefit Bank (Hancock) Flexible plan design Adds complexity Limits carrier risk on Inflation Difficult to explainAffordable Individual risks

Transition MedAmerica Affordable premiums Limited total benefit Fast underwriting process Limited policy choicesTargeted marketing messages Partial/transitional solution

Assessment: Each approach holds promise, has potential barriers . Consumer feedback, marketing analysis, consumer research and segmentation may be able to hone future modifications.

Health Management

Assessment: While results are unproven, the latest research suggests strong correlations between healthy lifestyles and minimizing chronic conditions and diseases. Warrants further investigation .

Lifetime Health Combine long term Wellness with Care Financial Protection; Use HRAs and

Positives NegativesBetter consumer/insured health Engagement to date mixedLikely improves claims experience Experience unproven Helps insurers manage risk Carrots and sticks ?Positive marketing messaging Potential for exclusionConsistent with wellness trend Hard to determine actuarial value

Insured condition management

Positives NegativesBetter consumer/insured health Experience unproven Likely improves claims experience Hard to determine actuarial valueHelps insurers keep rates stable Changes insureds contractPositive marketing messaging Participation levels may be lowProvides measure of consumer control

biometrics to provide health contingent long term care protection

Add wellness and condition management as options for existing insurerd's policies to minimize need for future rate actions

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Thoughts to leave you with…


• LTCi at a tipping point-niche vs. growth• Private Insurance just one solution-other

public/non-profit/private solutions • Wellness and Healthcare related to LTC• Stakeholder involvement broad • Opportunities for “disruptive innovation”

and out of the box thinking• Remember: the Consumer and that

funding is not unlimited

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Thank You


John O’LearyPresident

OLeary Marketing [email protected]

978-258-3567978-382-8227 (mobile)

Questions or further discussion?

mailto:[email protected]

long term care insurance: uncertainty today …. what’s next?

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