According to LIMRA, 2004 represented the worst long-term care insurance (LTCI) sales growth since the organization started keeping records in 1988.
Individual LTCI sales were down 25%, and group LTCI sales fell 73%.
Sales for 2005 appear flat at best. We can take some solace in the fact that in-force numbers and total premiums continue to rise and a handful of companies experienced double-digit growth.
For those of us who have dedicated our careers to the sale of individual comprehensive LTCI, it's a little frustrating.
What is the problem? Market penetration remains below 10%, and we clearly are not gaining on the problem. As an industry, we continue to point fingers. The sale is difficult and will not get easier.
Baby boomer demographics are hurtling toward us with increasing speed. The target market of 55 to 69 will peak in the year 2020. Our best-selling years are still to come.
In the meantime, the blame game continues to represent the depth of our industry's introspection. We blame consumers for their stubborness to face the reality of the financial and emotional cost of long-term care. Consumer awareness, however, is growing. Baby boomers might represent the wealthiest generation of all time, and they will take action to protect their money.
We blame the government. We constantly explain the inherent merit of buying a policy, knowing full well the government gives benefits away on the other side of the street. There are signs of relief — the 2006 federal budget requires a $10 billion cut in Medicaid spending over the next five years. Medicaid eventually will have to return to its origins — as a safety net for the poor.
Social Security must be reformed, and the president isn't the only one who knows it. Medicare ran into negative cash flow territory last year. The bottom line is that government solutions are in full strategic retreat. The Federal Long Term Care Insurance Program and Governor Awareness Program represent clear evidence that the only real answer to the problem is in owning private insurance. In other words, you must protect yourself!
We blame the product: "It's too complicated"; "It's too expensive"; "Rate increases are the problem"; "We need to increase or decrease commissions"; "We have to do something about those rate increases both in force and new policy form." We all have heard these voices.
The truth is that the only easy way to simplify the product is to go to a disability model, but this also raises the price dramatically. The only way to reduce premiums is to reduce benefits or commissions. This is, after all, individual health insurance — there will be rate increases as needed to adjust for evolving claims experience and medical inflation.
I will go out on a limb and suggest that the answer is we simply are going about this the wrong way. First, we must shift the basic sales emphasis from the benefits of owning a policy to the risks of not owning one. It is not only the rising cost of long-term care — now estimated by Genworth Financial at $72,240 a year across our service categories. It is, more importantly, the rising cost of caregiving. The burden of care, both financial and emotional, is the single best predictor of sales success, and nowhere is this clearer than at the work site.
Health care and retirement benefits in the United States are delivered mostly at work. Here is where we must focus our attention. This time, however, we are not asking the employer to provide another employment benefit, but retirement security certainly falls into that category. We must inform employers large and small that they must take action to protect against their own financial loss. According to the National Caregiving Alliance, "U.S. businesses lose as much as $29 billion annually in productivity due to caregiving."
This is the giant boulder we need to throw in the lake of indifference and watch the rings expand outward.
There is not one sale in the group market; there are four. Each builds upon the last, creating a comprehensive sales solution that finally can deliver the market penetration we owe ourselves, our chosen profession, and our country. One in four U.S. households is involved in caregiving. This is predicated to increase to 50% in the next several decades. Caregiving might be the most common experience we share as fellow citizens.
The four sales need to be conducted in order. Begin with the owner or senior executive. Executive carve-out sales have done much to sustain our industry. The simple truth is that if the employer does not "believe," we cannot expect the employees to believe. We might not like our employer, but we respect them for making wise financial decisions.
It is the next sale where we must focus our attention. We must explain clearly that executives buying protection for themselves and their family members is not enough. They now must protect their business with the obvious bonus of no restrictions on the deductibility of the premium. The financial and emotional cost of caregiving to employers is staggering. The truth is that they already have experienced the cost or will in the near future. A long-term care event requiring caregiving for a family member could cause employees to miss work, curtail business travel, reduce their time at work, or take extended leaves of absence. Absent employees create the need for temporary workers and additional workloads for co-workers, which might affect company morale in general. The cost to employers is great. This is the story we must tell.
This is not only about adding a new benefit that LIMRA surveys indicate has become the most popular at work. This is about a direct and concerted effort to alleviate the pain to the employer, both emotional and financial. When the employer provides a small "core" benefit to all employees, it creates an environment in which the last two sales, voluntary and corollary sales, can take place. Voluntary sales for employees to buy-up and spouse sales have been reported to increase from 3% to 30% when an employer-sponsored core benefit for all employees is put in place. More important to the employer is that the core benefit an an affinity discount extended to family members creates an opportunity for successful corollary sales to parents, in-laws, and grandparents.
This clear self-interest sales strategy based on a conversation about risk opens up marketing oppotunities of three to four times the number of employees under the most favorable circumstances.
The course of action is logical and clear. What is needed is a highly flammable accelerant to light the bonfire. Liberalized underwriting of core benefits, including guaranteed issue, represents the torch that can ignite the market penetration we all desire. Climb to the top of your smoke towers and watch the horizon — the winds are shifting.
Ronald R. Hagelman is the president of Hagelman & Barrie Financial Partners, a private practice. Mr. Hagelman began his insurance career as a payroll deduction enroller in 1980. He opened his own wholesale brokerage operation, National Brokerage Agency, in 1981. In 1988, he founded State Systems, a national consultant to life and health companies for marketing and underwriting administration. As a consultant, Mr. Hagelman created many individual and group insurance products for insurance companies. State Systems was purchased by State Life of Indiana in 1999, and he became the senior vice president and chief marketing officer, where in his role as vice president of special markets, he specialized in LTCI and enhanced annuities.