Fitch Sees Long Term Attractiveness In The LTC Market

The large pool of people expected to have a need for long-term care will make LTC insurance an attractive market, says a new report from Fitch IBCA, New York.

But the rating agency notes there are some players who stand more poised to benefit from selling to this attractive market: larger, well-capitalized insurers; carriers in the group market; and bank distribution channels.

Additionally, the report, entitled "Long-term Care: an Industry in Transition," notes that since the LTC product is sold, "successful sales are contingent upon a knowledgeable and motivated sales force in conjunction with well recognized, financially sound companies."

The report details the need and the market for LTC insurance products. That need, it says, is not restricted only to older consumers. About 40% of the 13 million Americans currently receiving LTC benefits are between the ages of 18 and 65, it states.

But older Americans will comprise a large component of this market. The number of those 65 and older is expected to roughly double to 70 million by 2030 from approximately 35 million today, according to the United States Census Bureau.

Fitch says studies find that about 80% of LTC patients just need help with daily living, not medical treatment.

The bank channel, which now accounts for less than 2% of total sales, according to Fitch, is expected to grow rapidly due to existing relationships with older consumers.

Glenn Schuermann, associate director with Fitch in New York, says banks might provide literature and refer customers to an insurer to actually handle the sale. Because of the growing demand, the pool of producers selling LTC products will continue to grow, he adds.

Jeff Sadler, president of the Center for Senior Studies in Coral Springs, Fla., says long-term care is a financial product and to sell it properly a financial analysis must be done on the needs of a client. "We won't be short of sales people, but I don't know if we will be short of qualified sales people," Sadler says.

He agrees that "LTC is a product that has to be sold. Hopefully, agents will seek out education, and choose the right product–the right amount at the right time."

Those sales, the report says, will continue to be concentrated among a few top insurers as consolidation is reinforced by high barriers to entry.

Fitch says the top five individual LTC companies accounted for about 63% of total annualized written premium in 2000 and the top 10 accounted for 83%.

The top five group LTC players represented almost 90% of total in-force premium in 2000.

While Fitch says group sales can be efficient, it also notes the added risk that comes with the elimination of most types of health screening.

The size of the LTC market creates not only opportunity, but also risks, however. Fitch says that if a company grows too rapidly or LTC becomes too large a part of an insurer's total business, then it would be viewed as a credit negative. A well managed LTC division is a credit neutral given the long tail on the business and limited data, Fitch says.

Second and third-tier players will face challenges that include the ability to manage risk, and the need for solid underwriting and claims management.

Schuermann says there are "a lot of moving targets" with the LTC product and it is a product with "a long tail." As the product enters the mainstream, disclosure to the consumer will be important, to help avoid sales practice problems, he says.

"I'm a little surprised the product took this long to become mainstream," he adds.

Reproduced from National Underwriter Life & Health/Financial Services Edition, January 28, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

Fitch Sees Long Term Attractiveness In The LTC Market

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