The long view

For an established product trading in a mature market, a few percentage points of growth do not a good year make. But in a still-maturing business such as long term care insurance, where the gap between growth potential and actual performance has yet to be bridged, year-to-year gains of any kind represent progress and the promise of better things to come.

Thanks to positive movements in several key industry indicators, "2007 was actually a good year" for the LTCI market, says Jesse Slome, executive director of the American Association for Long-Term Care Insurance, a trade group based in Southern California. According to Slome, industry-wide earned premium increased to $10 billion in 2007 from $9.4 billion in 2006, a respectable increase of more than 6 percent, while growth in individual policy sales was more modest at 2 percent. Meanwhile, a handful of carriers with a major presence in the LTCI market reported sales increases of 10-20 percent for the year, "very promising news," according to Slome.

All told, about half a million Americans purchased long term care insurance in 2007, roughly the same number as in 2006, bringing the total number of insureds to eight million. "It's easy to see that number doubling a decade from now," he says.

Still, Slome and other prominent voices in the industry acknowledge it's going to take more than growth rates in the low-to-mid single-digits for LTCI to come of age. While the product and those who sell it have made significant inroads in recent years in the individual and group segments of the market, the various players in the LTCI business still have much work to do in the areas of product development, pricing, public messaging and strategic sales and marketing tactics.

There's plenty happening on those fronts here in 2008. Let's look at some of the key trends that experts see shaping the LTCI landscape in the months and years to come.

Product evolution. With the industry now targeting younger buyers, the time is ripe, says Debra C. Newman, CLU, ChFC, LTCP, president and CEO of Newman Long Term Care in Minneapolis, Minn., to move from "trying to solve an entire need with one product to having building-block products that let people buy a chunk of [LTCI] coverage today and buy another chunk later. You start with a modest benefit, then buy more to enhance the plan."

Slome calls those kinds of policies "life-stage products," and he sees them gaining appeal, particularly among baby boomers. "You buy them in your 40s or 50s when you're in good health to affordably lock in your insurability, then you adjust the product as your needs and your situation in life change."

Going forward, simplicity will be as important as affordability and flexibility in designing consumer-friendly LTCI coverage, says Slome. "Right now there are so many moving parts, it has the potential to get rather confusing for consumers. I think we're slowly moving toward simpler product designs to make their choices easier."

Sales channels. Sales via state-authorized partnership programs and through employer-sponsored benefits programs could be what lead LTCI to the promised land. Growth in the group market is already robust; according to Slome, sales of employer-sponsored policies increased 24 percent during the first half of 2007 compared to the same period in 2006. Producers such as Steve Elliott who specialize in individual LTCI sales are looking to build their presence in the group market because of the growth opportunities they see there. "The group market, I think, is going to take off," says Elliott, principal at Capstone Financial in San Diego and one of the nation's leading LTCI producers.

Making headway in the employer marketplace is no easy task, contends Newman, in large part because employee spouses tend to be resistant, even when there's buy-in from the actual employee. "It's hard to get the message home to the spouse." Still, in 2007, group sales represented some 20 percent of her company's throughput.

State partnership programs represent another potentially fruitful area for growing LTCI sales. Federal policy enacted in 2005 encourages states to adopt partnership programs such as those in place since the 1980s and 1990s in California, New York, Indiana and Connecticut. The number of states with partnership programs in place or in the works now stands at more than 30. What makes policies sold through those programs particularly attractive is the state-sponsored asset-protection features that backstop them, says Elliott, noting that about 80 percent of his sales are partnership products. "I definitely see partnership products becoming a major, major factor in the market. It's really a no-brainer, because if someone's policy benefits run out, it offers an extra level of asset protection at no extra cost."

Consumer mindset. Compared to their predecessors, the incoming generation of seniors presents the LTCI industry with a different type of buyer, one who, given dwindling access to defined benefit and pension programs, plus likely cutbacks in Medicare and Medicaid coverage, is necessarily more self-reliant with regard to their retirement planning and more savvy in their understanding of how tools like LTCI can work for them, says Slome. "Generally, I think baby boomers have a far greater understanding and awareness of the need to affordably start planning for long term care at younger ages. They know more about the product and how to right-size their coverage so it's affordable and meets their needs."

That mindset plays into the hands of companies such as Newman Long Term Care. "We're now trying to get people in their 40s and 50s to use [LTCI] as a planning tool."

Still, Elliott says he senses people in the 40-to-60 age bracket view long term care insurance as more a luxury than a necessity. "Almost everybody [that age] has heard about it, they hear it's important to have and yet it's still easy for them to put off buying. There tends to be a lack of urgency, with the exception of people who have had first-hand experience with long-term care, with their parents or their spouses."

A major breakthrough for LTCI, according to Slome, is predicated on the public finally embracing LTCI as an insurance product akin to auto or homeowner's insurance. That's where messaging by carriers and the government can really make an impact, says Elliott.

Educating, messaging and marketing to the masses. Given that prevailing mindset, one of the chief challenges confronting LTCI advocates is changing public perception, not only about the need for the product but about the affordability of coverage. So how to reach the masses with the message that long-term care insurance isn't just a product purchased and used by seniors, and that it can be acquired affordably, particularly when the buyer is younger and healthier? That responsibility, according to Elliott, likely will fall on the shoulders of carriers and the federal government, who have the resources to back sustained national public education campaigns.

While producers and independent LTCI firms figure to benefit down the road from those kinds of educational efforts, how will they keep their prospect pipelines full in the near term? According to Elliott, direct mail has lost effectiveness as a lead-generation tool. Among the alternatives, Newman says she favors broadcast media as a means of branding her firm and more generally, to raise awareness about LTCI in her community. Last fall the company launched a radio advertising campaign that as of now "is still pretty cold but showing signs of heating up." She says she is willing to be patient and persistent, aware that it often takes multiple impressions before such a campaign begins showing tangible results. "It's a process and we're going to stick with it. We're not afraid to spend money to aggressively get our name out in the marketplace."

One reason Newman says she favors broadcast media is its ability to reach the huge number of boomers that make their financial and retirement planning decisions without the help of an advisor. "We're all chasing the people who are using advisors but nobody is effectively getting to the people who aren't. We need to attract them directly to us."

Government policy. LTCI advocates readily acknowledge that in the near term, they need government support in educating the public and motivating consumers with tangible, market-moving incentives. Some such incentives are already on the books. Slome and the AALTCI support the concept of an above-the-line tax break for investments in long term care insurance policies, but both he and Elliott caution that such an incentive would radically alter the competitive landscape. "The gold rush would be on," says Elliott. According to Slome, "You'd have Charles Schwab marketing long term care coverage and competing directly with traditional long term care companies," one of those be-careful-what-you-wish-for scenarios.

It may be farfetched to expect lawmakers to pursue tax breaks for LTCI in light of other weighty issues they likely will be addressing in the near term. "The primary focus," says Slome, "will be universal health care."

Until that issue is tackled, responsibility for making LTCI a consistently prosperous business likely will rest largely with the industry itself.

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The long view

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