LTCi & Gender-Distinct Pricing

As products mature, so do opportunities

by Henrik Larsen

We have witnessed drastic changes in the long-term care insurance [LTCi] industry over the past decade and especially in the last 3-5 years. Some of these changes include new underwriting guidelines and the removal of unlimited benefits and accelerated payment options such as 10-pays.

Recently, we have seen a trend among the carriers of implementing these changes almost simultaneously which indicates a maturing industry. In other words, gone is the attitude of the late 90s / early 00s of “… we got it right, and the others got it wrong.” This maturing of the industry is a benefit as it greatly reduces the back-to-back-to-back fire sales we have been subject to in past years. Granted, large influxes of business are always welcome, but they are disruptive and have an overall negative effect on marketing strategies and initiatives.

So, one of the latest, and dramatic, changes in the industry is the introduction of gender-distinct pricing, and the potentially sweeping consequences it presents to the marketing and distribution of LTCi.
In LTCi, the female claims risk, and therefore cost, is significantly higher than that of males. This is due to a couple of factors. First there is the straight forward mortality factor of women living longer than men thereby increasing the likelihood of needing care at some point during their lives. Second, the previous factor is exacerbated by the fact that in heterosexual couples, the husband tends to be older. This second aspect is illustrated by the chart on the next page1 showing gender age differences in heterosexual couples [not necessarily married] – note that in more than 53% of couples, the man is more than 2 years older than his female partner.

The similar percentage of a woman being more than 2 years older than her male partner is less than 15%. The consequence of these first two factors is that not only do women have a higher likelihood of needing care [longer lifespan], but when they do, they have a higher likelihood of being alone, and their care needs will, to a larger extent, have to be provided by professionals resulting in higher claims incidents and longer claims durations. Another way of looking at this is that 80% of men die married, and 80% of women die single or widowed.

The third factor is not surprisingly that sales of LTCi are heavily skewed toward women who, in 2012, represented 68.5% of all policies sold2.

The intended move toward gender-distinct pricing was first announced by GenWorth in the summer of 2012. This was by no means an unexpected move as carriers and distribution had discussed this topic for years. It was not a matter of if; it was a matter of when. Most of the larger carriers had performed recent extensive claims studies supporting the move toward gender-distinct pricing. By the end of 2013, the 4 largest carriers in the industry – Genworth, John Hancock, Mutual of Omaha, and Transamerica – have implemented gender specific pricing in 32 – 41 states and are awaiting approval in the remaining states.

Though many observers have expressed concern over this recent change in pricing philosophy, I believe it represents opportunities that will benefit not only the carriers, but distribution as well.
First, whenever change is announced, the kneejerk reaction is that it is horrible. Well, other insurance products, such as life and disability insurance have gender specific pricing, have had it for years, and it is widely accepted because of the underlying risk and claims data. This leads me to the central thesis behind the aforementioned opportunities: Gender-distinct pricing is only a problem if it adversely affects demand. And it doesn’t; it reinforces it!

From the very beginning of this industry, women have been the buyers of LTCi for the reasons mentioned earlier. And in most cases the woman was also the decision maker though the man was the more vocal participant with all the supposedly tough questions in the sales process. The stronger demand originated with the woman. Introducing gender-distinct pricing does not change this at all; it reinforces the notion that she is right in wanting the coverage more; she is at greater risk and the insurance company is not only telling her that by using demographic and claims statistics, but also by charging her a higher premium. Her wanting the product is validated and a relatively higher premium is not fundamentally dissuading her from buying. Granted, she may buy less coverage compared to years ago, but then again, premiums have increased over the past decade for lots of reasons other than discrepancies in claims experience between the two sexes and average level of benefits have decreased for years.

Second, by introducing gender-distinct pricing, the relative cost for coverage for men have decreased. Let me illustrate this with an example3:

1. Female [Single or Married] Age 55:    $3,076 / year

2. Heterosexual Couple Both Age 55:    $2,153 / year – female
                                                                   $1,323 / year – male
                                                                   $3,476 / year – combined
Two ways of looking at this:
1. The male buying coverage reduces her premium by 30%
2. The male buying coverage only increases the overall premium by 13%

The industry has never struggled with getting women to buy LTCi. Gender-distinct pricing creates an unprecedented incentive for men to buy too.

Third, due to Title VII of the Civil Rights Act of 1964, gender-distinct pricing is not permissible when a product is offered as a worksite product. Therefore, the carriers have, at least for now, left their last unisex priced products in place to be used as worksite products. This represents a unique opportunity for not only long-term care insurance specialists, but also for benefits brokers. Traditionally, the decision to offer long-term care insurance as either a voluntary benefit or provide the benefit as an employer funded base plan / executive benefit, has ultimately been made by men. And even though that may change little, an added incentive has been created for female employees / executives to further spearhead the offering of LTCi. Women’s premiums will be significantly lower than those available in non-worksite settings, and at the same time, men’s premiums will remain unaffected and no disincentive has been created for them. LTCi will now be offered in a similar fashion to Disability Insurance but with the added benefit of distinct tax advantages.

In conclusion, I strongly believe that the move to gender-distinct pricing is an overall benefit to not only the carriers from a risk spreading perspective, but also to distribution from marketing perspective. Results from our early initiatives support this opinion. The change in pricing philosophy has not disrupted demand; it has created opportunities. The fact that women are the ones planning for long-term care as they face the largest risk has been validated. We will capture more sales to men. And lastly, women in the workplace will be even greater allies than before.
Endnotes
1. Age differences for spouses; United States data based on 2008 US Census Bureau Population Survey report.
2. The 2014 Source Book for Long-tertm Care Insurance Information; American Association for Long-Term Care Insurance; 2013.
3. Based upon John Hancock; $5,000/month; 3 years; CPI; 90-Day E.P.; Select Rates, MA