Long Term View
by Carolyn S. Ellis Joe Pulitano is president of Advanced Resources Marketing, a Boston-based distributor of long term care insurance. He operates in every distribution channel that exists for long term care insurance, from facilitating carrier-to-carrier deals to employer groups, associations and selling directly to the consumer. We asked Joe to bring us up to date on the overall health of the LTCi marketplace.
L&HA Features Editor
L&HA: Do you consider yourself a pioneer?
JP: I’ve been down a long and interesting road since getting started with long term care insurance in 1986. I’ve seen the industry go from 110 carriers to about ten. Pricing has gone up dramatically for both in-force and rate refreshers. At the same time, policies are working. People are being cared for in their own homes, and their families are care supervisors rather than care providers. Today ARM continues to be 100 percent long term care.
LHA: What changes have you seen in health and aging?
JP: When I first got in the long term care insurance business the average person I was selling to was 76 years old. Today the average person we are writing in a multi-life or employer group setting is 46. In the association or brokerage world the average age is about 56. With this dramatic change in age you have a dramatic difference in the outcome of underwriting. On the brokerage side we see more unfavorable underwriting because that’s where the product is bought rather than sold. Usually when people realize they need to buy long term care insurance it may be too late. If it’s from a personal experience they have had, those cases are the best. But at least a third of the time it’s because one spouse has noticed that the other’s memory is failing or a chronic or acute medical condition has popped up,
L&HA: Is long term care insurance is too expensive?
JP: Prices keep going up. In the current interest rate environment, long term care insurance, like most financial products, is getting hit very hard. It only takes a one percent drop in the earnable interest rate for an insurance company’s reserves to translate into a ten percent increase in premium. We’re a marketing-driven agency so our business has always been the same or up. This year we are up over 40 percent over last year, and next year I expect we’ll grow at double digits.
L&HA: What about persistency?
JP: The insurance companies are telling me that people are lapsing their coverage sooner than in the past, and they are claiming earlier. Persistency was a problem in the reverse where insurance companies planned for a three percent ultimate lapse assumption, based on earlier statistics, and it came out to less than one percent. That translates into three times the number of people in your pool who will go to claim. With pre-existing conditions, I have seen some companies tighten up on T scores for people with osteoporosis or osteopenia and tighten up on people who have had strokes or have insulin-dependent diabetes. I note a relaxation in underwriting for some types of cancers or heart attacks.
L&HA: You have taken a leading role in educating agents about long term care insurance. How did this come about?
JP: In 1987 attorney Harley Gordon and I came up with the idea of certifying and providing a designation for insurance agents selling long term care insurance. I am a minority partner but I did assist with developing the CLTC (Certified in Long Term Care) designation. We have about 17,800 graduates. Through educating agents we have been able to educate the public.
Agents should sell long term care insurance not based on risk but on consequences. When you were young and had your first child, you bought life insurance not because of your risk of dying because the risk was very low but because of what an early death would have meant to your family. Long term care insurance is similar. The decision is an objective one. You understand the money will come from your pocket or the insurance company’s pocket. What you purchase in terms of benefits is a subjective one because we don’t know what your needs are going to be. Everyone should have some coverage.
L&HA: Do people tend to buy full or partial coverage?
JP: It makes sense to offset some of the cost because your retirement income can be used toward the cost of care. People who have purchased policies in the past especially with inflation riders, generally find their benefits are very adequate for home health care. That’s because the cost of most long term care is labor and labor costs haven’t gone up in the past 5-6 years. With nursing home care or assisted living, it’s 50-50; some people have purchased enough and some have not.
L&HA: Is there any place for dabblers, excuse the term, in long term care insurance?
JP: You can dabble if the company you place your business through knows the business. We wholesale to FAs [Financial Advisors] at several broker dealers. These FAs don’t want to know a whole lot about long term care insurance. Our wholesalers make them aware of the consequences to the client and the portfolio and they can assist at point-of-sale.
L&HA: Statistics show long term care insurance market penetration of 7-10 percent. If that’s accurate, there’s huge potential.
JP: I would agree market penetration is probably less than ten percent. I believe there are still lots of people out there that we can sell long term care insurance to, and we keep finding them. Persistency tends to be good because making a change after you buy your policy means you’re older, you have to restart with inflation protection, and prices keep going up. It’s really important to sell people the right policy the first time. Too many agents still stick to spread sheets and selling the low-cost product. Rates that are 4-5 years old are going to increase sooner and higher. Rates released within the last six months have been built with the most adverse factors the industry has ever seen- the lowest lapse assumptions and interest rates and increasing morbidity rates. Your clients are better off buying newer product with newer pricing because it’s more likely to be stable.
L&HA:What would you most like my readers to remember?
JP: When you look at long term care insurance, you see a lot of volatility- carriers leaving the industry, prices going up, and people getting rate increases on policies they bought. Why should anybody buy this product? I’ll go back to where I started. Policies are working.
Four years ago The New York Times came out with a front-page article saying the insurance companies were not paying claims. They cited two companies, one in receivership and one that doesn’t sell long term care insurance any more. The fact is insurance companies are paying claims. Carriers like John Hancock, TransAmerica, and Genworth are each paying out more than $1 million a day in claims. That’s a lot of money. Long term care insurance has value.