Ever since the first standalone long-term care insurance (LTCI) policy was sold in the 1970s, the product has been both a boon and a challenge for U.S. life insurers.
It exploded in popularity in the late 1980s, but the generous underwriting and pricing that fueled many of the sales came back to haunt providers in the more straitened economy of the early 2000s. Since then, providers have exited the market in droves, and those with portfolios have had to levy substantial premium increases on policyholders. Today, only a few insurers still field long-term care cover, and it’s the rare ones that are actually writing new business.
Does this mean LTCI as a product line in the U.S. market has had its day and that should be retired? In a word, no.
The need for middle-market insurance products that can affordably cover the many expenses associated with the long-term care needs of the world’s fast-growing senior cohorts has never been greater. Rare is the family that has not had to confront the unexpected costs of funding continuing care for a parent or grandparent. And with lifespans lengthening, the ailments of age are becoming more prevalent. Despite this, insurance companies are still understandably hesitant to enter or ramp up their participation.
How can this clearly evident market potential be translated into tangible products and services? More to the point: Can insurers develop LTCI products that can meet growing market needs for affordable long-term financial protection and still be profitable
Right now might be an optimal time for insurers to think about ways to innovate long-term care products – how to make them simpler and still profitable to underwrite and sell, and at the same time affordable and sufficiently protective for consumers.
Taking on this challenge will require willingness to change traditional ways of thinking about LTCI cover.
Rather than continuing to tweak existing products, which risks making them even more complex and expensive, insurers can now explore and develop new coverage options.
There are now decades of mortality and morbidity experience data from millions of customers, and that portfolio is still growing. Coupling these data with the available advanced analytics of today means companies have an unprecedented opportunity to innovate in this market, undertaking sophisticated and highly granular analyses of their potential customers to develop products that can ease long-term care’s financial burden.
Ideally, LTCI products can be developed for both group and individual markets, and insurance companies can benefit from collaborating with ecosystem partners, whether reinsurers, incubators or other knowledgeable third-party product development experts. One such recent RGA-developed innovation, caregiver insurance, is designed as an affordable short-term option for working individuals, who can buy it to cover cost of care for a loved one.
Other innovations being examined include bundling long-term care cover with life insurance and disability, developing policy frameworks that can evolve as a policyholder’s age and needs change and policies focused on helping to keep seniors in their own homes.
Ideally, LTCI should be easy for agents to sell, simple and affordable for customers to purchase and use and profitable for insurers to provide. More than that, it should serve the middle market’s real and current needs and be positioned to evolve along with market needs. Insurance companies have a remarkable opportunity to create much-needed social value now and over the long term.
