The Current State of the Long-Term Care Insurance Market

Presented to

14th Annual Intercompany Long-Term Care Insurance Conference

by

M A C h Ph DMarc A. Cohen, Ph.D.LifePlans, Inc.

Rosen Centre Orlando, Florida

h hMarch 16-19th 2014

Presentation Topics

• Current overview of U.S. LTC Insurance Market

• Profile of Individuals Purchasing Policies

• Product EvolutionProduct Evolution

• Public Policy

• Claims Experience

• Market exit among Carriers and Implicationsg p

• Challenges and Opportunities

2

Growth in National LTC Expenditures (billions)

$206

$250

$206 $200

65% Growth

$125

$100

$150

69% Growth

$74

$50

$100

$0 1991 2000 20111991 2000 2011

3

Changes in Long-Term Care Financing Sources 1991-2011: Growth in Public & Private FinancingG owt Pub c & P vate F a c g

67%70%

80%

59% 57%

50%

60%

33%36%

22%30%

40%

3%7%

12%

10%

20%

0%Medicaid and Medicare Out-of-Pocket Private

1991 2000 2011

4

Source: SCAN Foundation, 2013; Avalere, 2007, Health Care Financing Administration, Office of the Actuary, Data from the Office of National Health Statistics in Health Care Financing Review, Fall 1994

Current LTC Insurance Industry Parameters (2012)

• Individual marketIndividual market

– Roughly 5.0 – 5.5 million individual policies in force.

– Total annualized in-force premium of over $9.5 billion.p

– Fewer than 20 companies still active in market

– Annual sales in 2010 were 65% lower than in 2000.

– Sales have been flat for last three years with about 250,000 policies added each year

• Group MarketGroup Market

– About 2.0 – 2.5 million certificates in force.

– Total premium of greater than $1.7 billion.

– Slightly more than 11,000 employer groups sponsoring coverage

– Less than 8 insurers actively selling in the group market

– Over the last three years, roughly 150,000 certificates per year have been sold 5

Number of insured Lives has been relatively flat since 2005

7,000

8,000

6,995 6,894 7,030 7,115 7,033 7,186 7,263 7,357

5 000

6,000

4,7935,179

5,612

6,0536,404

4,000

5,000

3,3383,697

3,2022 946

4,130

4,7934,497

2,000

3,000

1,704

2,6012,946

0

1,000

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20121992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

6Source: NAIC LTC Experience Reports

Annual Sales of Individual LTC Insurance Policies have been declining since 2002

698754

800

500

609 600

698

509

600

380

500

420

509

362332

300 306 254

400

300 306 283221

253 249254

172200

01990 1992 1994 1996 1998 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Note: LifePlans analysis based on AHIP, LIMRA and LifePlans sales surveys, 1990-2013. Beginning in 2009, LTC Partners data for annuitants included in counts

7

Group sales represent 35% to 45% of total sales between 2005-2012 (thousands)

528 527493500

600

484 493

397

445 438395

400

500

332300 306

283 254300

221253 249

254

196 184221 210

176192 189

141200

1002005 2006 2007 2008 2009 2010 2011 2012

I di id l G T t lIndividual Group Total

Note: Estimates based on AHIP, LIMRA and LifePlans sales data and analysis. Beginning in 2009, LTC Partners data for annuitants included in counts 8

Combination products are growing in the market (policies in force)

300 000

228,645 246,700

219 040236,000

300,000

191,227 200,422

212,807 219,040

200,000

72 736100,000

72,736

02009 2010 2011 2012

Individual Life and Annuity products with accelerated LTC

Group Certificates for Life and Annuity Products with Accelerated LTC BenefitsGroup Certificates for Life and Annuity Products with Accelerated LTC Benefits

9

Sources: NAIC, 2013, 2012, 2011. Note: The 2012 data is based on 30 companies reporting and no group certificate data provided. Group certificates for 2013 is estimate based on trending. Data unreported in NAIC 2013 report.

In-force Premiums by product type (billions): There remains a great deal of opportunity in the market

$106.3

$90.0

$120.0

$60.0

$11.3 $13.6 $4.7 $0 3

$28.2 $30.0

$0.3 $0.0

LTC Insurance Combined Short-Term and Long-

Individual Disability Insurance

Critical Illness Individual Life Insurance

Group Life Insurance

Term Disability

Sources: NAIC, 2013, Gen Re, 2013Note: Premium from combination products not included. In 2011 represented $2.2 billion of new

i (G A i i F Pill N l N 51 S b 2012

10

premium (Geneva Association Four Pillars Newsletter, No. 51, September 2012

Private LTC insurance has modest penetration of population with incomes over $20,000

20%16%

15%

8%10%

5%5%

0%Age 45+ Age 45 to 64 Age 65+

Source: LTC Financing Strategy Group, 2008

11

CHARACTERISTICS OFCHARACTERISTICS OF

PRODUCTS AND PURCHASERSPRODUCTS AND PURCHASERS

12

Stand-alone policies have become more comprehensive, greater benefits, and average premiums are increasing

Policy Characteristics Average Average Average for Average Average forPolicy Characteristics Average for 2010

Average for 2005

Average for 2000

Average for 1995

Average for 1990

Policy TypeNursing Home Only 2% 3% 14% 33% 63%g yNursing Home & Home CareHome Care Only

92%6%

90%7%

77%9%

61%6%

37%---

Daily Benefit Amount for NH $154 $142 $109 $85 $72Care

Daily Benefit Amount for Home Care

$153 $135 $106 $78 $36

Nursing Home Only Elimination Period

86 days 80 days 65 days 59 days 20 days

Integrated Policy Elimination Period

89 days 81 days 47 days 46 days --------

Nursing Home Benefit Duration 4.8 years 5.4 years 5.5 years 5.1 years 5.6 years

Percent Choosing Inflation Protection

92% 76% 41% 33% 40%Protection

Annual Premium $2,268 $1,918 $1,677 $1,505 $1,071

Source: AHIP, 201113

Across all ages premiums are rising, but largest increase is at younger ages

$3,294

$3,949$4,000

$2,255

$2,759

$1,877$2,003

$2,341

$1,829

$2,581

$2,146$2 000

$3,000 $2,604

$1,213$1,487

$919$1,177

$1,528

$1,000

$2,000

$0Age 55-64 Age 65 to 69 Age 70 to 74 Age 75+

2010 2005 2000 1995

Note: Between 1995 to 2000 increase in premiums due primarily to increase in policy benefits. Between 2000 –2010, increase in premiums due to true up of pricing assumptions and move toward greater rate stabilityPremium increase 1995-2010: Age 55-64: 145% Age 75+ 84%.

Source: AHIP 201114

Younger, wealthier and employed individuals are buying policies

Characteristic 2010 2005 2000 1995 1990

Average Age

% 70

59 years 61 years 65 years 69 years 68 years

%> 70 8% 16% 40% 49% 42%

% Married 69% 73% 70% 62% 68%

Median Income% > $50,000

$87,50077%

$62,50071%

$42,50042%

$30,00020%

$27,00021%

Median Assets% > $75,000

$325,00082%

$275,00083%

$225,00077%

$87,50049%

N.A.53%

% College Educated 71% 61% 47% 36% 33%

% Employed 69% 71% 35% 23% 15%% Employed 69% 71% 35% 23% 15%

15Source: AHIP, 2011

The share of LTC sales to the middle market age 40-69 is declining

55%

75%

41% 42%36%

55%

50%

17%9%

25%

0%Middle Income Low Income Upper Income

1995 2010

Note: Low income <33% of income distribution; Middle income = 33% - 66%; Higher income = >66%

16

Note: Low income <33% of income distribution; Middle income = 33% - 66%; Higher income = >66%

Source: LifePlans analysis of AHIP Buyer Data, 2011

Most people buy policies to maintain lifestyle and consumption and not just to protect assets (2010)p j p ( )

33%40%

17%

30%

18%13%

18% 17%

10%

20%

0%Avoid Protect Guarantee Protect Living One of OtherAvoid

DependenceProtect

Assets/Leave an Estate

Guarantee Affordability

Protect Living Standards

One of Other Reasons

17Source: AHIP, 2011

Most people choose not to buy policies because they are viewed as too costly (2010)

61%

75%

61%

50%

18% 20%25%13%

0%0%Don't Believe

InsurersHard to Choose

PolicyToo Costly Waiting for Better

Policy

18Source: AHIP, 2011

There has been targeted public support for the private market

• HIPAA Tax qualification status Deductibility of premiums for itemizers Few people benefit because of 7.5% AGI threshold p p

• Partnership Programs Purchasers of LTCI can access Medicaid without having to spend-down

assetsassets 45 states participate Little knowledge of the program: <25% of random sample age 50 and over

knew about program45% i di d h ld b lik l h LTCI if h d 45% indicated they would be more likely to purchase LTCI if state had a Partnership Program

• Many states have tax incentives for purchase of LTCIy p Benefits too small to make much of a difference

• Some potential off-sets due to some level of Medicaid crowd-out

19

CLAIMS EXPERIENCE

20

Most LTC claimants are well served by companies when it comes to claims payments

• By 2012 $78 billion in incurred claims and annual incurred claims approaching $8 billion .

• Data suggests that roughly 95% of all claims are paidData suggests that roughly 95% of all claims are paid.

• Of people receiving claims payments, 94% had no disagreement with the insurer and 3% had a disagreement that was resolved satisfactorily.

• Vast majority of claimants indicate that policy benefits met their care needs; 90% felt their policy provided flexibility in service choice.

Th i i ifi f h d il f• The insurance covers a significant percentage of the daily costs of care --(between 72% and 98%).

• Half of claimants felt that in the absence of their policy, they would have to k i i i l ld b bl ff d i l lseek institutional care or would not be able to afford service levels.

• Most people have no disagreement with their company at claim time (94%), and the majority (77%) do not find it difficult to file a claim (77%) .

21Source: U.S. Department of Health and Human Services, 2010

Proportion of claimants who say that the LTC b fi i i h i dLTC benefit is meeting their care needs

98% 98%100%

86%

75%New Claimants

Home Care Nursing home claimants Assisted living claimants

Note: Almost all issues mentioned relate to service provision and not insurance pbenefits.

22

Claims experience is deteriorating in recent years:Industry Actual to Expected Annual Incurred Claims, 2009-2012

112% 111% 110%116%120%

90%

60%

30%

0%2009 2010 2011 2012

23

2009 2010 2011 2012

Source: NAIC Experience Reports, 2012

RECENT TRENDS AND

OPPORTUNITIESOPPORTUNITIES

24

Roughly 20 companies are still selling a meaningful numbers of policies; in 2002, AHIP reported 102 companies selling policies

Currently Selling Closed Blocksy gAuto-owners Insurance GroupGenworth Life Insurance Company/ Genworth Life Insurance Company of NYJohn Hancock (Individual Policies) Bankers Life & Casualty Company

Unum Life Insurance Company of AmericaFirst Unum Life Insurance CompanyMetropolitan Life Insurance CompanyJohn Hancock GroupMetlife Insurance Company of CTBankers Life & Casualty Company

Transamerica Life Insurance CompanyCountryLife SecureState Farm Mutual Auto Insurance CompanyNew York Life Insurance Company

Metlife Insurance Company of CTContinental Casualty CompanyPrudential Insurance Company of AmericaRiverSource Life Insurance CompanyAllianz Life Insurance Company of North AmericaSenior Health Insurance Company of PA

Northwestern Long Term Care Insurance CompanyMutual of Omaha Insurance CompanyMassachusetts Mutual Life Insurance CompanyMedamerica Insurance Company/ MedamericaInsurance Company of NYK i ht f C l b

Penn TreatyAetna Life Insurance CompanyLincoln Benefit Life CompanyUnion Security Insurance CompanyTime Insurance CompanyAbilit I CKnights of Columbus

Thrivent Financial For LutheransUnited SecurityLincoln Financial GroupState LifeUnited SPDA/LTC

Ability Insurance CompanyUnited Teacher Assoc Insurance CompanyAmerican Family Life Assurance Company of ColoradoMonumental Life Insurance CompanyKanawha Insurance CompanyCUNA Mutual Insurance SocietyUnited SPDA/LTC CUNA Mutual Insurance SocietyPhysicians Mutual Insurance CompanyProvident Life & Accident Insurance CompanyWEA Insurance CorpGuarantee Trust Life Insurance CompanySouthern Farm Bureau Life Insurance Company WEA Insurance group is still marketing a small number of Partnership policies.

25

Most policies are now administered by companies no longer in the market and these companies have less

f bl l i ifavorable claims experience

115%125%

93%

75%

100%

55% 53% 55%45% 47% 45%50%

0%

25%

% f % f A l C l ti % f A t l t% of Policyholders

% of Annual Claims

Cumulative % of Industry Earned

Premiums

Actual to Expected Incurred

Claims (2009)

Companies no longer selling policies Companies still selling policiesCompanies no longer selling policies Companies still selling policies

26Source: Analysis of 2009 and 2010 NAIC Experience Exhibit Reports

Trends in factors affecting profitability have been very unfavorable throughout the decade

• Since 2000, all major determinants of premium and product profitability have been going in the wrong p p y g g gdirection: interest rates are significantly lower than what was priced for, voluntary lapse rates are lower than for any other insurance product, morbidity is somewhat worse than expected and mortality is actually improving.

• For these reasons, the prior decade saw a major d f i f h kexodus of companies from the market, as returns on

the product have been significantly below expectation.

27

Pricing LTC Insurance.......

28

Distribution Challenges Persist

• The number of agents selling LTC has declined and there are fewer specialists

Th f i i• The agent force is aging

• Little succession planning evident

• Consumers purchase products differently today and rely more on the internet

• Higher commissions did not appear to draw enough new agents into the market to effectively increase overall market size significantly over the past decade.

• Fewer than 10,000 agents actually sell the product and it is very unlikely that they will be able to reach the more than 155 million people in the labor force.

29

Single most Important Reasons that the Company left the Market: Capital Requirements and Not Hitting Profit Objectives

Product performance - not hitting profit objects

19%15% New senior management not interested in product

New evaluation/assessment of the risk involved ith th d t d t i i th k t

12%23%

with the product and staying in the market

Distribution issues

Lack of confidence in ability to manage risk

12%

23%Lack of confidence in ability to manage risk

Could not get reinsurance or partner with whom to share risk

C b t bilit t t t i if12%

4%4%8%4%

Concern about ability to get rate increases if necessary

Capital requirements

30

Other

Source: DHHS, 2013

Circumstances under which Company would consider re-entering Market

46% 46%45%

50%

36%32% 32%

30%

35%

40%

14%15%

20%

25%

0%

5%

10%

0%Regulatory

changes Changes to distribution

Changes to the structure

of the product

Changes in consumer attitudes

Changes in public policy (tax policy)

Other

31Source: DHHS, 2013

Most companies indicate they are very unlikely to return to the marketunlikely to return to the market

8%8%

12%36%

High (>75% chance)

M di (50% 74%)

4%

36% Medium (50%-74%)

Low (25% to 49%)

Very low (<25%)

Not going to happen

40%Not going to happen

32Source: DHHS, 2013

Key Demand and Supply Issues

Demand: Consumerk f i f i / h d d

Supply: Insurer• Lack of information/shrouded

attributes• Adverse selection

• High selling costs• Misperceptions about need,

costs, and coverage

g g

• Inefficient risk-bearing: common shocks

• Myopia

• Consumer confusion/product

common shocks

Consumer confusion/product complexity

• Mistrust of industry/contracts• Mistrust of industry/contracts

33Source: Scan Foundation, 2013

Key Demand and Supply Solutions

Demand/Consumer-relatedSi lif / d di d

Supply/Insurer-related• Simplify/standardize products

• Index premiums

• Reinsurance pool

• Expanded employer role

• Educational campaign and warnings

p p y

• Joint marketing with health insurance• Expanded employer role

• Mandated availability

insurance

• Smart opt-out/ forced-choice

• Targeted subsidy

34Source: Scan Foundation, 2013

Prospects for the Market and Need for “Re-Set” market

• There needs to be a market re-set because:

Current strategies have not worked well in assuring broad consumer appeal and insurer enthusiasm

Continued demographic trends, budget deficits and improved mortality mean the demand for long-term services and supports will only grow in the future putting at risks families and elders

d b d l ki f d d di ib i hi i h bli Need to be outward looking focus on product and distribution partnerships with public payers, providers, health plans, etc.

• LTC Carriers have amassed a wealth of experience, knowledge and expertise d ll i i d k i h d i i d land are well positioned to work with new and existing partners to develop

more successful strategies

• There remains a critical role for public sector support focused on spurring p pp p gdemand and supply.

• LTC insurance has an important role but not likely the critical role

• Need to think through new models of public-private mechanisms to maximize the number of insured Americans 35