Uncertainty today whats next 1 John OLeary President OLeary Marketing Associates December 11 2012 OLeary Marketing Associates 2012 Why am I here Irene OLeary Born Mar 7 1918 ID: 581805
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Long Term Care Insurance: Uncertainty today …. what’s next?
1
John O’LearyPresidentO’Leary Marketing AssociatesDecember 11, 2012
O’Leary Marketing Associates, 2012Slide2
Why am I here?
Irene O’LearyBorn Mar 7, 1918Diagnosed 1993 @ age 75Died Oct 23, 200411 years with Alzheimer’s
Rita MaffioneBorn Jan 29, 1926Diagnosed 2001 @age 75Died Mar 4, 201211 years with Alzheimer’sSlide3
Long Term Care insurance (LTCi) market
Group LTCi situationIndividual LTCi situationContributing factors
Market and situational factorsEconomics Healthcare LTCi and the future
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Today’s agenda
O’Leary Marketing Associates, 2012Slide4
LTCi an $11 billion category serving 7 million plus consumers
O’Leary Marketing Associates, 2012
Adapted from LIMRA 2011 LTCi In force market dataSlide5
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Group Observations
O’Leary Marketing Associates, 2012Slide6
Group market: Key carriers exit
O’Leary Marketing Associates, 2012Slide7
Carrier exits result in large group “closed block” issue
O’Leary Marketing Associates, 2012
*Adapted from 2011 LIMRA Group In Force data** Includes FLTCIP and CALpersSlide8
Lack of Competition
Has created huge demand/supply imbalanceLittle
room for “New “sales –cherry picking High number of “closed block” casesEmployer/broker damage–highly skeptical
Who, if anyone, can fill void?
Group contributing
factors –LOW INTEREST RATES exacerbated by:
Long tail (employee average purchase age < 50
);
Guaranteed
issue; Low participation
Fit with other “group products” i.e. capital requirements
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Group Issues
O’Leary Marketing Associates, 2012Slide9
Unfortunately, Group Channel is in “dire straits”
Group provides efficient and broad consumer access
Old players unlikely to return Hancock possible exceptionOld business model hasn’t worked for manyInfusion of new thinking, new models, new players
Opportunities
Closed block management
New sales to ER
s with closed blocks
New sales to ERS who haven’t yet bought
Individual Multi-Life; Transition product; others
New approaches that balance consumer need with carrier risk
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Group Assessment
O’Leary Marketing Associates, 2012Slide10
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Individual
LTCi Observations O’Leary Marketing Associates, 2012Slide11
Individual LTCi: Dramatic rate actions make headlines
Source: Long term care insurance articles in consumer press-Chicago sun times etc…
O’Leary Marketing Associates, 2012Slide12
Important carriers have left
the business, but key carriers remainCompanies include: Genworth, Hancock, Transamerica, MedAmerica, Life Secure
Mutuals include: Northwestern, Mutual of Omaha and New York LifeUnlike group -over 80% of the business remains with active carriers
There is a clear
“market leader”
- 40
%
plus share
Can lead in
pricing/risk management/innovation?
Highly analytical, most claims experience
Broadest distribution
access
Management committed
to
business
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Individual
market dynamics
O’Leary Marketing Associates, 2012Slide13
AGGRESSIVELY MANAGING RISKS:
Adjusting pricing: Across the board premium hikes; retro and prospectively; Upward adjustment of female rates
(NOTE: AFFORDABILITY ALREADY #1 BARRIER TO SALES)More restrictive underwriting: Family history; More uninsurable conditions i.e. schizophrenia, tobacco use ; Blood and fluids?
Limiting benefits: Elimination
of lifetime; cash benefits; limited pay options
Reducing consumer discounts; haircuts
on agent
commissions
Some interesting product initiatives –Hancock, Med America-
Recognition of need to change
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Remaining
Individual Carriers
O’Leary Marketing Associates, 2012Slide14
Short term- restricting product access to the “healthier and wealthier”
Short term fix or long term strategy-Niche versus Growth
Are affordable product options possible today?Can Underwriting be made more palatable? NOTE *ACA IS GI FOR HEALTHLonger term There’s room for Innovation- Is there appetite?
There’s a need for new players- Are there attractive opportunities?
Other
Industry reputation
Distribution
commitment
Under priced legacy business-continuing drag
?
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K
ey issues
O’Leary Marketing Associates, 2012Slide15
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Contributing factors to how we got where we are
O’Leary Marketing Associates, 2012Slide16
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What’s behind carrier actions?
O’Leary Marketing Associates, 2012HISTORICALLY LOW INTEREST RATE ENVIRONMENT
LTCi-Already
considered “Risky” due to long tail
Initial actuarial assumptions – too optimistic
Lapse rates lower than assumed
Morbidity higher
Mortality
lower
Costly plan designs-i.e. Mandated offer- 5% ABI
Result
: “Perfect Storm” for LTCiSlide17
What’s behind carrier actions?Company situational factors...
O’Leary Marketing Associates, 2012Slide18
REWARD
RISK
LO RISK
LO REWARD
LO RISK
HI REWARD
HI RISK
HI REWARD
HI RISK
LO REWARD
HI
LO
LTC Target
LTC
Future ?
What’s behind carrier decisions?
Look at the
business risks
High capital requirements
Questionable predictability
Long time horizon
High
financial uncertainty
Low market penetration
Heavily Regulated
Strategic fit ?
Key Decision Variables
O’Leary Marketing Associates, 2012Slide19
Individual LTCi is at a “tipping point”
Current actions reinforce a “niche” positioning Question: Will the industry undertake innovation required to meet broader range of consumer needs?
Opportunities: Better balance carrier risk with consumer needsBroaden product appeal beyond “
healthy/wealthy”
New
thinking to
find alternate ways to address emerging long
term care crisis
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Overall Assessment and opportunities
O’Leary Marketing Associates, 2012Slide20
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Market and situational factors
O’Leary Marketing Associates, 2012Slide21
Demand: Senior population doubles in the next 30 years
O’Leary Marketing Associates, 2012
Table 12. Projections of the Population by Age and Sex for the United States: 2010 to 2050 (NP2008-T12) Source: Population Division, U.S. Census Bureau Slide22
Cost and need for long term care continues to accelerate
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Future demand is growing; consumer choices shrinking
The coverage gap widens
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US Family economics- income and age
Changes in U.S. Family Finances from 2007 to 2010: Evidence from the Survey of Consumer Finances; Federal Reserve Bulletin June 2012Slide25
75% of families don’t have sufficient net worth (including home equity) to self fund 2 years in a Nursing Home at US average
Half of seniors couldn’t self fund 3 years of Nursing Home care from net worth
Upper 10% -15% of families have sufficient income to pay for long term care protection.Many have sufficient assets to co-insure or fund a significant long term care eventLikely family targets for long term care insurance:Priority Target-Top 20% ~23 million familiesSecondary Target- 50-80% ~35 million families
Not a likely target- Bottom 50% ~58 million
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Takeaways family economics
O’Leary Marketing Associates, 2012Slide26
Healthcare costs per person skews heavily to age 65 plus
Average Spending Per Person
Age (in years)
<5
$
2,468
5-17
1,695
18-24
1,834
25-44
2,739
45-64
5,511
65 or Older
9,744
Sex
Male
$3,559
Female
4,635
Source: Kaiser Family Foundation calculations using data from U.S. Department of Health and Human Services, Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey (MEPS), 2009.Slide27Slide28
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Healthcare observations
O’Leary Marketing Associates, 2012
Healthcare is in the midst of a dramatic changes
-in part, but not totally due to ACA
In Massachusetts seeing emphasis on cost reductions-provider/insurer collaborations; focus on outcomes
New payment delivery models- fee for service on the way out; pay for outcomes coming ….
(Big)
Data-genomics analyses; Electronic medial records; diet and activity monitoring
Consumers being forced to be in charge
Higher deductibles and co-pays
Innovative wellness programs becoming ubiquitous
Shape up
Healthrageous/
Wellocracy
Live + well-Genworth
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News Flash: Scientists concerned with aging are now seeing lifestyle impacts
O’Leary Marketing Associates, 2012Slide30
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More
healthcare observations O’Leary Marketing Associates, 2012
Increasing recognition that earlier knowledge and intervention can ameliorate later problems
Alzheimer’s issues begin way before symptoms
Dr. Deborah Blacker head
MGH
gerontology “Research is uncovering relationships between Alzheimer’s and diabetes, high BP, high cholesterol, cardio and sleep disorders”
Leading to a greater
Healthcare focus on senior care and chronic conditions
That’s where the costs are
Two of the Boston leading hospitals have homecare subsidiaries; others have programsSlide31
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LTCi and the
future ?It depends…O’Leary Marketing Associates, 2012Slide32
For
long term care carriers
risk mitigation is key
Tighten
U/W
Reduce
Benefits
Adjust
Premiums
Share
Risks
Manage
Health
If lowers
costs
Already High
Open to consider
Uncharted potential
Limits
Audience
But what about consumer needs
?Slide33
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Assessment: Current approaches
O’Leary Marketing Associates, 2012Slide34
Current LTCi products
Assessment: Individual LTCi likely
to remain a high end niche product without substantial changes; Group market begs for “disruptive innovation”Slide35
Current LTCi products
Assessment:
Proving viable as a small employer product; not yet viable for mid and large sized employers
without
group infrastructure adds.Slide36
Risk limiting approaches
Assessment:
Each approach holds promise, has potential barriers . Consumer feedback, marketing analysis, consumer research and segmentation may be able to hone future modifications.Slide37
Health Management
Assessment: While results are unproven, the latest research suggests strong correlations between healthy lifestyles and minimizing chronic conditions and diseases. Warrants further investigation .Slide38
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Thoughts to leave you with…
O’Leary Marketing Associates, 2012
LTCi at a tipping point-niche vs. growth
Private Insurance just one solution-other public/non-profit/private solutions
Wellness and Healthcare related to LTC
Stakeholder involvement
broad
Opportunities for “disruptive innovation” and out of the box thinking
Remember: the Consumer and that
funding is not unlimitedSlide39
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Thank You
O’Leary Marketing Associates, 2012
John O’Leary
President
OLeary Marketing Associates
JohnVOLeary@Verizon.net
978-258-3567
978-382-8227 (mobile)
Questions or further discussion?