Americans bought only about 60,000 stand-alone long-term care (LTC) insurance policies in 2018, down 13 percent from 2017. Only about 15 carriers were actively selling policies, and five of them accounted for more than three-quarters of the market, as measured by premiums.
The grim news was included in the latest version of an authoritative annual survey of long-term care insurance by independent consultant Claude Thau, with Al Schmitz and Chris Giese of the actuarial firm Milliman Inc. The report was published in the July issue of the magazine Broker World.
While sales of stand-alone policies continued to decline, consumers remain more interested in so-called combo products that add long-term care benefits to annuities or whole life insurance. While 2018 data are not yet available, issuers sold an estimated 260,000 hybrid policies in 2017, according to the data firm LIMRA.
An enormous market
Industry sources say sales growth of these hybrid policies flattened a bit last year. But stand-alone, traditional LTC insurance continued its long decline. It now represents only about 20 percent of the LTC insurance market.
For context, more than 42 million Americans are age 55-64, the time when most buyers purchase LTC coverage. About 7 million people of all ages currently own policies, leaving an enormous potential market. Yet, only about 60,000 bought stand-alone insurance last year. The authors estimate their survey covers 90 percent of sales.
About 15 percent of policies were sold through employers and about 8 percent through other groups.
The average buyer of stand-alone policies was 56 years old, and the average annual premium for most policies hit $2,544. The average price for couples buying together was about $3,600.
Leaving the market
Premiums for coverage known as Future Purchase Option (FPO), where policyholders buy the right to add coverage without medical underwriting, averaged about $3,100.
Once-dominant industry players continued to lose market share and some dropped out entirely. Genworth sold less than $10 million in policies in 2018, half what it sold in 2016. And earlier this year it announced it was ceasing sales through independent brokers—at least temporarily. MassMutual sales fell by nearly one-third over two years, and State Farm stopped selling stand-alone coverage.
While a few carriers entered the market with new products, most companies have long-since abandoned the business. In 2000, an estimated 125 insurers were selling traditional long-term care policies. The new survey—which represented 90 percent of sales– covered just 15. Half the carriers sold less than $5 million in policies last year.
Some firms that have stopped actively selling are turning their old policies over to private equity firms or reinsurers. These acquirers could manage the legacy policies more efficiently. Or they could increase policyholder risk.
The Broker World survey found that after decades of big premium increases, prices in recent years have stabilized. However, consumers continued a trend of trying to lower premiums by purchasing less inflation protection. In 2012, one-third of new policies included at least 4.5 percent annual compound protection. By last year, only 2 percent bought that much protection.
While sales of traditional LTC policies are falling, claims are rising. The survey found that carriers paid $11 billion in claims on stand-alone polices in 2017, up nearly 6 percent from the prior year. Combo policies, still very new, paid only $6 million in claims.
Not long ago, long-term care insurance was considered a mass market way for middle-income families to protect themselves against long-term care risk. But the Broker World survey is just the latest evidence that traditional LTC insurance is a niche product that most consumers don’t want to buy and many carriers don’t really want to sell.