Tag Archives: Carl Friedrich

New Milliman survey reveals significant repricing of long-term care hybrid products in the last 12 months

Milliman today released the results of a new survey examining changes to hybrid long-term care (LTC) plans in light of the low interest rate environment and COVID-19. The study, “LTC Hybrid Product Survey,” is based on a survey of top writers of life LTC hybrid plans. The report focuses on current topics relative to the National Association of Insurance Commissioners (NAIC) Valuation Manual, Chapter 20 (VM-20), pricing, sales, and investment returns.

Key findings of the survey include:

  • When asked about the assumed morbidity margin for a hybrid product under VM-20, 29% of participants assume a margin less than or equal to 10%, 57% assume a margin ranging from 10% to 20%, and the remaining 14% assume a margin of 20% or more.
  • The top two primary challenges in modeling LTC hybrid riders under VM-20 are integrating rider cash flows with the base contract and determining the appropriate level and direction of margins for each risk factor under VM-20.
  • Hybrid products were repriced once in the last 12 months by 44% of survey participants, repriced two times by 11% of participants, three times or more by 22% of participants, and not at all by the remaining 23% of participants.
  • The single most important factor driving repricing by survey participants is the low interest rate environment.
  • As a result of COVID-19 or other factors, the majority of survey participants have changed issue age limits on hybrid LTC plans.
  • All participants reported they are finding it difficult to meet profit goals given the low interest rate environment.

A brief summary of the survey results is available by visiting the Milliman website here.

Combos likely to bolster long-term care?

We have blogged before about the future of long-term care (LTC). A recent article in Employee Benefit Adviser picks up the conversation. Here is an excerpt:

[S]tandalone LTC insurance sales have been in a funk lately. According to LIMRA, “Significant declines in individual LTCI sales continued through the third quarter of 2009, with 28% fewer buyers when compared with the first nine months of 2008 and a 29% decline in new premium.” Indeed, 2005, 2006 and 2008 were also down years, while 2007 was flat.Why have sales of individual LTC insurance been slowing? Many observers cite the “use it or lose it” aspect of LTC policies; consumers might pay premiums for years – even decades – and never file a claim. Some potential buyers may be put off by the idea of “wasting” the money spent on LTC insurance premiums, says Carl Friedrich, a consulting actuary and principal in the Lake Forest, Ill., office of Milliman.

LIMRA puts the average annual premium at about $2,160. Even with some discounts, a married couple might be looking at an outlay of around $4,000 per year to buy coverage. Many individuals and couples probably tell themselves that they have other alternatives (sell a house, tap a portfolio, rely on a relative) to spending so much money to protect against a financial drain that might never occur.

Hence the appeal of combo products. If clients need coverage for long-term care, they have it. If their need for custodial care is modest or nonexistent, the money they spent on life insurance or annuity premiums will provide a payoff for them or their beneficiaries.

For more on Carl Friedrich’s perspective on combo products, read this article.




How can an annuity fund long-term care?

The Chicago Tribune poses, and answers, this question:

Q. My wife and I are 84 and considering a retirement home. I read about a provision in the Pension Protection Act that would allow long-term care costs to be paid tax-free through an annuity. We have an annuity with a surrender value of more than $300,000. What part of this could help us pay our monthly bill?– R.M.

A. First, you need to evaluate whether you would owe taxes on annuity withdrawals, said Montgomery Taylor, an accountant and financial planner in Santa Rosa, Calif.

If the value of your contract is down to basically what you put into it (all too common these days), you could owe no tax, and thus have no need for a tax break, Taylor said.

That said, the Pension Protection Act of 2006 did create a tax break for annuity owners that began this year. While you don’t get a break on direct long-term care costs, you can qualify for tax-free annuity withdrawals that are used to pay for long-term care insurance premiums. If you end up needing the insurance, your coverage could equal two to three times the value of the annuity policy, experts said.

Some hybrid annuity/long-term care products have been available in recent years, though several insurers are developing new products to take advantage of the provision, said Carl Friedrich, a principal with Milliman, an insurance industry consulting firm.




Annuity/LTC hybrids gain traction

One piece of the healthcare reform bill, the CLASS Act, has attracted a lot of attention, though there’s already significant change afoot in long-term care (LTC) as an employee benefit. Employee Benefits News picks up on the story:

Before the Community Living Assistance Services and Supports Act folded into landmark health care reform legislation raised public consciousness of long-term care insurance, LTC got a shot in the arm with provisions of the Pension Protection Act (PPA) that took effect this year.

So-called combo long-term care products, which blend LTC with annuities and life insurance, could be popularized under changes to the PPA because of clearer pricing. Carl Friedrich, a consulting actuary and principal for Milliman, also has noted that the LTC portion of a combo plan often costs 35% to 50% of standalone coverage.




An attractive proposition for long-term care consumers

We’ve blogged before about the attempts to legislate increased adoption of long-term care (LTC). One idea that can also help increase adoption is the “combo product”—an idea that brings together LTC and annuity products. A new article in Financial Planning looks at this dynamic. Here is an excerpt:

Why have sales of individual LTC insurance been slowing? Many observers cite the “use it or lose it” aspect of LTC policies; consumers might pay premiums for years-even decades-and never file a claim. Some potential buyers may be put off by the idea of “wasting” the money spent on LTC insurance premiums, says Carl Friedrich, a consulting actuary and principal in the Lake Forest, Ill., office of Milliman.

LIMRA puts the average annual premium at about $2,160. Even with some discounts, a married couple might be looking at an outlay of around $4,000 per year to buy coverage. Many individuals and couples probably tell themselves that they have other alternatives (sell a house, tap a portfolio, rely on a relative) to spending so much money to protect against a financial drain that might never occur.

Hence the appeal of combo products. If clients need coverage for long-term care, they have it. If their need for custodial care is modest or nonexistent, the money they spent on life insurance or annuity premiums will provide a payoff for them or their beneficiaries.

This appeal has resulted in significant business already. For 2008, first-year premium on combination plans was estimated at $650 million (primarily single premium), Friedrich says. That exceeded first-year standalone LTC insurance premiums (primarily annual premium) of roughly $600 million.