Tag Archives: LTC

Context Is Key to Unlocking LTC Data

Long-term care (LTC) insurance is no stranger to large amounts of data. However, in my 10-plus years in an LTC claim operations role, there is a piece of data I’m surprised continues to be shared without the proper context – claim terminations for people labeled “recovered.” Across the industry, this piece of data is used in actuarial assumptions and operational processes — but not just for claims where the insured has recovered.

Before I explain further, a little background:

Claims data is a crucial piece of the overall risk management puzzle, especially for LTC insurers. The reserves associated with future claims represent a huge amount of the liability they are holding separate. Claim termination rates are closely watched.

Insurers generally have three main designations for terminations for closed claims:

1. Death

This one is pretty easy to understand; the insureds stopped receiving benefits because they are now deceased. This occurs 73% of the time based on the recent study conducted by the American Association of Long Term Care Insurance.

2. Exhaustion of Benefits

Again, another simple concept. The insureds ran out of benefits before they died. This occurs 14% of the time, according to the AALTCI study.

3. Recovery

Here is where we find the complexity. The very nature of the word implies the claimant in this category is now healthier and no longer needs to receive benefits. According to the same study, this occurs 14% of the time.

See also: Using Data to Improve Long-Term Care  

The problem with this category lies not with the study, which accurately reflects what insurers report, but rather the context and consistency of how this data is classified. What’s suggested is not quite the reality. But it requires a little digging to understand what I mean.

Now for the Context

Insurers and the claim administration systems they use require their data be categorized into larger buckets. It’s much easier, after all, to analyze and predict variables when there are fewer varieties of those variables. Instead of having many claim termination reasons, let’s find a way to just have three. Sounds simpler, right?

Unfortunately, this approach changes the recovery designation into more of an “Other” category. Any claim that is closed where the insured isn’t deceased and still has benefits remaining ends up in this classification. Some examples:

Preservation of Benefits

Some insureds have limited benefits (and thus can run out of them). These claimants tend to be in their 60s, 70s and lower 80s. Given they’ll potentially fall short of benefits, they sometimes choose to stop receiving benefits to save them for future needs.

Respite Care

Most policies allow for several weeks of respite care per year. This benefit is independent of the elimination period and allows families to open a claim for a short time while the primary caregiver takes a much deserved break. Again, when these short claims close, they are coded as recovery.

Moving Abroad

Many policies do not cover care received outside the country. So, when insureds move overseas at the end of their life, the claims unfortunately must be closed, and their policy then lapses by their choice.

Spouse Retires/Family Member Becomes Caregiver

This one is close to the preservation of benefits status. Some policies exclude family members from providing the care. When the claim is initially filed, the spouse is still working or family members are unavailable to assist. These factors can change and cause a family to close the claim while the family member is able to care for the insured and save the rest of the money for later.

Lack of Contact

As odd as it sounds, sometimes claimants just stop sending in bills. The company attempts to contact them over several months, they search online databases for proof of their passing and they contact every phone number and e-mail address they have in connection to the claimant. At a certain point, they have to stop trying and close the claim.

Unreported Death

Related to lack of contact are deaths that are not reported to the insurance company and don’t get picked up by the search techniques most insurers use. Even if the companies later find out that the insured passed away and close the policy as a death, they generally don’t go back and change the termination status of the claim, so it remains, a recovery.

Less than $100 left on the policy

This one adds a final bit of humor to the list. The benefits available on an LTC policy are often not used in the exact amounts intended, so the policy is not exactly exhausted by the final benefit payment. I have seen situations where the amount left on the policy is so small, the insured (or the family) doesn’t send an invoice to request the final amount.

All of these examples have something in common. The claimant didn’t die, and there were benefits remaining on the policies. So every one of these situations would be reported as a recovery.

So what?

So what am I trying to say here? All data is inaccurate? No, the data isn’t inaccurate, it just requires the proper context before it is used for analysis. Without the proper context, statistics could be used to suggest that, 14% of the time, an insured who qualifies for long-term care benefits will improve enough to regain independence and no longer require assistance.

See also: Time for a ‘Nudge’ on Long-Term Care  

The reality is much harder to know. While you would expect some recovery on acute conditions (think hip replacements), would it surprise you to know that as many as 25% of these recoveries are claims where the insured has been certified with cognitive impairment? Did those claimants really get better and no longer require care? Another 25% of the recoveries most likely fall into one of the categories above. So that means about half the recoveries reported, aren’t really recoveries.

Recommendations:

  • Talk to your internal claims team to get their input. Involve them in the collection and analysis phases, not just at the read-out of the final product. By working together with some of the key claims experts, you will gain better context around the data.
  • Understand your internal processes and procedures. Learn the details of your company’s processes associated with opening, approving, paying and closing claims.
  • Be careful when using industry-wide data. Not every company’s processes are the same, and data elements may have different definitions. Only rely on and draw conclusions when you understand the contextual factors surrounding the data.

A Really Important Role for Agents

Agents have a crucial role protecting their clients, but not just by providing the right coverages. Do not get me wrong, selling the right coverages is of paramount importance for professional agents (and I don’t know what amateur agents are even supposed to do).

Another key service professional agents can provide clients is protecting them from insurance companies. A great example is reading forms, yes–actually reading forms, to distinguish whether coverage actually exists! I think cyber might be an excellent generic example of verifying true coverage is actually being provided or if true coverage just appears to exist.

See also: 5 Predictions for Agents in 2018  

Another example, and a great way to prevent E&O claims, is careful policy checking on E&S policies. By and large, surplus lines does not have to provide the coverages promised in their proposals. Neither do they have to notify agents or insureds at renewal if they reduce coverages. This is why they include their disclaimer stating they do not have this responsibility. It is one reason this is surplus lines and not an admitted market. An insured will not know the coverages have been stripped without careful review, and, even then, they may not understand. I know far too many agents who do not understand, so I don’t know why anyone should expect the normal insured to understand. This is a job for professional agents!

A third example is provided by a recent court case. Joseph Beith provided the details in his blog (and if you care about insurance companies treating insureds fairly, I highly recommend you subscribe to his blog). A long-term care (LTC) provider included a sentence (used by at least one other carrier, too) that, “Your premiums will never increase because of your age or any changes to your health.” My bet is that 95 out of 100 insurance veterans would not recognize the problem with this “guarantee.” Beith recognized and pointed out the problem. The guarantee does not prohibit the company from raising rates on a class basis (and, as people age, their class ages).

If an agent has a choice of selling two policies, one with this tricky language and another without it, then, all else being equal, even if the policy without this language is more expensive, a professional agent will point out this crucial language issue. Insurance policies are, after all, legal contracts, so policy language matters, A LOT!

This is maybe an extreme example of arguably (and it is arguable since it is part of a large lawsuit) crafty language, but important differences exist between carriers’ policies in virtually every instance. Whether it is simply a material difference in ordinance and law limits between two homeowners policies or huge contractual liability differences between two policies, professional agents will point out the differences. Doing so is crucial to helping insureds understand that insurance IS NOT a commodity when sold by professionals (again, I don’t even know what to call insurance when sold by amateurs other than disasters waiting to happen).

Pointing out differences in coverage shows clients you are actually working to help them rather than just working to make a buck. Pointing out differences gives clients the power, and, if they have the power, your relationship will likely be much stronger over time. Conversely, when they feel screwed because they were not educated and given the opportunity to choose, they are more likely to sue you or at least tell everyone they know not to do business with you.

See also: 4 Ways to Improve Agent Experience  

A problem with LTC and life insurance is that, when the events that trigger a claim occur, the agent may be long gone. P&C policies typically have a shorter lifespan, meaning more ramifications, good and bad, for professional agents. A good professional agent who makes these distinctions with good clients can achieve considerable success. I am not sure about the future of people selling coverages they do not know and do not communicate to clients. The future for absolute professionals is, however, so bright they will need shades.

10 Insurance Questions for 2017

Love it or hate it, 2016 was a year that brought many surprises. And 2017 is looking like another year of unexpected outcomes. The saying goes, “May you live in interesting times.” And we are definitely living in interesting times, including in the insurance industry.

Here are 10 insurance questions for 2017:

1. Will this be the year that the U.S. insurance industry makes a definitive move toward level commissions or fee-based products across all product lines?

Most other professional service providers are paid on an hourly or fee basis, including accountants, attorneys, physicians, trust officers and the majority of financial planners. The Department of Labor fiduciary rule is driving some insurance companies to offer fee-based annuities for retirement plans rather than traditional commission-based annuities. See my take on this: The Fiduciary Rule: A Call To Arms for the Insurance Bill of Rights: Aligning the Insurance Industry With Consumers. The U.K. already has a commission ban, yet life insurance sales are now trending up. While, there are differences in the U.S. and U.K. markets, the core principles are the same. To learn more, visit the Nerd’s Eye View Blog for Bob Veres’ in-depth look. Commissions are not necessarily the bottom-line issue; it’s the premiums that really make the difference.

2. Will the Affordable Care Act stay in effect? 

While no one knows for sure, it is unlikely that the ACA will be completely repealed any time soon. President-elect Trump, along with leaders in Congress, have vowed to repeal and replace, but doing so will be challenging given the lack of votes in the Senate. And while there are significant issues with the ACA, consumers do benefit. Also, healthcare organizations and insurance companies having spent millions of dollars to adjust to it. What is likely is that changes will occur on a gradual basis. The bottom line is that one of the most important benefits to U.S. citizens is the ability to purchase health insurance if you have any existing (or past) health issues. Prior to the ACA, it was challenging to get an individual health insurance policy, which created a bigger issue for individuals and for our overall society. Yes, premiums are increasing, and there are fewer insurers participating. At the same time, it is estimated that there are more than 20 million people with insurance under the ACA. Change will happen, just gradually. If the ACA is replaced, there remains the questions of how to fund it, if the current mandates (taxes and penalties) are stripped out. The funding is one of the core issues and does need to be revised. Insurance companies have also left the federal and state exchanges in a number of states, and they will need to be given incentives to return to the marketplaces.

See also: Top 10 Insurtech Trends for 2017  

3. What will happen with long-term care insurance (LTCI)?

The need for long-term care insurance is not going away; people are living longer, and healthcare costs are rising. Medicaid coverage is minimal and does not apply to most long-term-care expenses. Older LTCI policies have experienced significant premium increases for many reasons, but since the passage of the National Association of Insurance Commissioners’ Rate Stabilization Model Act, there have been fewer increases on newer policies (Read more: “What’s ahead for long term care insurance” ). Currently, hybrid long-term-care/life insurance policies are experiencing growth, but these complex policies are not a solution, as they are a step away from providing a direct protection against the specific risk being insured, which means they are more expensive than a stand-alone LTC policy. A new issue coming up is that some states have “filial responsibility” laws that obligate adult children to financially support their parents and are starting to be used by some nursing homes.  Read about it here.

4. Will insurance agents go extinct?

No, insurance agents will not be going away. However, the way that insurance agents currently do business and have historically done business will be going away. With greater access to information and technology, insurance agents will become true advisers to their clients rather than simply transacting product sales. Professional insurance agents provide value to consumers when they help them understand how insurance policies work and when they assist consumers in making wise choices. The insurance agents who survive will be the ones who recognize that they need to align their interests with those of consumers and work in their best interests by recommending insurance coverage that consistently meets the needs of their clients. Insurance agents will need to follow the concepts outlined in The Insurance Bill of Rights. Mark Twain said, “The reports of my death have been greatly exaggerated,” and this certainly applies to insurance agents.

5. Will consumers finally discover the value of disability insurance? 

Disability insurance is the most overlooked financial tool. Disability insurance is a necessity for anyone who depends on their income. If we are discussing a mandatory insurance coverage, disability insurance should be at the top of the list. Three in 10 workers entering the workforce today will become disabled for some period before they retire (Social Security Administration, Fact Sheet, January 31, 2017). This point was brought home by the fact that Colin Kaepernick did not play this year for the San Francisco 49ers until they purchased a disability insurance policy for him. Read more here.

6. Has the annuity marketplace hit its turning point? 

The current annuity marketplace is filled with complex annuity options that are increasingly challenging for an insurance agent to understand, let alone being understandable for consumers, especially seniors, who are heavily marketed to. The annuity industry continues to face significant market conduct issues in terms of suitability and disclosures (Read about the investigation by the New York Department of Financial Services). Annuity companies that think outside the box and provide low-cost, easy-to-understand solutions will gain popularity. A number of leaders in the financial planning area are already discussing the value of single-premium immediate annuities in investment portfolios to help offset longevity risk (living too long). This will only happen with low-cost annuities and where agents can really provide value by recognizing and solving challenges that can only be addressed with annuities that serve the consumer by getting back to the core function of annuities.

7. Have we reached the tipping point for when the impact of the prolonged low-interest-rate environment will fully emerge on interest-sensitive life insurance policies? 

The majority of universal life policies issued are facing the hidden danger of terminating long before they are expected to. This is due to lower-than-projected credited interest rates, which has led to reduced cash values. If a life insurance policy reaches a cash value of zero, it will terminate unless it has a no-lapse guarantee. The only way to keep the policies in force is to increase the premium, however, life insurance companies, for the most part, are not advising policy owners that they need to increase the premium and specifying the amount by which the premium needs to be increased. This situation has been exacerbated by the fact that a number of life insurance companies have had to increase their mortality costs (cost of insurance charges) to maintain profitability. Continuing to ignore this issue is going to have significant long-term ramifications for the stability and trust in life insurance companies and life insurance agents. This is affecting all types of life insurance that are not guaranteed products, just not as directly. Read more: Will Your Life Insurance Terminate Before You Do?

See also: 10 Predictions for Insurtech in 2017  

8. Is there truly an insurtech company that can add core value to the insurance process?

The insurance industry needs evolution, and not revolution. The majority of insurtech companies are really bringing us more of the same; they are really just “dressed up” insurance brokerages and insurance insurance companies. And while some do make use of technological breakthroughs, they are not making insurance breakthroughs, which is an important distinction. The real breakthroughs will come from when consumers can more easily understand insurance products and pricing and companies can use data to provide truly customized insurance product pricing, streamline underwriting, simplify products and riders and provide insurance products that people need, thereby eliminating those that don’t have a useful purpose.

9. Is it time for insurance policies to finally be used primarily for insurance purposes?

The insurance industry will recognize that it must get back to its core function, which is protecting against potential risks. When this happens, it will lead to better-optimized insurance products for consumers and longer-term business for insurance companies. This will especially be true in the areas of life insurance and annuities when the trend becomes using insurance to address non-insurance issues. Insurance is just insurance.

10. Will the insurance industry discover excellent customer service?

Quality policy owner service is not something that the insurance industry as a whole is known for. Companies that provide top-notch customer experiences thrive, are well-known for doing so and can be easily named (think: Nordstrom, Disney and Apple). Other companies are known for poor customer service, while most remain in the middle. FedEx, which used to be known for top service, now delivers packages at any time and leaves them all over the place. The point is that a quality policy owner experience will revolutionize the insurance process. If the insurance industry can learn to “delight” consumers at every step along the way from the policy selection process, policy application and underwriting process, policy monitoring and claims service, then the insurance industry will really move forward.

The Bottom Line

Greater insurance literacy will benefit consumers and members of the insurance industry. Following the guidelines of The Insurance Bill of Rights is what will move the insurance industry forward. Ask your agent and insurance company if they’ve taken The Insurance Bill of Rights Pledge and look for the Insurance Bill of Rights Seal on their website. If they haven’t taken it, ask them why not or what they have to hide about fairness and disclosure — and join The Insurance Bill of Rights Movement by signing the petition to support The Insurance Bill of Rights (click here).

If you have any feedback or your own questions for 2017, please let me know. Thanks for reading.

Time for a ‘Nudge’ on Long-Term Care

For years, the go-to approach with clients for discussing long-term care insurance (LTCi) solutions has been from an educational perspective. The idea was that if we could just get a prospective customer to lower his guard long enough to understand the strong statistical rationale or risk in favor of LTCi, the decision would become clear to him, and coverage would be purchased.

As logical as all that sounds, maybe our logic is flawed? The reality we’re facing in the LTCi industry is that this approach is likely not the most effective way to lead Americans into action on LTCi. What we’ve experienced is that, despite our best efforts and compelling factual arguments in favor of LTCi, adoption rates have consistently hovered around 8%, which corresponds with the percentage of the population that is predisposed to long-term planning by nature.

So why isn’t the traditional approach to planning for LTCi working for the other 92%? The answer, it turns out, might be found in some fascinating recent research into “behavioral economics,” which considers economic decision making from a psychological perspective. Best-selling books such as Nudge (Richard Thaler and Cass Sunstein) and Thinking Fast and Slow (Daniel Kahneman) have explored the ramifications of this fascinating topic.

The idea is that people really don’t act rationally, as classical economics assumes. Instead, people are motivated to act based on their emotions and impulses. Moreover, the choices we make are very dependent on how options are presented to us.

See also: Can Long-Term Care Insurance Survive?

Companies and governments have recently used the findings of behavioral economics to try and “nudge” people to take actions. For example, more companies now auto-enroll employees in 401(k) plans and make them opt-out if they don’t want to join. The result has been a big increase in 401(k) participation. Another finding—that too many choices lead to inaction—has led to a narrowing of investment options. Similarly, “default” choices, such as target date funds, are now part of many 401(k) plans.

Here are six ways in which the findings of behavioral economics can help improve your closing rate when doing LTCi planning with clients:

  1. Keeping choices as simple as possible. As an adviser, you may think your job is to give a possible buyer multiple options for planning for care, such as spread sheeting several insurance carriers or comparing standalone and linked products. However, the reality is that consumers don’t want this—they want a recommendation with just a few choices. Share your due diligence, but limit the information to what you consider the best options for them to consider.
  2. Focus on the possible gain LTC will provide instead of the possible loss. Research has shown that, just like gamblers, we all want to win, and we don’t like to think about losing. People who are considering LTCi don’t want to think about loss when planning for care, such as how their retirement savings may be depleted. Instead, focus on the fact that a small LTCi premium gives the policyholder the possibility of a big payoff in benefits. For example, a $2,000 annual premium could result in $300,000 to pay for high-quality care at home.
  3. Use stories, not statistics! Statistics are important for discovering trends and insights, but they are awful when used for discussing LTC planning. People are way too optimistic about their future and think they will be on the winning side of a statistic. Focusing on stories and experience that motivate prospects is much better than using statistics that can destroy empathy when talking about planning for LTC.
  4. Focus on “now” benefits, not the future.  It’s incredibly difficult for people to imagine aging and needing help. Instead, focus on the “now” benefits of LTCi.  The now benefits are more difficult to quantify, but they can include peace of mind, good health underwriting and locking into a lower premium before a birthday.
  5. Help guide heuristics (rules of thumb). For analytical advisers, it’s tempting to use tools such as cost-of-care surveys that project the cost of care 40 years in the future when designing plans. A better approach is to “follow the crowd” and recommend benefits similar to what policyholders are actually buying. You may think people want customized solutions, but most would feel more comfortable picking options similar to other buyers. Recommend they do what most people are doing.
  6. “Nudge” a choice.  When people have to make a decision, such as actively signing off on the fact they have been offered LTCi but declined, they will be more likely to buy. LTC planning is easy to delay, and people need motivations to keep them from delaying the decision forever.

See also: Long Term Care Insurance: Group plan vs Individual

Behavioral economics is a controversial topic, but we think it offers an important critique of the way we have traditionally approached LTCi planning with prospective clients. Employing some of its findings might move us beyond the 8% threshold of highly motivated long-term planners to help the remaining 92% of the population engage in meaningful consideration of their long-term care needs.

Integrating Group Life and Voluntary Benefits

Group and voluntary benefits providers vary in a hundred different ways. If you are a supplementary benefits provider that only provides one product to the group market, your data integration issues with multiple brokers and employers may still be complex. The more products you sell into the group and voluntary space, the more difficult your data integration will be.

Let’s say that your organization carries group life, voluntary supplemental life, dependent life, LTC and AD&D products. Without modernization, it is likely that your organization will have several hurdles to surmount. The first is to develop one consolidated repository from all of the data that is likely held on multiple systems. The second is to make that set of data available to the many different people and institutions that have a vested interest in access. On the flip side, insurers need to be able to receive data efficiently, as well. Carriers must be able to import data received from various benefit partners into their source systems through a single point of entry. Without this, entry or import issues could lead to benefit integrity issues, where data is are correct on one platform but incorrect on another. These types of basic data errors will quickly erode relationships with employees and benefit partners.

One way to help alleviate potential data issues is for insurers to focus on providing simple products with simple rate structures. Focus on guaranteed issue limits. Anything that has to be approved or underwritten after payroll deductions begin will cause deduction and billing issues. An exception could be made if an insurer is able to provide automated underwriting decisions at the point of sale.

The data requirements for employers and enrollment partners vary widely (in part because no standards exist), which places more of the data integration responsibility on individual carriers to interact with individual employers or benefits companies. So, the easier it is for your IT teams or vendor partners to make those connections, the better off you are likely to be when it comes time for an employer to renew their contracts. It makes sense to pursue a course that keeps your systems agile.

What about a fresh start?

When it makes sense, we regularly recommend that, instead of attempting to migrate current and past business to a new platform, insurers start fresh with a new system dedicated solely to the one program. If an insurer is moving into a new market or launching new products, why not learn from past system issues and product issues and embrace a clean slate, eliminating the need to translate and carry cumbersome legacy programming into a new environment? Start with a brand new set of products and filings, a brand new marketing plan…perhaps even a brand new name to signify the difference.

Within group and voluntary benefits, this approach makes its case when looking at just a few of the benefits, including simplified testing, fewer resources required to launch, less expense, less risk to the old system and old data and dramatically increased flexibility in data usage, capability development and integration points. Managers who touch the system are far more likely to trust the data they see, reducing a “checks and balances” approach to billing, reconciling, correspondence and a dozen other areas where the need for clean data and quick visualization are essential.

We’ll discuss more about data strategies in the coming months, including ways you can build effective technology bridges and keep a high level of data integrity.