Presented by Leonard Berthelsen
Rate increases in any product line are never popular, nor are they a pleasant conversation with your client. Long term care insurance is especially difficult due to the fact that your client may be considerably older now than when they originally purchased their policy. That distance between purchase time and now present an ever challenging set of issues for both you and your client. Should I be proactive and address this right away with my client or do I wait for the news to leak out and maybe the client has calmed down before they actually get the rate increase notice? The prudent way would seem to me to address it with the client as soon as you can. It certainly is better hearing it from you than your client getting blind-sided by a news story or hearing about it through the grapevine.
So what is that conversation going to be like? Well, short of your client going ballistic on you, level heads need to prevail. Most carriers offering long term care insurance or carriers that offered it in the past have gone through rate increases at least once. You may have become seasoned in how to handle it but many agents still struggle today on the best approach when rates go up.
It is important to first remember this, you did not make these rates go up, your client did not make them go up and circumstances beyond both of you are controlling this. Market events certainly have been issues for the past 7-8 years. The interest rate that the carrier expected to earn on the invested premiums has not met policy design, utilization in some areas of the product have been higher than anticipated, and the simple fact that people are living longer and developing care issues that LTC was designed to cover is happening more frequently than what the product was priced for. Now that access to home care is so prevalent in our society, policyholders are accessing benefits earlier and receiving those benefits over a longer period of time, thus making the average claim higher. Yes, some of the older plans had designed persistency rates well below what was actually experienced that resulted in necessary rate increases. I do have to say though, if the plan was designed and built within the last 10-15 years, the persistency issue has been relatively the same, very high and quite probably not a reason anymore for the rate increase.
So why the lesson in LTC history? How will you explain why the increase occurred and how will you make it understandable? I have gone through several rate increase actions with multiple carriers and my basic explanation remains the same. Reiterate the value of the plan, why they bought it and its value to them in current dollars. This gets your client back in the frame of mind of the product’s importance and the value proposition that convinced them to purchase it in the first place. I’ll create a quick premium comparison for each client demonstrating what the same plan at their current age would cost today and compare it to what they already have in place. This many times will defuse the notion of dropping it and shopping for something else. Rarely will the increased premiums on the existing plan be more than what currently is being sold. Many times the benefits will be stronger in their plan than what they can buy today. Once I have an understanding of the pure premium issue, I can move on to affordability.
If this rate increase is going to put the premium out of reach or just more than what they are willing to spend for LTC, then I need to have the discussion about adjusting their current plan. In most cases the carrier will proactively give several “landing points” for the client to consider which generally means they are going to reduce benefits to keep the premium at a level that is acceptable. Not all benefit reductions are negative or bad. Maybe the client purchased it with inflation protection and it has grown to an acceptable daily/monthly level and they are okay with freezing it at that level. An easy solution to the problem. Some carriers will allow the reduction in the percentage of inflation protection as a means of reducing premiums. My conversation may need to go into possibly looking at reducing the duration of the benefit or other riders as a means of reducing premium.
The main advice here is really very basic. Be proactive with your client when you know that a rate increase is coming. Start the conversation as soon as you know the facts. Understand the “landing points” that the carrier is offering and make sure that you restate the reason why they purchased the plan in the first place. The importance of long term care coverage for that policy owner is more important today than ever before, and the price is never going to be more affordable than it is right now. We all are getting older, living longer and in many cases dying slower with health related issues. Let’s just make sure that our clients are making the right decisions regarding the rate increase and for the right reason.