A ‘Frenzy’ for Hybrid Long-Term Care Insurance

Feature Article - Summer 2011 | By Andrew Singer


WHERE DO THINGS STAND these days with regard to ‘hybrid’ long-term care (LTC) insurance? One need look no further than MoneyGuard, the pioneer hybrid LTC product introduced in the late 1980s.

MoneyGuard will reach the $1 billion mark (premium sold in all distribution channels) in 2011 for the first time, according to Andrew J. Bucklee,senior vice president, head of MoneyGuard Solutions Distribution, Lincoln Financial Distributors, Inc. (Philadelphia).

In the bank channel alone, MoneyGuard’s business was up 60 percent in 2010. Through May 2011, bank-channel business was up more than 40 percent (year-to-date), Bucklee told us.

(MoneyGuard’s product uses a universal life insurance chassis with an LTC rider. Other hybrid or linked products use an annuity chassis.)

Nor is MoneyGuard alone.

Andrew Bucklee, Lincoln Financial


At State Life, linked LTC sales grew 20 percent to 30 percent in banks over the past three years. 2010 was “up to form,” says Tony Ianni, national sales director, financial institutions, State Life Insurance Company (Indianapolis), a OneAmerica company. Sales soared 100 percent with Annuity Care (an annuity hybrid product) in banks, and 80 percent with all asset-based (i.e., hybrid) products, including Asset-Care, which uses a whole life insurance chassis.

Increasing bank distribution

2011 is off to a “very good start,” adds Ianni. “We increased bank distribution by 60 percent” as measured by the number of financial advisors (FAs) that hs company works with.

There has been a veritable “frenzy” of interest in hybrid LTC products lately, according to Doug Traylor, president of VIP Insurance. The Texas-based wholesaler’s bank business soared several hundred percentage points over the past 12 months—selling both annuity-based and life insurance-based hybrid LTC products—and sales are expected to double in 2011, Traylor says.

How to explain it? “There is little or no yield on fixed assets” these days, given the low-interest-rate environment, says Traylor. Bank clients “want to get something for their money,” he explains. “If not money for money, then benefits.”

Doug Traylor, VIP Insurance


Others agree that low interest rates have dampened demand for fixed annuities, long a staple of bank brokerage programs—making hybrid LTC products attractive by comparison.

Meanwhile, traditional LTC underwriters are struggling to maintain rates, and several well-known carriers have recently exited or are in the process of leaving the manufacturing business.

The big question: Can the LTC boomlet be sustained? What happens when interest rates again rise and bank clients flock once more to fixed annuities? (More on this shortly.)

New entrants

In the meantime, the hybrid LTC market has attracted new entrants. Forethought Distributors, part of the Forethought Financial Group (Houston), recently brought to the bank market a single premium deferred annuity with a long-term care rider. The product, ForeCareSM Fixed Annuity, has simplified underwriting, and an application can be completed at the point of sale (e.g., in the bank lobby). It debuted recently in Huntington Bank, but Paula Nelson, president of Forethought Distributors, told us that she hopes to have selling agreements with 10 regional institutions within the next 12 months.

When MoneyGuard went to simplified issue, it was a ‘real game changer.’ Before that it was a ‘slow-growth business.’ — Andrew Bucklee, Lincoln Financial

Interest among financial advisors for the linked LTC product is now “overwhelming,” says Steve Saltzman, President of Saltzman Associates, LLC, who worked with Forethought in developing its bank product.

As a result of the Pension Protection Act, effective January 2010, there’s now a tax benefit attached to linked products. That’s made a big difference, says Saltzman. Funds drawn upon to pay for the LTC protection are no longer treated as a taxable event. You used to receive a 1099 form for premiums collected. No more.

For the last two years, Saltzman and Ken Kehrer have been conducting LTC roundtables, primarily with banks, but also with independent broker/dealers (B/Ds). “Interest continues to peak” in linked products, says Saltzman, who notes that in the first quarter of 2011, banks were up 37 percent in linked LTC compared with the first quarter of 2010.

Paula Nelson, Forethought Distributors



“It offers a great opportunity to get a client on the phone,” says Saltzman, “to offer a new line of conversation.”

“The consciousness surrounding this issue is at an all-time high,” agrees Steve Cain, executive vice president, National Sales Leader, LTCI Partners, LLC (Chicago). Partly, this is the result of a demographic shift—baby boomers are aging—but also because of increased news reports about Medicare and related matters.

LTC could be ‘the next big wave of opportunity’ in banks. Sales could approach the volume of fixed annuities eventually. — Paula Nelson, Forethought Distributors

LTCI Partners, which works with U.S. Bank, among others, reports that its life insurance-linked LTC business was up 20 percent in banks in 2010. Its traditional (non-hybrid) LTC business, by comparison, was flat. About 90 percent of LTCI’s bank business is now in hybrid as opposed to traditional LTC, according to Cain.

As noted, Lincoln Financial’s MoneyGuard product has been in the bank space for more than 20 years. Its hybrid LTC product was developed in 1988. The basic idea: A client puts $1 in the product and it will grow three to five times that in LTC benefits. If the client doesn’t use ever use the health-care protection, he or she will still receive 1 1/2 to 2 times in a death benefit.

It is not a “use it or lose it” product, in other words.

Steve Cain, LTCI Partners


MoneyGuard always pays a benefit, either a death benefit, or a long-term care benefit, or some combination of the two. That is one of its big attractions.

Why the big jump in MoneyGuard sales in banks now? (Bank distribution accounts for 23 percent of MoneyGuard’s overall business.) Financial institutions are starting from a lower base, notes Bucklee. It’s still not a mature business, like fixed annuities in banks. That said, “We’ve doubled our sales force” recently, he told us. They have more foot soldiers out there.

More advisor participation

There appears to be more acceptance of the product among bank advisors, too. One used to say that LTC sales followed the 20/80 rule, that is, 20 percent of financial advisors typically generated 80 percent of LTC revenues. Is that still the case?

Basically, yes, “but there is more participation,” says State Life’s Ianni. Between 40 percent and 50 percent of FAs in most client banks are now participating, and in the more advanced institutions, that share is 60 percent to 70 percent, he says.

“An in-depth knowledge of the product is still not out there on the part of advisors,” says VIP’s Traylor. “But that’s changing. What used to be 95/5”—that is, 5 percent of advisors accounting for 95 percent of LTC sales—“is now closer to 80/20.” Better advisor training will result in still broader FA participation, he suggests.

It’s helped, too, that another year has passed since the implementation of the Pension Protection Act in January 1, 2010. Advisors “have gotten more acclimated to the story,” says Ianni.

But persuading advisors to sell LTC remains a challenge. “Some advisors just don’t want to go down that road,” says Ianni. “There’s always a fight for the mind space of the advisor.” Everyone’s pushing managed money these days, and there are also structured CDs out there that are vying for advisor attention. “There’s only so much oxygen” out there. “It’s hard to keep people’s interest.”

It helps to frame things as a ‘money management’ issue. A wholesaler might ask an FA to pull out some of her clients’ annuity files, see when they are coming due and the reason the client is holding onto them. The frequent answer to the last question: “In case of an emergency.” And in the case of a 68 or 69 year old, that “emergency” is almost always seen as a health care emergency.

If you look at the various retirement surveys out there, notes Lincoln’s Bucklee, when FAs are asked about retirement, they see the main concern as: Do my clients have enough money to retire on? But if you ask the clients themselves, they are worried about health insurance, worried about medical costs, worried about long-term care.

What happens when interest rates again rise and bank clients flock once more to fixed annuities?

LTCI Partners looks at long-term care insurance from a risk management perspective, says Cain. It comes down to retaining or transferring risk, advisors tell clients. They don’t talk about product features or nuances. If they both agree that long-term health care is a potential risk that needs to be managed, then they ask, “How are we going to deal with it?”

This is when the advisor might bring in “a firm like ours that can do the dirty work,” says Cain, whose company typically works with “non-traditional sellers” of LTC like bank-based financial advisors or independent broker/dealers.

Streamlined underwriting

With the MoneyGuard product, Lincoln provides advisors with 14 “knockout questions,” e.g., “Have you ever had a hip replacement?” (If so, you’re more likely to end up in a nursing home, statistically speaking.) “Do you have a handicap sticker in your car?”

If the client answers positively, a 25- to 45-minute telephone call with the underwriter’s call center will follow. There is no medical examination, no blood or urine samples taken. It takes Lincoln 24 hours to make a decision.

When the company went to simplified issue, it was a “real game-changer,” says Bucklee, not only in banks, but in other distribution channels, like wirehouses, too.

MoneyGuard distributes through a wide range of banks, including the largest, such as Bank of America (primarily through Merrill Lynch) and Wells Fargo where the advisor is often not working in a bank branch. The product is also marketed in large banks like Chase and SunTrust where the financial advisors do work in bank branches. (At BofA, bankers typically refer clients to Merrill Lynch offices.)

Lincoln deals directly with larger banks through its wholesalers and with smaller banks through managing general agents (MGAs), i.e., third-party wholesalers.

The company constantly looks at ways to make underwriting more efficient, asking, “How do we improve the financial advisor experience,” says Bucklee.

Before moving to simplified underwriting in 2006, MoneyGuard was a “slow growth business,” says Bucklee, who worked earlier at Merrill Lynch. Customers are no longer graded on a risk basis—e.g., preferred, standard, table one, etc. They either ‘pass’ or ‘fail.’ “When we changed that, that’s when sales exploded,” recounts Bucklee.

With Forethought’s new annuity-linked LTC product, advisors are supplied with six pre-screening questions to ask clients—aimed at reducing embarrassing client turndowns, a major reason financial advisors stop selling the LTC product. These are questions like “Have you ever been rejected for long-term care in the past?”

The idea is for advisors to know right away if they have a clean sale, says Nelson.

Candidates answer 10 questions on the actual application, and they also submit to about seven to eight minutes of cognitive screening. Clients are not required to be in perfect health to purchase the product, adds Nelson. The really big risk from an underwriter’s standpoint is Alzheimer’s disease, which is very expensive to treat. This is why the cognitive screening is so important.

Platform sales

The hybrid LTC product also can be sold by licensed bank employees (LBEs), according to Nelson. Huntington’s LBEs are selling the Forethought product.

In fact, the bank platform — LBEs — represent a “big opportunity” in terms of future distribution possibilities, adds Ianni, but there are sometimes licensing issues that make platform distribution more difficult. Some states require health certification for LBEs, for instance.

About 80 percent of State Life’s bank sales are made by financial advisors, 15 percent by LBEs, and 5 percent by wealth management units, says Ianni.

Tony Ianni, State Life Insurance


The product remains a challenge. ‘Some advisors just don’t want to go down that road. There’s always a fight for the mind space of the advisor.’ — Tony Ianni, State Life Insurance

The typical State Life Annuity Care sale is $100,000. Demographically, age 72 is State Life’s “sweet spot” for the product. The policyholder is more likely to be female than male.

In terms of bank sellers, has anyone done a really good job? Across the bank industry, U.S. Bank has been generally recognized as the “best asset-based long-term-care bank in the country,” answers Ianni. It’s helped that U.S. Bank was one of the earliest entrants and has been at it longer than other institutions. It has set the “gold standard,” Ianni says.

Traditional LTC

What about traditional LTC in banks? “There’s a role for both” hybrid and traditional LTC products, says LTCI Partners’ Cain, who admits that in the last year there was much more interest in hybrid products. But traditional LTC has certain strengths: It offers some great tax advantages for a 55-year-old client who owns his own business, for instance, Cain notes.

Yes, the traditional LTC carriers are in some disarray now. “They are correcting their actuarial assumptions”—they’ve historically had problems pricing the product—“but the fundamentals have not changed,” asserts Cain. Among those favorable fundamentals: 1) Baby boomers are aging and thinking about retirement planning, 2) the boomers have more in-depth experience now with regard to the health-care system as a result of caring for their aging parents, and 3) many baby boomers will be inheriting significant wealth.

The traditional LTC insurance industry has had “growing pains” but it is making the appropriate corrections, says Cain. It is too early to write it off.

Meanwhile, banks and others could do a better job delivering LTC products to the mass retail market segment, VIP’s Traylor suggests. Hybrid LTC products have been focused mostly on the mass affluent segment, e.g., clients with $350,000 or more in extra, liquid assets. “More can be done with the mass middle. It’s under-served,” says Traylor. “It’s the next big wave.”

When the interest-rate environment changes?

What happens if interest rates rise and annuities again become an easy sale? Does that spell the end of the linked LTC boomlet?

Clearly, hybrid LTC sales have profited from the low-interest-rate environment, acknowledges Ianni. “Our advantage may drop,” he says, “but I’m hoping that by that time we will have made a number of ‘believers’” among bank-based financial advisors.

Yes, “a percentage will go back to ‘rate first,’” Ianni continues. There have always been opportunists in this area. That’s not the sort of advisor that State Life is focusing on, however. “We’re looking to the true planner,” the FA aiming to protect his/her client’s financial plan; they are the “true believers” in long-term care.

If rates rise, hybrid LTC sales might even be helped, Traylor suggests. That’s because adding a nursing home-type rider that costs 40 to 100 basis points is just not that big of a deal if clients are earning five or six percent on their money.

Hindrances remain

Obstacles still remain. There is the persistent problem of health screening, i.e., underwriting, notes Nelson. Potential clients must undergo a health interview, with a cognitive screening. “Until we make it transactional, we will never have the volume” that Nelson believes is possible.

“Unrealized expectations” is another obstacle, according to Traylor. That is, if LTC policies are so “sternly underwritten” that bank clients are turned down often, brokers will become discouraged from selling the products. They will “shut down,” predicts Traylor. A situation in which a husband is approved for coverage, but his spouse is rejected, will be seen as negative by brokers, “not beneficial to the [overall] client/broker relationship.”

More consumer awareness about the benefits of linked LTC products needs to be generated, in Bucklee’s view, who adds that this is still a relatively small business. Long-term care is “the single biggest risk to [a client’s] retirement train.” It has the potential to “take it right off the tracks,” he says.

In the next 10 to 15 years, Bucklee expects to see a sea change in the way financial advisors work with clients. Their role had been to ensure that clients had enough money on which to retire, that is, a focus on acquiring wealth. In the future, they will evolve from accumulation experts to income-distribution experts.

One of the keys will be persistence—wholesalers meeting with advisors to “keep drumming that message home,” says Bucklee. FAs have to be taught to have that “tough conversation” with their clients about long-term care.

‘More can be done with the mass middle. It’s under-served.’ — Douglas Traylor, VIP Insurance

LTCI Partners’ Cain agrees that “bridging to a health-care conversation is difficult for an advisor.” It can be more onerous than talking about death (which is required when selling life insurance), even. “People just don’t want to think about some kind of chronic illness.”

As big as annuities?

Despite the potential obstacles, Nelson says that LTC could be “the next big wave of opportunity” in banks. Banks eventually could do as much with this as they have done with traditional fixed annuities. After all, banks have huge annuity assets on the books, many of which are often viewed as “dead assets,” she notes. You can’t move an existing annuity with a 3 percent guarantee now, even though customers might want something better. The hybrid LTC product offers an opportunity to talk to existing clients.

Linked LTC products should continue to sell in banks, says LTCI Partners’ Cain, particularly as the sales and underwriting process becomes more streamlined. But could they achieve annuity-level revenues in banks eventually? “Wow...That’s aggressive,” he answers. He can’t quite see that happening.

That said, in Cain’s 15 years in the industry, the “conversation in banks about addressing this issue has never been easier.”

Hybrid long-term care insurance “could take over as the staple” in banks, opines VIP Insurance’s Traylor. At a minimum, annuities with LTC riders or insurance products with LTC riders “will become more of a mainstay in banks.”

As big as fixed annuities, though?

“I believe the market could be that big,” he answers.


Andrew Singer is editor-in-chief and publisher of Bank Insurance & Securities Marketing magazine. He can be reached at asinger@bisanet.org

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