The linked-benefit market is experiencing a slowdown on premium growth, a result of low interest rates and insurers exiting sales of annuities with long-term care riders. That's according to new data published by LIMRA.
Premiums paid for annuities with long-term care benefits rose 9 percent to $480 million last year from 2014, according to LIMRA’s 2016 U.S. Individual Annuity Yearbook.
Sweetening annuities and life insurance contracts with benefit riders like long-term care is considered key to reviving the shrinking long-term care insurance (LTCi) market and offering a solution for millions of consumers who face daunting long-term care expenses.
With annuities, long-term care benefits are either “baked in” to the product or added as an optional rider.
“In a low rate environment, annuities with long-term care benefits don't have the attractiveness that they will in a higher rate environment - it’s very simple,” said Jesse Slome, executive director of the American Association for Long-Term Care Insurance.
Tacking on long-term care benefits to an annuity adds between .75 percent to 1.25 percent to the cost of the product, so that means a reduction in the income generated by the annuity, he said.
If rates rise to 4 percent or 5 percent or higher, annuities with long-term care riders will offer an “outstandingly attractive feature,” and this segment of the market will grow.
“If and when the rates change, the sales numbers will change as well,” he said.
But experts at LIMRA said that while low interest rates have an impact on pricing, the effect of those low rates on respective sales isn’t clear-cut.
Annuities with long-term care riders amount to a “niche component” and aren’t as widespread as life insurance products with long-term care riders, said Todd Giesing, director, annuity research, at LIMRA.
Unlike the bulk of annuities, which are designed for capital accumulation or income, annuities with long-term care riders require medical underwriting, and many advisors aren’t necessarily familiar with that, Giesing said.
Only five companies offered annuity products with long-term care riders last year, down from eight in 2012, so fewer companies typically mean lowerssales, he said.
A Sheen on Life/LTCi Products
Market trends indicate that selling a life insurance contract with benefit riders is easier than selling an annuity with benefit riders.
Premium growth of life insurance with long-term care riders soared 51 percent to $3.60 billion between 2014 and 2016, according to LIMRA’s Life-Combination Sales Survey.
With life insurance contracts, long-term care or chronic illness coverage is typically added as a rider and not “baked in” to the product structure.
Premium volume for life insurance policies with benefit riders is up 19 percent for the first six months of 2017 compared with the year-ago period. Meanwhile policy countincreased 8 percent as of June 30 over the year-ago period, LIMRA said.
Seeking to boost long-term care sales, insurers have taken to polishing their life contracts with riders that stretch beyond long-term care.
Critical illness riders available with life insurance pay out a lump sum in the event of a heart attack or other medical misfortune. Chronic illness riders pay out in the event a policyholder can’t complete two of six tasks associated with daily living.
“We've seen a fair number of companies entering the market over the last several years,” said Elaine Tumicki, corporate vice president of insurance, research-product, with LIMRA, as companies add more “acceleration products.”
Acceleration products offer all or a percentage of the life insurance policy’s face amount so that people can accelerate the use of the benefit. Acceleration products are easier for agents to sell compared with extended-benefit products.
Changes that come with the rider on an acceleration product tend to be lower than on extended-benefit products, which offer policyholders a multiple of the face amount.
Standalone LTCi Market Continues Decline
What hasn’t changed – and what comes as no surprise – is the decline in the standalone LTCi market.
LTCi sales last year eked out $228 million in premium, shrinking from $316 million in 2014, according to LIMRA’s U.S. Individual LTCi Sales Survey.
“There’s no surprise there,” Slome said.
In 2017, products with benefit riders will outsell traditional health-based long-term care policies by a ratio of four or five to one, he said.
Regulators, however, are considering innovative designs in the traditional standalone long-term care market so that the long decline in LTCi trends over the past few years isn’t a predictor of what will happen two, five or 10 years from now, he added.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.
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