Securing Tomorrow: The Rise of Long-Term Care Combo Products in Insurance

January 30, 2024

The insurance industry is witnessing a significant shift in product offerings, particularly in the realm of long-term care (LTC) insurance. Traditional stand-alone LTC insurance products are increasingly being supplemented by life combination products, offering a more versatile solution to policyholders. This trend reflects changing consumer preferences and the evolving landscape of risk management1.

The appeal of life combination products lies in their flexibility and comprehensive coverage. They combine long-term care insurance with life insurance or an annuity, providing resources for LTC if needed. These products pay out in one way or another, ensuring that premiums are not 'wasted.' Many also feature guaranteed premiums, adding to their attractiveness. Common structures for these products include linked benefit LTCI, hybrid LTCI-life insurance with LTC riders, LTC annuities, and chronic illness acceleration rider. As developed countries face the ‘grey wave’ of old population rising as proportion of total population, and there are less children to replace them, and lower earning population to pay for providing the welfare benefits to the old and retired population, long term care insurance is only set to increase over time in an exponential manner.

Actuaries play a critical role in the development and success of these combination products. Their expertise in risk assessment, financial modeling, and predictive analytics is crucial for accurately pricing these products and ensuring their long-term viability. As the market for life combination products expands, actuaries are tasked with innovating product design, refining underwriting processes, and enhancing risk management strategies to meet diverse consumer needs.

From a macro perspective, we are seeing developed countries rapidly ageing known as the ‘grey wave’ with grey proportion of population increasing every year and lack of new children being added into the demography because fertility rates are lower than 2.1 children per female which is considered as replacement level. Replacement level fertility is the level of fertility at which a population exactly replaces itself from one generation to the next. There are many socio-economic and cultural reasons behind this mostly being due to high cost of living leaving little room for expenses of rearing children, high cost of raising children, increase in requirements for educational achievements, shift in cultural dynamics and so on2.

Given that there are approximately 50 million caregivers in the US alone, this highlights a massive opportunity for insurers for Long Term Care Products. COVID19 has also increased the level of awareness for combination of life and LTC products especially for the elderly population and to provide financial security for the caregivers and the whole family3.

From a mortality perspective, the underwriting for LTC/Life products varies, ranging from traditional underwriting with labs and medical records to a more modern approach applying a complete digital experience with an online e-application, an underwriting rules engine, and third party underwriting data. However, the present value (PV) of morbidity is generally more significant for these products than the PV of mortality, and so underwriting innovation is weighted accordingly. Cognitive impairment claims comprise roughly a quarter of all morbidity claims (based on SALTC data), and so solid cognitive screening is imperative for ages 60+. Historically, cognitive screening tools have been conducted in person or by telephone. New AI predictive technologies claim to be very effective at assessing cognitive impairment, such as eye-tracking analysis and speech evaluation. The robust online visual comparison test is well suited for cognitive screening in an automated underwriting environment for life/LTC. In the last five years, many have incorporated third-party data with prescription history checks, historical lab data, and medical claims data, which could alert the carrier to undisclosed diagnoses, including signs of cognitive impairment. Electronic health records are available, but most carriers are waiting for data improvements and standardization for these to enhance underwriting accuracy and efficiency4. LTC products also provide actuaries with an opportunity from shifting their focus on the traditional mortality and morbidity statistics to DALY statistic that epidemiology focuses on to deliver a richer picture of impact of health. DALY is a metric that stands for Disability Adjusted Life Years, which presents years of life lost due to premature death plus years lived with disability. So the general consensus is that we are living longer, but those additional years are with chronic diseases and impairments and this has impact on what insurance products will be in demand. It also shows that the real goal should not be to just live longer, but to live those extra years in a healthy state of health rather than an impaired one.

One leading example of such technology is Chronos platform which analyzes the person’s health using selfies. Combining facial analytics, biodemographic information and dynamic questioning, Chronos returns precise and reliable scores that can be used in morbidity and mortality risk rating and underwriting by life insurers5.

In developing these products, actuaries must consider various factors:

  • Longevity Risk: With people living longer, actuaries need to accurately predict the potential duration of LTC needs.

  • Healthcare Cost Inflation: The rising cost of healthcare services is a significant factor in pricing LTC combo products.

  • Investment Returns: Assumptions about future investment returns affect the pricing and reserves for these insurance products.

  • Product Flexibility and Options: Actuaries must balance the need for flexible product options with the financial risks they pose.

While the market for life combination products is expanding, actuaries face several challenges:

  • Complex Risk Modeling: The dual nature of these products requires sophisticated models to assess and balance the risks of life insurance and long-term care.

  • Consumer Education: There is a need for greater consumer understanding of these products’ benefits and limitations.

  • Pricing and Affordability: Balancing the costs to make these products accessible while ensuring they remain financially viable is a delicate task.

Traditional mortality products have seen companies implement wellness programs to incentivize healthy lifestyles, and the LTC/life combo products could gain traction here as well with potential improvements to both mortality and morbidity. Companies can further manage costs downward by providing resources that advise insureds on more comfortably aging-in-place to postpone facility care.

The integration of advanced analytics and predictive modeling will further enable actuaries to refine these products, ensuring they remain relevant and sustainable. Collaborations with healthcare professionals and data scientists can provide deeper insights into healthcare trends and consumer behavior, aiding in more accurate product design and pricing. The rising popularity of life combination products presents both challenges and opportunities for actuaries. One of the primary challenges is the accurate assessment of long-term care costs, which can be substantial. The average monthly costs for home health aides, adult day health care, and assisted living facilities are significant, underscoring the need for robust and sustainable insurance solutions. Actuaries must navigate these financial complexities while ensuring that products remain accessible and beneficial to consumers.