A niche player in living benefits reinsurance, RGA Canada believes that combination living benefits products could help long-term care insurance come out of its slump.

Having recently studied developments on an international level, RGA’s vice president of living benefits Benoit Miclette has concluded that combination or hybrid products could help long-term care (LTC) insurance sales get off the ground. He shared his findings this spring at a conference organized by the Laval section of the Quebec insurance regulator, the Chambre de la sécurité financière.

“In other countries we see long-term care, disability, and critical illness insurance that are actually life insurance products with accelerated payments in the event of serious illness, or policies that combine different types of coverage,” says Miclette. “They do not offer return of premium. This option was created in Canada because people were hesitant to buy these products, saying: ‘Maybe I’ll pay premiums for years and get nothing.’”

He believes hybrid products that transform disability or critical illness insurance into long-term care products at age 65 have good prospects. Already present elsewhere in the world, Miclette believes these products will become more and more important here.

In Australia, the industry offers a product called All-In-One. This contract provides life insurance, end-of-life benefits, critical illness insurance, along with additional life insurance options, child riders, and disability insurance coverage. Among the possible combinations, the product allows for the purchase of life insurance alongside permanent total disability insurance.

Inspiration could also come from the United States, where there is a product that combines a life annuity with LTC insurance coverage. This product came into being on Jan. 1, 2010 thanks to changes in the U.S. Pension Protection Act of 2006, which allows for the payment of LTC benefits from an annuity without requiring the the policyholder to pay taxes. “That opens the door to a lot of innovation,” notes Miclette.

Besides innovating, these hybrid or combined products would smooth out the sales process, making it easier to meet needs over a typical life cycle and save on costs. Their development is progressing in Canada, says Miclette.

“A combination product would have the advantage of allowing the advisor to sit down with the client and talk about all the risks at the same time with a single form,” says Miclette. “We are also trying to find a way to reduce LTC premiums. At the same time, we are having important discussions with advisors to give us direction.”

Chief actuary and vice president of UL Mutual, Luc Pellerin has commissioned Benoit Miclette to develop combination products in recent years, including its hybrid AdapCI+ Hybrid+ product which combines critical illness and long-term care insurance. With this product, the monthly LTC benefit is equal to 5% of the benefit that would be payable in the event of a critical illness.

At the end of the spring, the mutual insurer will revise its premiums due to low interest rates, and its critical illness insurance product (AdapCI+) will be affected. “We are keeping within reasonable limits,” he says, and points out that the impact will be greater on life insurance. “When the long-term interest rate changes, for example from 4.0% to 3.5%, this requires a premium increase of 12% in permanent life insurance and 9% in critical illness,” he notes. Term life insurance will not be affected.

The sales hurdle

Long-term care insurance remains the poor cousin of living benefits products. According to the survey of the Canadian market conducted by Miclette, new LTC sales in 2012 came to $10 million (measured by annual premium), a decline of 4% compared to 2011. In comparison, critical illness sales reached $121 million, an increase of 16% over the same period. Sales of what he calls “disability annuities” reached $72 million, a decrease of 3% between 2011 and 2012.

If LTC sales are difficult, it’s because the industry is being cautious in Canada, says Miclette: premiums are high and are not guaranteed. The Canadian industry does not want to repeat the American mistake, offering generous products that did not provide for the subsequently low lapse rate that followed. American products, which have been on the market since 1974, are also experiencing problems with interest rates and recent evolutions in product design.

He notes that the product is also based on limited experience. “The LTC product appeared in Canada in 1997. We do not have many tools to work with yet. This is also a product where pricing is based on morbidity,” notes Miclette. Mortality experience is fairly stable and based on several decades of data. With morbidity, experience is changing rapidly. New medicines can help but, on the other hand, increasing obesity and a more sedentary North American lifestyle are complicating things.

Wake up the market

Tim Landry says that it is time to find solutions before advisors give up completely. An advisor with Marcolin & Associates, Landry works in the Montreal area and has specialized in living benefits since 1969. He notes that the majority of advisors over the age of 50 are not usually fond of the living benefits market. They like long-term care insurance even less.

“If we don’t wake this market up, we’ll lose it,” says Landry. “If I had to choose one of the three living benefits products, I’ll choose LTC. I personally think it has the most potential.”

“Companies have to come up with a brief reading guide and proper training for advisors,” he says. As for living benefits consultants at MGAs, Landry thinks they need to band together and find a way to maximize the impact they have on advisors. He believes that advisors should, among other things, be encouraged to work in tandem with someone who has more experience in this niche in order to offer the product to existing customers.

He also thinks that companies should set an example by accepting some borderline cases. “The industry has to understand that one of their costs of doing business may be to take some marginal cases and accept that,” he suggests.

He also believes Sun Life Financial should bring back the sales model that used long-term care specialists. While this approach irritated him when it was first developed in the early 2000s, he eventually came to the conclusion that this was the only way to open up this market.