The Long Term Care Insurance market's standalone products have seen disappointing sales compared to the potential need, weak profits, and ongoing issues with the cost to the consumer compared to the uncertainty of receiving a benefit. Yet combination products, or riders, have seen significant growth recently, and may be the future of the industry, according to a new study by Conning.
"The need for Long Term Care Insurance is growing, as the population ages, as lifespans lengthen, and as the cost of skilled nursing and assisted living accelerates," said Terence Martin, analyst at Conning. "However, standalone Long Term Care Insurance products have not found acceptance with the consumer due to ongoing premium rate increases on existing and new policies, and the uncertainty of ever receiving a benefit at all. For the insurer, the current low interest rate environment has negatively impacted investment returns, and has accelerated insurer exits from the market in recent years. However, combination products, which are Long Term Care riders on life insurance or annuity policies, have seen increased sales and may represent a more acceptable risk profile for insurers."
The Conning study, "Long Term Care Insurance: Pressures Rise on Traditional Products While Combos Thrive" reviews the demographic and economic forces driving the market need, and the performance of both standalone and combination Long Term Care Insurance products as well as competing noninsurance products.
"Insurers saw an opportunity in the Long Term Care market to meet a significant consumer need, but have largely been unable to sustain a viable business model in standalone products," said Stephan Christiansen, director of research at Conning. "Even though combination products have a higher premium than standalone products, the greater certainty of receiving either a long term care or life insurance benefit is resonating with consumers, and the product is beginning to break through in terms of sales success. Our review of combination products finds that they do represent a different and generally more acceptable risk profile to insurers. The question remains, however, whether the many structural issues we identified that have plagued insurer's standalone products will also impact growth and profitability of combination products in the future."
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