LTC distribution model stunts growth of market, a study finds

Feb 13, 2006 @ 12:01 am

By Gary S. Mogel

NEW YORK - Concentration of long-term-care-insurance distribution in a relatively small number of independent firms is stunting the growth of the market, according to a recent report.

But the large independent distributors counter that they are filling the vacuum created by LTC insurers, many of which don't adequately recruit, train or motivate agents.

Although the industry has a 17% five-year annual growth rate, much of that has come from premium increases instead of new business, noted the report, "Long-Term Care Insurance: Opportunity Knocking - Again?" by Conning Research and Consulting Inc. in Hartford, Conn.

Twenty insurers control 92% of the market, and much of the business flows through a small number of distributors, the report pointed out. About 90% of the products are sold through insurance agents and brokers, with financial planners and banks selling the rest.

Complexity a problem

The concentration is an outgrowth of the product's complexity, which makes it difficult to sell, the report stated. That complexity encourages the creation of specialists, who tend to make the products even more complicated, further restricting sales.

"They're reporting yesterday's news," Jesse Slome, executive director of the American Association for Long-Term Care Insurance in Westlake Village, Calif., said about the Conning report. "The sophisticated firms realized that making the product complex was not meeting consumer needs."

LTC insurance products are starting to become simpler, and there are about 120,000 producers who have sold at least one policy, added Mr. Slome, who also is president of marketing firm Sales Creators Inc. in Westlake Village.

"It's absolutely true that LTC insurance is complex. But that's because there are many products with lots of moving parts and changes," said Dan Cahn, senior vice president of business development for Kirkland, Wash.-based LTC Financial Partners LLC, which has 150 agents nationwide.

"Also, the clients' needs for which the coverage is designed are complex," he said.

"There used to be a few carriers with a single product and a career distribution force, but now the independent firms are the main distributors," Mr. Cahn added.

Innovations arriving

Changes in LTC distribution may be on the way, according to Stephan Christiansen, director of research at Conning. "LTC insurance has begun to break out of its limited distribution network and is increasingly being understood to be part of a financial planning and lifestyle program," he said.

In the financial planner channel, LTC insurance can be an effective cross-selling opportunity and asset-retention strategy, Mr. Christiansen added.

Financial advisers can increase LTC sales by partnering with full-time LTC producers, according to Ron Iverson, a consultant in Helena, Mont., who specializes in LTC marketing. While aware that the client should have the coverage, many planners are too busy to sell it, he noted.

Other new distribution channels include the Internet, and associations for retired people and the elderly, Mr. Slome added.

An emerging LTC distribution strategy is to make the coverage available through a payroll deduction in employee benefit plans, according to a study last year by Seattle-based Milliman USA Inc. However, that strategy has had mixed results, and the study found that employee participation rates were disappointing.

"We had no success selling the coverage as an employee benefit - the employees just had no interest in it," said Mike Ackerman, principal of Integrated Benefit Services Inc. in Radnor, Pa. "LTC isn't a group product - it's an individual product that can be marketed to groups."

LTC insurers use employee benefit wholesalers to place group LTC business, Mr. Ackerman noted.

Part of the problem is the employees' financial advisers, who sometimes discourage them from buying group coverage through employers because the advisers want to sell them individual coverage, he said.

Compensation evolves

In addition to product specialization, innovative compensation packages are tending to concentrate the best LTC producers in a few big firms. For instance, LTC Financial Partners has an "ownership" compensation structure, according to chief executive Cameron Truesdell.

"Every partner gets shares, and the number of shares goes up with production," he said.

"That means a whole new income stream from share dividends - a new concept in the LTC insurance field," Mr. Truesdell said. "This stream is above and beyond the traditional income from premium renewals."

But compensation isn't the only factor driving LTC producers to the larger firms. "Producers may gravitate to the bigger firms because they want access to multiple insurers and products for their clients," Mr. Slome said.

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