John Hancock Life Insurance Co. announced Thursday that it will discontinue the sale of individual long-term-care insurance policies starting next year, in yet the most recent blow to an industry that's struggled to overcome the barriers of low interest rates and negative consumer sentiment.
The company, among the top three in market share for traditional long-term-care insurance, will no longer issue new policies after February 2017, according to a memo sent to distribution partners and producers.
“After a recent analysis of the macro-economic trends facing the long-term care (LTC) insurance industry, we have made the difficult decision to discontinue sales of our individual LTC insurance policies in all states,” the memo stated.
Trends impacting the product's growth potential, such as a shrinking distribution landscape for traditional long-term-care insurance as well as falling and “stagnant” consumer demand, combined with “significant capital requirements,” led to John Hancock's ultimate decision.
Dec. 2 will be the last day to submit policy applications, while Dec. 16 is the last day to complete paramedical exams and all policies must be “issued and paid for” by Feb. 10, the memo said.
In-force policies, for which John Hancock will continue to provide customer service and benefits, will be unaffected, according to spokeswoman Melissa Berczuk.
At the same time, the company will continue offering hybrid long-term-care products, which offer LTC coverage as part of an accelerated benefit rider on a life insurance policy. Sales of these sorts of products have ballooned industrywide as traditional long-term-care insurance sales have dried up.
“There's no doubt this is the way the industry is going,” Gregory L. Olsen, a partner at Lenox Advisors Inc., said. “The long-term-care portion of the insurance industry is moving away from standalone policies.”
Americans purchased 105,000 new stand-alone policies in 2015, down from 750,000 in 2000, according to the American Association for Long-Term Care Insurance. However, hybrid policies have grown markedly — there were 220,000 new policies sold in 2015, up from 15,000 in 2007.
John Hancock was the third-largest provider of traditional long-term-care insurance by the number of insured as of 2013, covering nearly 1 million individuals, according to most recent AALTCI data. John Hancock, with 14% market share, fell behind Unum Group and market leader Genworth Financial.
Genworth has also been struggling of late. In February this year, the company announced a restructuring plan meant to shore up its legacy block of LTC business.
In October, China Oceanwide Holdings Group Co. purchased Genworth for $2.7 billion, pledging to help the firm strengthen life insurance units after being hurt by higher-than-expected losses tied to long-term-care coverage.
“Stand-alone policies used to be a dime a dozen, and now there are very few mainstream companies that offer stand-alone products,” Mr. Olsen said.
Several factors have played into the precipitous decline in traditional long-term-care insurance sales. For one, price increases insurers have levied on in-force policies, particularly on older policies that may have been mispriced at the time, have eroded consumer confidence.
Further, persistently low interest rates have hurt returns on insurers' portfolios, and increasing longevity ups the claims companies have to pay.
However, Jesse Slome, AALTCI's executive director, doesn't believe John Hancock's assessment that there are “far fewer outlets” through which individual long-term-care insurance is sold rings true.
Rather, he contends the distribution outlets are still there, but they've turned to hybrid life insurance-LTC products and insurance companies haven't stepped up their direct marketing to consumers to plug the gap.
Long-term-care insurance tied to permanent life insurance products are an easier sale for financial advisers today, Mr. Slome said. They typically require less time at point-of-sale than stand-alone products, and advisers can tout potential for contract growth during a strong stock market, as there's generally been following the financial crisis.
“Hybrid products have siphoned off the traditional market,” Mr. Slome said. “If the consumer is soured on a product, and you have other competition, as you have from hybrid products, if you don't market then you die.”
“I think [traditional LTCi] will limp along until either there is a reason to have a solution or there is someone or something that is passionately driven to create a solution,” Mr. Slome added. “Sometimes products have to disappear before they come back.”