Globally, the insurance industry has spent quite a bit of time and energy building solutions designed to provide lump sums or income streams in order to help people who need to go into nursing homes.
These are the long-term care waters in which we insurers have long fished. We have built a myriad of plan types for this need: immediate needs annuities; whole-of-life plans with long-term care acceleration riders; standalone insurance plans and more.
However, is assisted care still the primary long-term need? Or have the health and care needs of older people evolved? What, indeed, are today’s needs and demands? Have our energies been misplaced, and do we need to refocus?
Before we start, I’d like to pose a question: How much do we really know about aging?
As a middle aged man, one thing that truly keeps me awake at night is worrying about my 80-year-old mum. No one teaches us what to expect from aging parents, and no one teaches our aging parents what to expect either; we are simply left to get on with it.
This lack of knowledge about the physical, social and psychological processes of aging continually leads to poor outcomes. For example, when my mum calls to tell me that she can’t cut her toenails any longer and can I help, that sounds innocuous right?
This is one of the classic signs that a person’s capabilities have declined to such an extent that help may be needed. The scenario below, compiled from quotes in several physicians’ statements, generally progresses like this:
“Once I can’t reach down to cut my toenails, I can no longer reach [down] to keep my feet clean. I start to develop fungal infections which I then can’t keep at bay and, as the health of my feet declines, I start to change the way I walk to compensate for the sore areas I have developed. As I change the way I walk, I become more unsteady and eventually I have a fall. As an 80-year-old my bones are [only] 70% as strong as a 50-year-old’s1, so my chance of a fracture is significantly raised. Once I’ve fallen once, I’ll fall again and again and again.”
The two things that strike me about this scenario are first, the blinding simplicity of some of the lead indicators of increasing frailty, and second, the lack of awareness of what those indicators actually are—not only for older persons, but also for their well-educated, middle-aged middle income children.
Historically, long-term care insurance products have been designed to deal with the costs and typical durations associated with the care (nursing) home element of the last years of life. In Britain, these costs are approximately £39,5002 per annum if nursing care is required, and mean stays of all residents before death are 2.5 years.3 In the U.S., nursing home costs average $92,000 per annum.4
The scale and global nature of this issue means the waters we are prospecting are vast. In 2015, 48 million Americans were over age 655 but there was also 137 million Chinese over age 65.6 As the impact of China’s one-child policy (which did not conclude until early 2016) continues to filter through its population, it will create a unique set of additional tensions for the Chinese.
Despite the obvious need for final years care, in the last five years we have seen the U.S. long-term care insurance market collapse. Companies such as John Hancock have pulled out as they struggle with a legacy of past pricing7, and Genworth sold itself to a Chinese buyer to re-capitalize following $2.5 billion of legacy LTC losses.8 What undid the U.S. market has been the product structures, which did not allow companies to respond to the risks chronic older-age conditions such as dementia presented as sufferers started to survive well beyond original expectations.
The lack of long-term certainty around governmental social care policies in the U.K. and elsewhere, has also created a vacuum into which insurers are unwilling to step. Without governments assuming long-term care’s tail risk, it is hard to see insurers rushing to stimulate markets.
Claims triggers that support LTCI have traditionally been designed only for the final years of life. Typically there are six Activities of Daily Living (ADL)-based definitions, with policyholders having to fail two or three in order for a claim to be accepted. Examples of ADLs language from current policies includes: