John Hancock Life Insurance Co. has become the latest provider of long-term care insurance to enhance its efforts to sell the product. The company, one of a handful of big players in the much-talked-about niche, has quadrupled its support staff behind LTC insurance sales through all channels, including banks.
The industry has been touting LTC insurance as a “next big thing” for several years already. And some observers have begun discussing what it will take to get penetration to the next level. Indeed, after a sharp first-quarter decline in long-term-care sales, the task for the next two to five years, as one consultant describes it, is to persuade prospects that their needs can be projected more accurately and met less expensively – and then to develop the products to keep that promise.
According to Joe Catalano, a senior vice president of Hancock’s long-term-care division, LTC’s potential remains huge. Yet, “as great as the demographics are, market penetration is still only around 6%.” Right now the insurer, which began offering the product in 1987, is No. 2 in the overall long-term-care market, with a 14% market share, more than 800,000 clients, and $1.1 billion of in-force premium, he said.
“The LTC marketplace is a very small one from a carrier perspective,” Mr. Catalano said. The top five carriers had a combined market share of 72%, he said.
Mr. Catalano said increasing the support staff from six people to 24 means “hopefully we can approach distribution with a lot more diversity and more tools than we have in the past.”
Other top providers have also been bolstering their efforts. MetLife Inc., for example, bought the long-term-care insurance business of TIAA-CREF this year and said it would keep looking for long-term-care acquisitions. New York-based TIAA-CREF said it was leaving the business because it lacked the scale to be effective.
Last year UnumProvident, also among the Top 10 long-term-care insurers, streamlined its distribution operation to give producers direct access to the home office.
Another Top 10 provider, Bankers Life and Casualty, signed an agreement in November to offer long-term-care products to 1.5 million members of the American Legion in 46 states. The deal mirrored the joint arrangement that Hancock and MetLife have to supply the product to members of AARP.
The product is something banks and other financial institutions are interested in offering since it offers a way to keep assets from going out the door to pay for expensive care, Mr. Catalano noted.
But one industry observer said that adding staff is just a first step because this is the beginning of “the next wave” in the long-term-care industry and insurers must better tailor their message to consumers and distributors, as well as designing products to reach a wider clientele.
Jesse Slome, the president of Sales Creators, a marketing consulting firm in Westlake Village, Calif., said: “Having more field people is going to be absolutely critical” but is only a first step. Providers must overcome middle-income people’s impression that the products are too costly and the need for them too uncertain, he said.
“The challenge in the next two to five years is really going to be how effectively do we as an industry communicate to middle-income populations that long-term-care insurance is affordable and make the product so,” said Mr. Slome. “New messages and new ways of designing insurance solutions for middle-income individuals are required.”
Individual long-term-care sales fell sharply in the first quarter, according to Limra International, a trade group, down 27%, to $170 million of annualized new premium, compared with the year before. However, the trade group noted that the first quarter of 2003 was an especially strong one.
Boston-based Hancock, which was bought in April by Manulife Financial of Toronto, already sells its long-term-care products through career agents, its national account team, managing general agents, wire houses, and banks. Part of the reason for expanding the support staff is to add two channels — broker-dealers and “brokerage general agents,” which is what the company calls managing general agents who primarily sell life insurance.
Mr. Catalano said that expanding the operation gives the company “more latitude” in its approach to distribution channels, which will make it more effective in the new channels. In addition, he said, “broker-dealers and wire houses tend not to want to work through third-party wholesalers and instead work directly with home offices in order to get their support.”
Before this expansion, most of Hancock’s long-term-care sales had come through third-party wholesalers, he said. Adding people at the home office will let the operation better serve the wire houses and broker-dealers as they want to be served.
In the banking channel, each company has a preference about how it works with a long-term-care provider, Mr. Catalano said. Some prefer working through a third-party marketer — in fact, some demand that a vendor develop a relationship with a specific marketer if it wants to get in the bank. But others prefer to work directly with the provider.
Some banks and wire houses do not like to work with third-party marketers because there’s a perception that the marketers are keeping some of the money, said Kenneth Kehrer, the president of the Kenneth Kehrer Associates consulting firm in Princeton, N.J.
But “there is a function that needs to be done. Somebody has to train the salespeople at the bank to sell the product” and give them sales ideas, advice on finding customers, and encouragement, he said. Those people can be in the bank itself, at a third-party marketer, or provided by the insurer, but it costs money somewhere in the chain, he said.
Its staff expansion will let Hancock serve its distribution partners however they prefer. In addition to allowing more partners to work directly with the home office, the new employees will also help Hancock add third-party marketing relationships.
Mr. Catalano said Hancock is always trying to leverage its existing relationships for sales of annuities, life insurance, and other products to add distribution of products like long-term-care insurance. “You try to use whatever synergies to really bring as much product in as you can,” he said.
Long-term-care coverage is an easy add-on product for distributors that already sell Hancock’s other products. “There’s definitely an overlap between financial planning and retirement planning products and long-term care,” he said.
In Hancock’s experience, he said, the distributors that “are most successful are those that make long-term care a core product; are really committed to it for a strategic reason; and are proactive, not passive, in going after customers.” Companies that just keep the product on the shelf in case someone asks about it will not sell much, if any, he said.
In the relatively small long-term-care marketplace, Mr. Catalano said, Hancock has an edge because of its strong brand name and reputation, since customers who buy long-term-care coverage want to feel sure the provider will be around when the care is needed.
Being part of Manulife has added distribution relationships, he said. And since Manulife did not have a long-term-care product before buying Hancock, the deal also gave Manulife’s existing distributors access to it, he added.
Mr. Slome, the California consultant who is also publisher of Long Term Care Insurance Sales Strategy magazine, said that people are aware of long-term-care insurance but are put off by its cost despite its promise of a lifetime of benefits. Long-term-care distributors, and the insurers who sell through them, need to develop risk analyses that will help people judge exactly how much long-term care they will need, he said. This would help them see past the perception that the insurance is not for the middle class, he said.
Also needed are product developments and legislative changes to allow more “partnership programs” that let people in some states protect assets by buying some long-term care insurance while preserving eligibility for state benefits once their insurance runs out, he said.
