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Evolving group LTC marketplace brings forth changes


Group long-term care insurance has matured from the days when it was offered almost exclusively by Fortune 500 companies. Now it is embraced by employers of varying industry and size. But with maturity, comes change. Even as the benefit has grown in popularity, some insurers have chosen to exit the marketplace, leaving some employers wondering what to do.

In other lines of insurance, the decision to switch insurers can be an easy one. Employers often make this determination in hopes of a better product, service or price. It is rare for an insurer to leave a client, but this has happened in the long-term care insurance arena despite the overall strength of the marketplace. Some insurers have exited because their failure to achieve scale left them unable to profitably compete in this sector. Although this recent market consolidation appears to be slowing, its effects are still being felt.

Sometimes employers are left with little notice and must act quickly to minimize disruption to their plans. If you suspect that your insurer's commitment to the product may be faltering or if you've already been notified of your insurer's intended exit, it may be helpful to know what to expect.

Setting expectations

Since group LTC insurance is still sold largely as an employee-pay-all benefit, employee demographics must be appropriate for the product to achieve a strong enrollment. Based on past industry experience, the size of the organization, average employee age and salary, average employee education level and degree of participation in other voluntary benefits are good indicators of future plan success.

Ideally, most employees will be college-educated with an average age in the mid-40s, an average salary approaching $50,000 and strong participation in voluntary programs such as 401(k) plans or flexible spending accounts. In addition, and possibly most important, the company's endorsement and support of the plan can mean the difference between a successful enrollment and a poor one.

If there already is a group LTC plan in place, other factors also will be considered, such as the length of time the current plan has been in force, number of employees enrolled, and how recently the eligible group has been solicited by the current insurer. Insurers will be interested in groups with potential for a robust enrollment to mitigate the anti-selection risk associated with a second guaranteed-issue opportunity.

Considering options

Then there is the matter of reserves and whether a transfer will be possible. Insurance reserves are the amount of money set aside by the insurer to pay future claims. For the largest and most attractive employers, insurers will be willing to offer a full transfer of reserves, with a guaranteed-issue "landing spot" in the new coverage, premium credits and a second guaranteed-issue opportunity for the entire employee population.

For smaller employers, a landing spot might be available, without a reserve transfer. Instead, the coverage would be offered on a "moving forward" basis, where insureds can either keep their current coverage, drop it in favor of the new plan or stack it by adding coverage provided by the new plan to their existing coverage.

There is also the chance that insurers may not view your organization as a good fit for true group LTC insurance due to size or other factors and may direct you to a multilife option, which gives employees access to individual coverage. Multilife insurance usually offers a streamlined underwriting process in place of guaranteed-issue, and can offer a measure of plan flexibility since employees can customize plans to meet their needs.

Evaluating the insurer

When it comes to introducing a plan or transferring your existing group LTC insurance, you will want to evaluate a number of insurers, with a focus on their financial stability and commitment to the coverage. The usual measures of financial stability, such as Standard & Poor's Corp. or A.M. Best Co. Inc., are good indicators of an insurance company's claims paying ability.

Less well-known, but possibly a stronger indicator, is the Comdex Score, which is a consolidation of all ratings of an insurer, with the companies ranked on a scale of 1-100. As a general rule, the higher the Comdex Score, the more stable the company.

An insurer's actual commitment to group long-term care insurance may be harder to determine, but its number of years in the industry, its presence across market segments--from individual policies to multilife and true group products--and its overall market share can be a good reflection of its future intentions.

Dennis Healy is vp of group long term care for John Hancock Life Insurance Co. in Boston.