Navigating Worksite vs. Individual Hybrid LTC Products

Understanding Worksite and Individual Hybrid LTC Products

Worksite and individual hybrid long-term care (LTC) products cater to different audiences with unique features. Individual products primarily attract pre-retirees, offering extensive coverage through comprehensive underwriting, typically based on traditional life insurance models like Universal Life or Whole Life with substantial face amounts.

In contrast, worksite products focus on employees in their 40s-50s with smaller face amounts, often ranging from $50,000 to $100,000. These products benefit from more liberal underwriting, including guaranteed issue options for lower amounts and simplified processes for spouses. The worksite market frequently uses Whole Life, Universal Life, and the emerging "permanent term" model, ensuring lifetime coverage without cash value.

Evolving Market Trends

The worksite LTC market enjoys steady growth, particularly spiking in 2021 following the Washington Cares Act. Industry surveys report a 7-8% annual increase in sales of worksite life insurance with LTC riders, amounting to approximately $730 million. Notably, more policies are sold now with chronic illness or LTC riders (52%) compared to those without.

Product evolution has been gradual, starting with simple benefit accelerations before adding features like restoration of death benefits and extended coverage options. While inflation protection is prevalent in individual LTC products, it's somewhat limited in worksite options due to carriers' concerns over high-risk customers. Nevertheless, regulatory pressure is encouraging the inclusion of inflation protection features.

Actuarial Insights into Pricing

Several key factors influence the pricing of worksite LTC products:

1. Claim Utilization: Understanding claim frequency, duration, and settings.

2. Persistency: Worksite policies are more likely to lapse when employees change jobs.

3. Mortality Improvements: Anticipating longer lifespans affects future claim costs.

4. Interest Rates: Higher rates support better pricing models.

5. Participation Rates: Targeting 15-25% participation in voluntary programs, higher in employer-funded plans.

The lapse-supported nature of worksite products allows for competitive pricing, where premiums from lapsed policies help subsidize those persisting with coverage.

Opportunities for Growth and Innovation

Current market trends present new growth opportunities:

1. Employer-Funded Plans: These boost participation rates and risk spread but remain largely voluntary.

2. Permanent Term Products: Offering low-cost, simplified options for budget-conscious consumers.

3. State-Driven Demand: Initiatives like the Washington Cares Act foster market awareness.

Future Industry Developments

The LTC industry is embracing several promising trends:

1. Bundled Services: Incorporating concierge and caregiver benefits beyond financial protection.

2. Health and Wellness Benefits: Designed to enhance policyholder well-being and delay claims.

3. Annuity-Based LTC Products: Gaining traction with favorable interest rates.

4. New Standalone LTC Offerings: Revival of traditional policies by carriers like Care Scout.

5. Technology and AI: Transforming care delivery and operational efficiency.

Worksite LTC insurance is poised for significant growth, driven by consumer awareness, regulatory changes, and innovative products. The permanent term model, particularly with its acceleration and extension benefits, appeals to middle-market consumers. Employer funding unlocks potential expansions by addressing participation and persistency challenges, though tax complexities require attention.

As more carriers enter this dynamic space, professionals should closely watch developments in inflation protection, employer-funded tax treatments, and bundled services to remain competitive in the evolving worksite LTC marketplace.