Your next LTCI sales idea: "the tyranny of choice"
By Stephen D. Forman (LTCA)
Long Term Care Associates, Inc.
In an era where declination rates vary widely between insurers, one of the greatest tools for self-preservation is tracking your placement rate by carrier. You don't need a lot of carriers in your portfolio, just those who will issue your business. And as we contemplate the tyranny of choice, remember that the best plan to present your clients isn't necessarily the one with the lowest premium; it's the one they can actually get.
That was then; this is now
For many observers, long-term care insurance peaked at the end of the millennium. Take 2002 for example, and the results speak for themselves: over $1.2 billion in new sales, 754,000 new lives, and an industry replete with hundreds of products offered by 104 carriers. Interest rates on Treasuries and corporate bonds would not begin their precipitous decline until 2003. In contrast, in 2012, 233,000 new lives were written across 21 carriers, for a total of $580 million in annualized new premium. Not yet in the books, 2013's pace suggests we'll finish at 177,000 lives and $415 million from a remaining 16 insurers.
For oft-repeated reasons, the media finds this alarming, but I promise you that claims of LTCI's death are greatly exaggerated. In a future column, I will reveal the untold story of why so many LTC carriers have exited the business — even this summer's 69-page comprehensive report on the very topic missed it by a mile. But in this article, I'd like to focus your attention on a more pressing issue which is impeding your sales: the tyranny of choice.
Behavioral scientists famously proved the "tyranny of choice" by staging a California supermarket aisle with 24 different varieties of jam. On a different day, they displayed just six. Although more shoppers stopped to view and consider the dazzling 24-jam display, only 3 percent went on to make a purchase. On the other hand, of those who had to choose from the six varieties, 30 percent ended up buying — a tenfold increase.
The researchers wrote, "As options multiply, there may be a point at which the effort required to obtain enough information to be able to distinguish sensibly between alternatives outweighs the benefit to the consumer of the extra choice." As professional salespeople, we know this by another name: analysis paralysis.
Supply and demand
What do you think would happen if 104 carriers suddenly flooded the market and began offering LTC products again? Would it be a renaissance? Would it induce so much pent-up demand that your phone would begin ringing off the hook? Would our industry triple its sales and grow to $1.2 billion overnight?
On the contrary, the laws of supply and demand are so incontrovertible that we have exactly as many carriers as can be supported by the number of applicants purchasing — and when things get out of balance, we experience economic evolution, which is no more nor less dramatic than in any other maturing industry. Don't shed a tear, and don't sensationalize
Let's re-visit 2002, shall we? The year our industry peaked. Would you be surprised to learn that, out of 104 possible carriers, my company's portfolio consisted of just eight companies? Fast forward to 2012, after a decade marked by carrier exits and the marginalization of rating agencies. Our portfolio consisted again of eight insurers. Eight then, eight now.
The moral of the story: If we always select the leading eight carriers for our clientele, who cares what happens to the other 96 in the total field? In fact, looking in my rearview mirror, why do I care if there's five carriers behind me or 500? It doesn't matter.
LTC insurance is not exempt from the universal theory called "The Long Tail," which posits a concentration of production from the leaders and decreasing amounts as you stretch into the pocket niches. In fact, in 2000, the top five carriers accounted for 41 percent of covered lives, which is already a lot. By 2013, the top five carriers had dominated to such a degree that 76 percent of new buyers have purchased from one of these five.
Pepsi vs. Coca Cola
I can appreciate how these changes lead to insecurity: Producers are losing colors from the palette with which they paint. Before long, we'll be living in Pleasantville, offering up black and white where we used to sell the colors of the rainbow. It's natural to ask whether we shouldn't be augmenting our dwindling LTCI options with novel linked-benefit and critical illness choices.
As long as our industry has at least two carriers, we'll be fine.
It takes just Pepsi and Coke to compete in the soft drink industry, and we need only Boeing and Airbus to manufacture planes. To be more precise, from cell phones to fast food, three is the magic number, and nearly every maturing industry evolves toward it. Does anyone believe that the only thing preventing sales is the lack of more free quotes? If we've learned anything from supermarket jam it's that the tyranny of choice can paralyze. Besides, if multiple choice were the key to restoring grandeur to our sales, then the fastest-growing — and now solidly number two — LTCI carrier wouldn't be Northwestern Mutual, whose career sales force renders it the equivalent of the Ford Model-T. ("You can have any color as long as it's black.") The absence of choice doesn't perturb NML's customers one whit, while too much choice — whether in number of carriers, number of products, number of options, or number of plan designs — fatigues our clients into delay or denial.
At the end of the day, you cannot let LIMRA numbers get into your head, any more than you can chase away the blues by adding carrier appointments. In 1997, the year Consumer Reports famously profiled the LTC industry with their special report rating 114 policies, our agency was appointed to just three carriers. You must passionately believe in every single product in your kit, which means you'd sell any one to your own grandmother and could live happily if it were the last product you could sell. Can you say that? Ironically, given the entire color palette from which to choose, some producers tend to filter out all but the low-price leader every single time ("I'm just doing right by my clients"). Others would never dream of selling a plan from less than an A-rated carrier, no matter the price ("I'm just doing right by my clients"). In an attempt to fight frostbite by removing their clothes, others are turning to product lines (linked-benefit and critical illness) that present an even smaller universe of competitors than LTCI ("I'm just doing right by my clients").
You see, there are any number of perfectly agreeable reasons for self-censoring the number of carriers we present to our clients, and we haven't even touched the most sensible of all: underwriting. More so than features and benefits like cash or clever inflation protection, the primary differentiator these days — and the main justification for a competitive landscape — is underwriting. Each carrier must develop its own actuarial experience and create its own risk management profile (in the form of rate classifications, rate tables, benefit limits, risk assumptions and underwriting tools).
In an era where declination rates vary widely between insurers, one of the greatest tools for self-preservation is tracking your placement rate by carrier. You don't need a lot of carriers in your portfolio, just those who will issue your business. And as we contemplate the tyranny of choice, remember that the best plan to present your clients isn't necessarily the one with the lowest premium; it's the one they can actually get. Good selling!