MANAGEMENT

AN OUTSIDE--IN VIEWOF THE LTCI INDUSTRY

Session 5: February 27, 2006

Session Producer:

Ty Wooldridge, Chief Actuary

Genworth Financial

MANAGEMENT

PANEL

Eric BergLehman Brothers

Neal FreedmanStandard & Poor’s

Jeremy PincusThe Forbes Consulting Group, Inc.

MANAGEMENT

Eric Berg

Life Insurance Analyst

Lehman Brothers

MANAGEMENT

Neal Freedman

Associate DirectorStandard & Poor's

MANAGEMENT

LTC Insurance Industry Overview:

Opportunities for Profitable Growth

Jeremy Pincus, Ph.D.

Principal

Forbes Consulting Group

6

MANAGEMENT

Industry Overview• You’ve heard the bad news

• I bring you good news and a message of hope

• There are three steps that can unlock enormous opportunity:

1. Get to know a profitable consumer market niche and align your product and brand with it

2. Align with proven distribution to that niche

3. Use your success to invite more competition

MANAGEMENT

I. Focus On A Profitable Market Niche

8

MANAGEMENT

One Size Does Not Fit All

…avoid the folly of trying to be all things to all people

Pick a customer segment and own it…

Align distribution, marketing, style, tone, branding, and product with needs and preferences of your target segment.

Align distribution, marketing, style, tone, branding, and product with needs and preferences of your target segment.

9

MANAGEMENT

Comfort

Independence/Control

Comfort

Independence/Control

Unconcerned w/ burdening family or personal well-being

Denial/Cannot accept aging

Unconcerned w/ burdening family or personal well-being

Denial/Cannot accept aging

Motivated to protect family from burden

of LTC

Seek to preserve assets

Motivated to protect family from burden

of LTC

Seek to preserve assets

“Family should take care of their own”

“I’d rather die than live in a nursing home”

Price sensitive

“Family should take care of their own”

“I’d rather die than live in a nursing home”

Price sensitive

Self-

oriented

Self-

oriented

Four Segments That Think About LTC In Completely Different Ways

Family-

oriented

Family-

oriented

Planners Non-Planners

10

MANAGEMENT …and develops new ways of thinking about LTC as they age

Each type “ripens” at a different age…

4 Types x 3 Age Groups = 12 Segments

FamilyFamily

SelfSelf

FamilyFamily

Self Self

40-49 50-59 60-74Orientation

Pla

nner

sN

on-P

lann

ers

Fear for FamilyPassive BurdenedHead in the Sand

Family-Centric Confident CouplesComfortable

Realists

Value-SeekingFading DenialLive for Now

Independence Driven Self-Directed Singles Diligent Preservers

11

MANAGEMENT

Who Is Your Target Customer And What Do They Care Deeply About?

– What are you really selling? – What are your customers really buying?

Control over Quality of Care

Control over Quality of Care

Compound Inflation

Compound Inflation

Immediate Risk (Accident, MS)

Immediate Risk (Accident, MS)

Shared Family Benefits

Shared Family Benefits

Protect Family & Inheritance

Protect Family & Inheritance

Unlimited Coverage

Unlimited Coverage

Avoid Nursing Home

Avoid Nursing Home

Informal CareInformal Care

MANAGEMENT

II. You Will Benefit From Increased Distribution

13

MANAGEMENT

Career agents

Independent brokers

Certified Senior Advisor (CSA)

Certified in Long-Term Care (CLTC) Long-Term Care

Professional 0

50000

100000

150000

200000

Distribution Needs To Expand

Market growth is hampered by the limited number of true LTC specialists, estimated at approximately 8,000, compounded by

a shrinking agent pool.

Market growth is hampered by the limited number of true LTC specialists, estimated at approximately 8,000, compounded by

a shrinking agent pool.

178,000

13,000

161,000

8,000 2,000

Due to the complexity of the product and sale, LTC specialists

have been needed

14

MANAGEMENT

Why Current Distribution Is Inadequate

• The ~8,000 specialists can only reach a small fraction of the potential market for LTC insurance (82 million)– Each LTCi specialist would

need to meet with 10,250 prospects

– If each of the 8,000 LTCi specialists sold one policy every work day, only 2% of the available market would be penetrated each year

• Higher priced new policies largely account for the decline in sales– A 20-25% increase in premiums is associated with a 30%

decline in sales, due to price elasticity of demand that exceeds 1.0 at target ages (40-59)

It’s Getting Harder To Sell

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

2% 5% 10% 15% 20% 30% 40% 50% 60%

Source: LIMRA, HIAA

LTC Market Growth Dynamics

Avg. Premium per Insured (2004) = $1,900

Avg. Premium per Insured (2000) = $1,677

Avg. Premium per Insured (2005) = $2,100

Demand (% finding price acceptable)

Pri

cin

g o

f N

ew P

oli

cie

s

Distribution Is Shifting From One-to-One To One-to-Many

• Employer sponsored LTC sales growth (35% per year) is outpacing individual LTC sales growth (13% per year) [Milliman]

• Multi-life worksite sales are increasingly driving the individual market, particularly limited-pay executive carve-out plans

– The top independent LTC brokerages are targeting this form of sale to older Baby Boomers.

• Expanded or National Partnership– Evidence by some carriers reveals that the sales of

Partnership policies already have outpaced non-partnership policies [NAHU]

• 12% of all policies in-force in NY are Partnership 36% of all MetLife individual policies are Partnership

Employer-Sponsored

Group20%+

Multi-Life10%+

Individual & Association

80%

Expanding distribution will require product simplification, standardization, and affordability. Partnership expansion can be a

catalyst for all three.

Expanding distribution will require product simplification, standardization, and affordability. Partnership expansion can be a

catalyst for all three.

MANAGEMENT

III. You Will Benefit From More Competition

18

MANAGEMENT

Group LTC

Individual LTC

Auto

Homeowners Life

0

10

20

30

40

50

60

70

80

90

100

Mar

ket

Sh

are

of

To

p 4

Fir

ms

LTC Insurance Sales Are Overly Concentrated

4-Firm Concentration Ratios

Who’s concerned? • Lawmakers who see private LTCi as potential solution• Wall Street and Rating Agencies are worried about risk and returns• Carrier executives are worried about “going it alone”• Producers are worried about carrier commitment

Who’s concerned? • Lawmakers who see private LTCi as potential solution• Wall Street and Rating Agencies are worried about risk and returns• Carrier executives are worried about “going it alone”• Producers are worried about carrier commitment

19

MANAGEMENT

0%

20%

40%

60%

80%

2001 2002 2003 2004 2005

…And Market ConcentrationIs Increasing

4-Firm Concentration Ratios

53% 54%57%

66%69%

Individual LTC Insurance Market Share of New Sales (Premium)

Benefits of Increased Competition• The LTC Industry is too concentrated to generate

sufficient “share of voice”• The largest insurance companies/largest insurance

advertisers do not currently sell LTC insurance at all:– AIG (#1)– ING (#2)– AXA (#3)– Zurich

LTC Market Growth Dynamics

Share of Voice for LTC is limited to press releases and small-scale print advertising run by a handful of companies.

Large scale awareness campaigns are left to government programs (Medicare’s Own Your Future).

Share of Voice for LTC is limited to press releases and small-scale print advertising run by a handful of companies.

Large scale awareness campaigns are left to government programs (Medicare’s Own Your Future).

– Liberty Mutual– The Hartford– Sun Life

21

MANAGEMENT

The Little CMO Who Could