A Study of Consumer Behavior Factors that influence LTC insurance purchase decisions

Transcription

1 John Hancock Life Insurance Company (U.S.A.) A Study of Consumer Behavior Factors that influence LTC insurance purchase decisions LEARN MORE ABOUT LEARN MORE ABOUT Price points that raise Price points demand that raise for demand LTC insurance for LTC insurance Trade-offs consumers are willing to make Trade-offs consumers are willing to make Characteristics of potential buyers Characteristics of potential buyers How John Hancock can help How John Hancock can help For financial professional use only. Not for use with the public. LTC /13 Long-Term Care Insurance

2 Overview In the fall of 2012, John Hancock partnered with Forbes Consulting Group to conduct a study that would help us understand how individuals considering the purchase of LTC insurance respond to different price points. We were aware, based on the many Buyer/Non-Buyer studies conducted over the years, that consumers frequently cite the high cost of LTC insurance as their number one reason for not buying. Although we recognize that the decision to purchase LTC insurance is a complex one, involving many factors, the study was designed to allow consumers to make decisions based solely on the cost/benefits of similar insurance policies. Specifically, we sought to understand the magnitude of the LTC price point on the demand for LTC insurance, and set out to see how consumers would react to the question of buying when presented with a lower price point. Our research reveals that what many consumers want is strong, basic coverage at a price they can afford, indicating that there may be a pent-up demand for LTC insurance in the marketplace. We believe that this opportunity can be tapped by thinking about the LTC sale differently and offering consumers alternate coverage that meets their needs at a price point they feel they can afford.

3 Methodology John Hancock s 2012 Study of Consumer Behavior was prepared by The Forbes Consulting Group in the fall of The online survey was conducted with 305 individuals aged 45-65, with a household income greater than $70,000 and investable assets of over $100,000. About the research Consumers of varying ages were asked to compare the premiums of two LTC insurance policies both designed for a 55-year old with a monthly benefit of $4,500, a three-year Benefit Period, and a 90-day Elimination Period. One policy offers an inflation feature based on a traditional approach to inflation while the other, offers a new low-cost approach to inflation. The TRADITIONAL* plan The NEW-APPROACH plan annual premium was annual premium was $2,242 per year or $1,263 per year or $ per month $ per month $200,000 $200,000 $190,000 $190,000 $180,000 $180,000 $170,000 $170,000 $160,000 $160,000 $150,000 $150,000 $140,000 At Purchase Year 10 Year 20 Year 30 $140,000 Year 1 Year 10 Year 20 Year 30 Projected Long-Term Care Costs (about 3.3%) Pool of $ available to pay for LTC expenses (assuming CPI compounding increases) *CPI-based approach to inflation Projected Long-Term Care Costs (about 3.3%) New Inflation Protection Option with Strong Investment Returns (at 5% compounding increase) New Inflation Protection Option with Weak Investment Returns (even if investments lose money, benefit levels can never decrease) We expected to see increased interest in the alternative product because of the lower price-point, but as the study will show, consumer response to the new-approach product was more enthusiastic that anticipated. 1.

4 OUR FINDINGS: Price points significantly impact demand KEY THRESHOLDS Research indicates that these monthly price points boost purchase interest Ages $75 Ages $100 Ages $150 Our study indicated that of those consumers who said they would not consider purchase, 74% cited cost as the primary reason. We hoped to learn whether lower price points would lead to greater price acceptance and purchase interest. Purchase interest When presented with the new-approach plan, representing a lower cost alternative, consumer interest grew. Purchase interest more than doubled, overall, from 14% to 30%, when comparing traditional plan premiums with new-approach plan premiums This effect was strongest among 45 to 51-year olds, with purchase interest tripling from 11% to 36% 14% 11% 30% 36% Among 52 to 58-year olds, purchase interest increased from 20% to 29% 20% 29% Among 59 to 65-year olds, purchase interest more than doubled from 11% to 24% 11% 24% The chart below illustrates the effect that lowering cost had on survey respondents ages 45-51, indicating the potential for market expansion. Of all consumers surveyed, 64% said they would choose basic LTC coverage, at an intermediate cost, versus 22% who preferred more traditional LTC coverage at a higher cost. PERCENT FINDING PRICE ACCEPTABLE 100% 75% 50% 25% II. A 14 point lift is achieved by dropping the price from $80 to $75 Lower-Cost Price 80 0% 0 $50 $100 $150 PRICE OF LTC POLICY (IN DOLLARS PER MONTH) John Hancock found that among all consumers in the survey regardless of age even small decreases in premium led to a noticeably stronger intent to purchase. This indicates that showing potential buyers a more affordable option as part of the sales process may help to overcome objections to purchase. INCREASE IN DEMAND Typical LTC Price I. A 30 point lift is achieved by dropping the price from $155 to $80 2.

5 OUR FINDINGS: LTC insurance purchase driven by attitudes & finances The survey revealed that overall long-term care awareness is increasing, suggesting that the difference between buyers and non-buyers is largely driven by attitudes and financial circumstances. Some consumers have started to plan 37% Over one-third of the individuals surveyed had already discussed their own future LTC needs with a spouse or sibling 23% had a similar conversation with parents, in-laws, or other relatives Perhaps surprisingly, 32% of 45 to 51-year olds had discussed a parent or older relative s need for LTC insurance with a spouse or sibling 23% Nearly half of all consumers surveyed had a personal LTC experience with a parent who needed long-term care; as expected, those age 59 to 61 were most likely to have had this experience, with 61% having had a parent who needed long-term care Major reasons for purchase The major reasons for considering purchase pertain to the need for planning and to protect one s family. 77% identified LTC insurance as an important part of financial planning for retirement versus only 23% who would consider purchase because of a personal experience 77% 62% 62% said that their primary goal in considering purchase would be to avoid becoming a burden to their family members versus only 38% who would buy to retain control over their care 54% said their primary goal was to protect their family versus 46% whose goal was to protect their assets 54% A well-known brand can make a difference A carrier s reputation and financial strength can be a critical factor in the decision to purchase LTC insurance Nearly 70% of survey respondents said they would only buy LTC insurance from a well-known company 3.

6 NEXT STEPS: Understanding your prospects is critical In a previous study, the Forbes Consulting Group determined that prospects can be divided into one of four segments, based on their attitudes about long-term care. The PLANNERS make your best prospects and will be responsive if you are able to meet their coverage and budgetary requirements: MARRIED COUPLES with a higher income may be the best prospects 1 FAMILY-ORIENTED PLANNERS Motivated to protect family from the burden of LTC Feel personally responsible for LTC planning 2 SELF-ORIENTED PLANNERS Motivated by desire to maintain independence Desire care in the most comfortable setting possible NON-PLANNERS are more challenging and may not be a worthwhile investment of your time or resources: 3 FAMILY-ORIENTED NON-PLANNERS Take a passive approach to the purchase of LTC insurance Believe that care should be provided by family members 4 SELF-ORIENTED NON-PLANNERS Little motivation to plan for the future In denial about the aging process How to identify a planner A simple conversation can be an effective way of identifying the characteristics of a planner. They have already purchased other insurance products, like life and disability insurance They work with a financial planner They contribute the maximum allowable amount to their 401k Those with children make automatic contributions to a 529 plan They have a will and healthcare proxy in place They engage in exercise and healthy eating and do not smoke They accept the concept of aging gracefully When asked, they express willingness to be responsible for their own long-term care needs Educating your prospects about LTC insurance is important No matter which of the four segments your prospects fall in to, you will need to demonstrate how the coverage can be an affordable way help them meet both personal and financial goals, if they ever experience a long-term care event. You can do this by discussing plan design features and by presenting them with a number of price point options. 4.

7 NEXT STEPS: Partnering with John Hancock John Hancock s current product line addresses the need for a variety of price points in order to meet consumer needs. Custom Care III featuring Benefit Builder enables your client s coverage to increase gradually over time and represents an affordable alternative to traditional inflation options. It can be particularly advantageous for younger buyers who do not anticipate needing care for many years. Innovative approach to inflation MORE AFFORDABLE PREMIUMS Whether you want to lead with a low price point early in the discussion, provide a choice of price points to prospective buyers, or introduce a low-priced option to save the sale, Benefit Builder gives you the ability to adapt to the unique needs and budget concerns of every prospective client and ultimately, provide coverage to more clients. Access to traditional features AUTOMATIC BENEFIT INCREASES* Benefit Builder includes a built-in annual crediting feature designed to provide benefit growth gradually over time. When investment earnings from the general account Portfolio that supports policies with this feature exceed 3%, John Hancock will use these credits to automatically increase a policyholder s benefits. BUY-UP OPTION* Benefit Builder provides additional flexibility to voluntarily increase benefits over time. Policyholders have the opportunity every three years through age 75 to increase benefits by 10%, for any reason, without medical exams or questions about their health. Custom Care III featuring Benefit Builder offers the same features as more traditional LTC insurance, designed to make long-term care situations much more manageable: WIDE RANGE OF BENEFITS Coverage for care in a wide range of settings, so policyholders can select the site of care they prefer Additional Stay-at-Home benefit to allow care in the comfort of familiar surroundings Double Coverage for Accident and Return of Premium that appeal to buyers under age 65 SUPPORT DURING CLAIM Streamlined claims process John Hancock s Advantage Provider Program, offering advice, information, and discounts** Caregiver Support Services that extend advice, information, and discounts to uninsured family members** * Restrictions may apply. Please contact John Hancock for more details. ** Discounts are not provided by John Hancock. Discounts may be discontinued at any time. A hypothetical example John and Gwen, both age 50, have two children, ages 21 and 18. They have a combined income of $180,000 and assets, not including their home, of around $550,000. When they met with their advisor, Dave, they learned about how the need for long-term care could impact their finances. They are currently paying two college tuition bills, so affordability was a major concern until Dave introduced them to Custom Care III featuring Benefit Builder. They learned that for only $75 a month ($150 for both of them) they could each purchase a policy that could pay a $5,700 monthly benefit if they ever needed care and that their coverage would grow gradually over time. More traditional CPI-based inflation would only provide a $3,000 monthly benefit for the same premium. For John and Gwen, purchasing Custom Care III featuring Benefit Builder was the right approach to help protect them from the potential financial risk of needing long-term care in the future, with a minimal impact on their current budget. 5.

8 John Hancock A name people know and trust When you partner with John Hancock, you and your clients can be confident that we will be there to deliver on our promise. In-depth experience and a steadfast commitment to the LTC insurance line since 1987 Financial ratings among the highest in the insurance industry 1 More than 150 years of experience providing insurance products to meet people s needs Over 1.3 million LTC insurance policyholders and more than $4 billion in LTC insurance claims paid 2 1. To view our most current financial ratings, please go to Financial strength ratings measure the Company s ability to honor its financial commitments and are subject to change. The ratings are not an assessment or recommendation of specific policy provisions, premium rates, or practices of the insurance company. 2. Based on internal data as of December 31, Includes individual and group LTC insurance, and the Federal LTC Insurance Program. Long-term care insurance is underwritten by John Hancock Life Insurance Company (U.S.A.), Boston, MA (not licensed in New York) and in New York as John Hancock Life & Health Insurance Company, Boston, MA Visit us at