Innovative LifeStage Protection Product: Balancing Life Insurance and Long-Term Care Benefits

Lifestage Protection & Lifestage Protection & State based Catastrophic Long State based Catastrophic Long- -Term Care Term Care Presented to: Forum on Long-Term Care Financing McNamara Alumni Center University of Minnesota January 7, 2020 By John O Leary President, O Leary Marketing Associates LLC And Fred Andersen Chief Life Actuary, Minnesota Department of Commerce

Current Status LifeStage Protection 2020 Action Plan Todays Todays Agenda Agenda State based Catastrophic Research Why Public Catastrophic Research Study details A Deep Dive on Catastrophic Regulator/Actuarial Perspective

OLeary Marketing Associates proposal to continue to move forward with commercialization of LifeStage Protection product forward was agreed to by Minnesota DHS November 20, 2019 Currently negotiating final details- Action Plan will feature two primary thrusts: Regulatory Approach- Work with MN Department of Commerce to identify and address any remaining regulatory hurdles that need to be overcome to gain state and Interstate Commerce Commission approval Carrier Engagement- A LifeStage Carrier Educational Program will be delivered in one on one meetings to potential carriers/underwriters to encourage their interest in the product. LifeStage LifeStage Protection Protection Update Update

LifeStage provides a life insurance benefit during working years (i.e. up to age 65) when consumers need this protection most. Then, for the same premium and for the same level of coverage, the product provides a long-term care insurance benefit during retirement (i.e. from age 65 on) when consumers are more likely to need that protection. Begins as a multi-year term life insurance product. A portion of the premium will be set aside to pre-fund a long-term care insurance benefit. When the purchaser reaches age 65, he/she continues to pay the same premium, but the life insurance benefit ends, and the pre-funded long- term care benefit begins Lifestage Lifestage Protection Protection Refresher Refresher Session #56 LifeStage LTC Product 4

Lifestage Protection Monthly Lifestage Protection Monthly Premiums Premiums LifeStage Product Sample Monthly Premiums for Selected Ages, and Benefit Levels Male Issue Ages Female Issue Ages Lifetime Benefit: 35 40 45 50 55 35 40 45 50 55 $100,000 $40 $49 $63 $79 $97 $37 $45 $60 $80 $106 $150,000 $59 $73 $94 $117 $143 $54 $68 $90 $119 $156 $200,000 $78 $98 $124 $156 $190 $71 $91 $120 $158 $207 $300,000 $109 $138 $175 $221 $272 $99 $129 $169 $222 $295

1. Product Design Factors a) Limits on total benefit ($100K, $200K, $300K to max of $400K) a) Fixed benefit more predictable b) Better claims experience with lower benefit levels b) Future Purchase Option approach to inflation c) 20 plus years before LTC benefit effective -minimizes anti-selection d) Life benefit broadens consumer appeal (as with combo products) enhances consumer value proposition Lifestage Lifestage Protection Protection Features that Features that mitigate mitigate insurer risks insurer risks 2. Better Informed Actuarial Assumptions a) Ultimate lase rates approaching zero for LTCi b) Improved claims data c) More stable interest rate environment

Private LTC insurance and Public Catastrophic Private LTC insurance and Public Catastrophic Back Stop Back Stop All Aged 65 Plus Will need LTC 52% Will need Long duration LTC-26% Will need shorter duration LTC- 74% Private LTC- Public Catastrophic- State and Nat l LifeStage Etc.

State State- -based based Catastrophic Research Catastrophic Research Program Program

The Society of Actuaries is funding this research to investigate whether and how a state-based, publicly funded catastrophic or back-end Long Term Care (LTC) funding program could work. State State- -based based Catastrophic Research Catastrophic Research Program Program Disclaimer: While this research is being conducted in the State of Minnesota it is not a state sponsored or funded activity. Minnesota was chosen by the researchers from among a group of states because of its proactive leadership in promoting the health and well- being of its senior population. Funded by: The Society Funded by: The Society of Actuaries of Actuaries Implemented: Implemented: O Leary Marketing O Leary Marketing Associates LLC Associates LLC

Investigate the feasibility and potential barriers entailed implementing a state funded and supported catastrophic LTC funding program by getting stakeholder reactions to: The overall concept The program structure including eligibility for this program Key elements of the Plan Design The potential costs and benefits to be derived Possible ways to finance this program Integration with private insurance and Medicaid Other potential issues, including the political landscape that may help or hinder certain approaches Research Research Goals Goals

LTC funding landscape is complex, uncoordinated and not well equipped to cope with growing LTC needs Half of those aged 65 plus will need LTC at a level that would meet current LTC trigger Many seniors will need shorter duration care but 14% of those 65 plus will need 5 or more years of care That care will be significantly more expensive and less predictable than shorter duration care- biggest financial challenge for consumers, public programs, private LTCi Background Background

Consumer Out of Pocket ~ 50% of spending Medicaid~ 42% of total spending- already posing budget issues at state and federal level Private LTCi ~5% of total spending; only ~ 60K policies sold last year LTCi market characterized by declining sales, large premium increases, carriers exiting the market and consumers losing trust in the product. For insurers, private LTCi represents a higher financial risk than many have been willing to take. Risk has surfaced primarily on longer- duration catastrophic claims Current Current funding funding situation situation

The Caregiver Dilemma The Caregiver Dilemma Only 1/2 as many 1/2 as many caregivers caregivers will be available in The Caregiver Dilemma will be available in 2050 2050 Ratio of Potential Caregivers to Those Needing Care1 AARP PPI The aging of the baby boom and the growing care gap: A look at the the future availability of family caregivers

Next Steps Next Steps- - Research Plan Research Plan Conduct 25-30 in-depth 1-hour discussions with Minnesota stakeholders to explore the state based catastrophic approach and issues outlined above. Meetings/Calls will be scheduled end of first or second quarter of 2020 Interviews will be private and strictly confidential. No opinions will be attributed back to the stakeholder Some in person and some skype-like phone conversations The interviews will be dynamic, meaning that they may change as we learn more Findings and key learnings from the interviews will be summarized in a written document to the Society of Actuaries and made publicly available If interested in being an interviewee, send me an email or leave business card

John OLeary John O Leary President President O Leary Marketing Associates LLC O Leary Marketing Associates LLC Navigating the Back Nine john@olearymarketingassociates.com