Racing to the top:
Combo products position carriers to seize growth opportunities

^{October 2023}

Combination (“combo”) products that provide a flexible mix of long-term care (LTC) and life insurance coverage are past the proof stage. The need for sensible long-term care solutions has never been greater, and consumers like the linked-benefit appeal of combo products, placing them among the fastest-growing segment of the market with premiums of $4.3 billion in 2022.¹ For carriers that have taken a wait-and-see approach to watch combo products develop, now is the time to act. The product category has expanded to include a range of structures, and current providers are moving further ahead to optimize their offerings and capture additional market share. It’s now a race to the top.

Today’s combination of life and LTC protection provides several advantages that previous offers lacked. Just look back at the “traditional” long-term care insurance (LTCi) of the 1980s-1990s, which still exists but whose popularity has waned over time. Many consumers balked at LTCi’s high premiums and the ’use it or lose it‘ product structure. Carriers had difficulties with their pricing assumptions, and falling interest rates, near-zero lapse rates, and skyrocketing healthcare costs eroded profitability. Even so, the product did provide significant benefits to the many policyholders who continued to pay their premiums.

The times are different now. Combo products, with their thoughtful product design offering the potential to benefit all policyholders, are right for this moment. Options are more affordable and consumers are drawn to the simple win-win appeal of a payout one way or another – either they receive living benefits, or their heirs receive a death benefit.

Carriers have developed an extensive combo solutions toolkit with broad appeal and price points, ranging from annuity to life insurance contracts, each with LTC riders. For carriers, combining the mortality and LTC risks results in a natural hedge providing a degree of embedded risk management. More LTC experience data is available, which means that insurers can make better-informed pricing decisions. Agents can now spend less time tweaking the product levers to make a sale because combo products kill two birds with one stone. 

Combo products are a rare case where everyone’s interests are aligned – after all, longevity is the goal for both carrier and insured. In addition, several external factors are at play to catapult this product into the mainstream. One is the long-term care coverage gap. An estimated 68% of individuals will need long-term care as they age, and many incorrectly believe Medicare will pay for their needs.² With the youngest Baby Boomers nearing retirement age and the average annual cost of a private nursing home room topping $100,000, the need for a solution is urgent and unlikely to go away anytime soon.³

State tax measures to address the long-term care coverage gap have also raised consumer awareness and demand for combo products. For example, combination product premiums increased 22% in 2021, largely due to the passing of Washington state’s WA Cares Fund.  Over a dozen states, including California and Minnesota, are considering similar measures, which is expected to fuel future demand.⁴  

Another important source of growth is the worksite/voluntary market. To reach a broader group of consumers, there are now initiatives to add new combination products that have been successful in the individual market to the voluntary market. Sales of voluntary life products grew 21% in 2021, primarily driven by sales of permanent life products with long-term care features.⁵

The appealing feature of combo products – their flexibility – means carriers have much to consider, including pricing, product features, regulations, distribution, and implementation workflows. How can providers be sure they’re getting it right? For carriers wishing to enter the market, Munich Re can provide valuable advice and risk sharing to help determine the best approach based on their specific needs.

For carriers already delivering solutions in the individual and voluntary markets, optimization will be crucial for capturing market share and maximizing profitability as combo products mature. In addition to our expertise in this product area, Munich Re works with carriers to better understand and alleviate the risk already on their books, especially for rider products.

Everything is in place for combo products to become a new industry standard – meeting an undeniable consumer need via a flexible product structure that delivers value to both insurers and their customers. Another advantage is their appeal across distribution channels, including the voluntary market. Pursuing opportunities in the combo products market makes smart business sense. But even more, it means we can help families reduce the stress and financial burden of long-term care planning.