HUNTING FOR ELEPHANTS
LTCI Sales: Bagging Small Game May Be More Profitable Than Big
Susan E. Palla, Educational Chairperson, National LTC Network and Vice President, Individual
Commercial Brokerage, Inc., Parsippany, NJ
By Terry Truesdell, Director, Worksite Long-Term Care Insurance, Transamerica Occidental Life
Insurance Company, Los Angeles
and
The long-term care insurance industry is beginning to see a major shift in sales
and marketing. More and more younger people are purchasing long-term care insurance
(LTCI) coverage, with issue ages now ranging from the late thirties to the early fifties.
Baby boomers are seeing their own families needing care and are coming to grips with
the reality that they might need long-term care. When tragedy strikes home, it impacts
everyone, helping turn the procrastinators of yesterday into the LTCI buyers of today.
So where are people turning for help in buying LTCI coverage? According to the
Wall Street Journal, the answer very well may be their employers. The Journal says,
“Probably the most welcome of the new lifetime perks is company-paid long-term-care
insurance, a benefit that a growing number of employees would give their eye teeth to
buy through the workplace.”i Need we say more? The mass media is telling our story!
So why not let‟s all go find ourselves a large employer and write some group LTCI!
Not so fast. Many of the early insurance producers decided that successfully
marketing LTCI in a group setting required them to search for the largest business or
association they could find. However, with few exceptions, these LTCI big-trophy
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hunters found that the voluntary LTCI group sale to be a long, drawn-out process that
often resulted in low participation. If large-group sales are to succeed, a well-
orchestrated and detailed employee education process must usually be implemented prior
to enrollment.
So, before you start to hunt for big game, and especially before you pull the
trigger, take a moment to look at the big picture and understand that voluntary LTCI is
not as simple to sell as health insurance. With few exceptions, producers who do not
understand all that is involved in the group LTCI enrollment process are going to be
disappointed with the results of their efforts. Aligning yourself with an experienced
LTCI group enroller – a General Agent or MGA – can be a critical element in
successfully implementing a voluntary LTCI sales plan.
Other areas you may want to consider focusing on are smaller employers or
employers that are considering executive-type "carve-outs" for their key personnel.
Current tax law makes this an appealing benefit for employer-sponsored plans because
the premiums are tax-deductible to the employer and can be tax-free to the employee.
These days, many financial planners are recommending LTCI as an important part of
anyone's benefit package. In addition, the smaller corporation or executive "carve-out"
usually involves a quick employer decision – with enrollment being completed by one or
two people in a short period of time.
Hunting Rabbits May Be More Profitable than Elephants
Below we describe three hypothetical hunting scenarios – comparing the time and
effort that you might need to devote to each with the profits you might reap.
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Scenario 1: The Elephant Group. The broker has been entrusted with handling all of
the insurance business for a 1,000-employee group. This is how it might go:
The broker spends 10-12 hours on preparation work and the initial presentation to the
Human Resources Department, the Insurance Committee, senior management and/or
the Board of Directors over a period of four to 12 months. The broker also spends 10
hours on the pre-enrollment schedule and implementation and 50 hours (one hour for
every 20 employees) on enrollment and educational meetings. Finally, 40 hours are
invested in speaking to 180 interested employees and 15 minutes in each closing
interview with interested employees.ii However, the broker only wrote half, which
resulted in 90 applications.
The total time commitment to the Elephant Group was more than 120 hours.
The estimated compensation for the voluntary 1,000-employee group with only 9%
participation is based on 90 applications. Average premium per application for a
voluntary group comes to $600 annually. The LTCI benefits sold were $100 per day,
3-year benefits with a 90-day elimination period and no inflation.
The aggregate annual premium generated was $54,000 ($600 x 90 applications). Let‟s
assume the commission started at 45% but a 10% large-group discount lowers the
compensation to 35% first year. Let‟s assume further that, because the group was so
large, the broker needed help in the enrollment process. The compensation for the
enrollment team costs the broker at least half the commission (35% x 50% = 17.5%
for the broker).
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So the broker who “stalked, tracked, and bagged” the big Elephant will now be
compensated $9,450 for the first year ($54,000 x 17.5% = $9,450).
And remember, the larger the group, the more help the broker will need. Don‟t
assume the insurance carrier or GA will do the work for nothing.
Scenario 2: Bigger Elephant Group. Let‟s assume the same facts as in Scenario 1, but
we‟ll assume our broker is a meticulous salesperson and through concentrated efforts was
able to close 18% of the employees.
At $600 annual premium per application, the broker generated $108,000 in premium.
Of this $108,000, the broker would receive $18,900 first year compensation
($108,000 x 17.5% = $18,900). Not a bad day‟s work, if it were a day‟s work.
However in this scenario, the broker spent more time in closing interviews with
interested employees (70 hours). This would increase the total time commitment to
more than 190 hours. That‟s a serious amount of time. Don‟t forget that, without
the face-to face or worksite education process, the closing percentage is usually low.
Scenario 3: The Rabbit Group. In this third scenario, the broker has been entrusted with
handling all of the insurance business of a C-Corporation that has 24 employees, 12 of
whom are key employees.
The broker speaks to the owners directly and is able to explain the importance of
offering LTCI. The broker recommends that the owners carve out their key
employees and pay their LTCI premiums. The owners would have the ability to write
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off the total premium as a reasonable business expense. The owners agree to pay for
their 12 key employees.
The broker spends three hours for preparation work and closing the group sale, two
hours for education or explanation of the program to employees, and six hours to
enroll the 12 key employees. The broker also enrolls the two principal-owners‟
spouses in an hour. Total time commitment: 13 hours.
The employer-paid applications averaged $2,000 in annual premium. Generally
employer-paid plans of this type average higher annual premiums because the
employer sees the richer LTCI coverage as a retention benefit he can offer his key
people. (In some instances, the employer may purchase a base or core benefit and the
employee can „buy up‟). This group purchased $100 per day, 30-day elimination
period, and lifetime coverage with a 5% compound inflation.
Again, assume the broker‟s compensation level was 45%. In this case there was no
10% large group discount and no compensation splits were necessary since the broker
was able to handle the entire sale. Twelve applications at an average of $2,000 makes
a nice $24,000 case. The broker’s first year compensation is $10,800. Not a bad
13 hours of work by anyone's standard.
Should you not be convinced, there are a few more things to consider before you
take aim at your Elephant. If the group will enroll on a voluntary basis, you can expect
participation rates and average premium will be considerably lower than in many carve-
out scenarios. If your Elephant has employees who live in multiple states, the broker
must be appointed in all the states s/he sells. This applies even if the broker will be
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sharing commissions by either an override or split. Non-resident licensing can cost as
much as $200 for one state. The broker needs to assess whether this cost is worth the time
and effort – especially if this cost turns out to be more than the commission collected!
The broker must also ask who pays the assorted costs. For example, who will pay
for the mailing or printing? Do not expect your general agent or long-term care insurance
carrier to pay. It is the responsibility of the agent and/or employer to pay these costs. If
you are mailing to hundreds of people, the costs can add up.
When you are soliciting to many states through the mail, don‟t believe you will
close all of them. Think again. The highest closing ratios come only when you can get in
front of the prospect. The one-to-one home presentations are still the best way to close a
case, followed by the worksite educational process. Long-term care insurance is a hard
product to sell through the mail and with telephone contact only. Association and group
Internet sales are growing only when the education has been complemented by live
seminars or educational forums to employees and employers.
Remember: Compensation equals premiums divided by time. Plan your
marketing strategy before you begin your long-term care insurance worksite marketing.
Write down all the cost items that will be needed and how much time you think it will
take. Before you proceed, identify someone to work with who has successfully sold
long-term care insurance in the workplace.
And if you still think hunting Elephants may be in your future, why not perfect
your aim by shooting at a few Rabbits first?
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i
Quoted from, “All the Rage Among CEO‟s: Lifetime Perks,” Wall Street Journal, July 6, 1999.
ii
This article does not consider sales made to spouses or extended family, which could increase
compensation by a small percentage.
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