NAHU 2012: The LTCI fear factor News added by National Underwriter on June 27, 2012
National Underwriter

National Underwriter

Joined: April 22, 2011

By Allison Bell

Las Vegas -- Margie Barrie, the vice president of the 3in4 Association's executive committee, appeared here at the annual conventional of the National Association of Health Underwriters (NAHU) to talk about the 3in4 Need More long-term care (LTC) planning awareness campaign.

Many members of NAHU, Arlington, Va., already sell at least a little long-term care insurance (LTCI) coverage and know something about the product, but Barrie tried to fill in any gaps. She explained how great the need for LTC services is expected to be, how expensive LTC services are, and how producers may be able to get through to consumers.

She shared some of what she has learned about how being a caregiver really works from looking after her own aging mother.

In many cases, when couples are considering buying LTCI products, "women are the decision makers," Barrie said. "They know how difficult it is to be the caregiver."

But then she opened up the floor to audience questions, and one member of the audience asked, "Do you see any of the carriers loosening up on the underwriting in the future?"

Everyone laughed.

The private LTCI insurance industry has been struggling through a period of adjusting to ultra-low interest rates, a tough regulatory environment, and the need to raise rates on LTCI policies -- especially older LTCI policies -- in the face of consumer and media hostility.

Insurers have been so busy narrowing, eliminating or "evaluating" their LTCI operations that the idea of an insurer starting, expanding or broadening the scope of an LTCI program now strikes some as a funny, "man bites dog" kind of idea.

Claude Thau of Target Insurance Services, Leawood, Kan., and James Glickman, president of LifeCare Assurance Company, Woodland Hills, Calif., aren't laughing. The LTCI specialists contend that this could be a great time to write profitable LTCI business if insurance company executives had the guts to see how much the situation has changed from the days when insurers wrote "the bad business" that has suffered the most underwriting problems.
Thau, an LTCI producer who was once the head of an insurer's LTCI business, and Glickman, whose company is a well-established LTCI reinsurer, sat down for an interview with LifeHealthPro.com here at the NAHU meeting.

Back in the 1980s, during an LTCI boom "the insurance companies jumped in without knowing what they were doing," Thau said.

Glickman argued that state insurance regulators created the LTCI rate mess by requiring carriers to spend a minimum level of premium revenue on claims. Imposing a minimum medical loss ratio (MLR) approach on a new, complicated product encouraged insurers to set prices as low as possible, to avoid the possibility that the percentage of LTCI revenue going to LTCI claims might be too low, he said.

Then, in 2005, the National Association of Insurance Commissioners (NAIC), Kansas City, Mo., reversed course and adopted a model that encourages states to impose penalties on LTCI carriers that raise rates. The model leads LTCI carriers to set initial rates as high as they can, to avoid any possibility that they might have to raise rates, Glickman said.

Meanwhile, Glickman said, many states forbid LTCI carriers from raising prices to remedy the revenue problems caused by the very low interest rates the carriers are earning on their general account assets today.

If interest rates would simply increase by 2 percentage points, "almost every company in the LTCI industry would be getting a 15% return on equity on their existing blocks" of LTCI business, Glickman said.

LifeCare can help protect a direct writer against most claims risk and against the possibility that rates could somehow manage to fall even further. The reinsurer can even help with LTCI business administration.

But top executives at many direct writers resist proposals to start or re-start LTCI operations, mainly because they have seen articles about how terrible LTCI carriers are for increasing coverage prices and, in many cases, for leaving the LTCI market, Glickman said.

Even for companies that decide to retain most or all of their LTCI business, this should be a good time to enter or re-enter the market, because the pricing environment is different, companies understand the risks better, and competition has dwindled, Glickman said.
The possibility that rates could fall further is one obstacle, but the way rating agencies, securities analysts and public company investors have reacted to news about LTCI carriers' price increases and market retrenchments is a more important obstacle, Thau and Glickman said.

Another way to look at the matter is that the amount of "downside risk" that appears to face the executive who greenlights the startup of an LTCI program now outweighs the likely downside risk actually associated with the LTCI program products, Glickman said.

"The typical insurance industry managers are not risk takers," Thau said. "They're risk managers.... Perception is not reality, but perception affects reality."

Despite the high level of LTCI anxiety, Thau and Glickman said they have heard of two insurers with closed LTCI blocks that are thinking about re-entering the LTCI market, and one company that might build an LTCI business from scratch.

Are there any cheap, easy ways the government could encourage private insurers to return to the LTCI market?

What if government officials acknowledged that regulatory problems contributed to the pricing problems, and officials made it clear to insurance company chief executives that regulators like to see insurers have the courage to offer LTCI products?

Thau and Glick scoffed at the idea that the government would do any such thing.

Thau said the government could help by doing more to keep middle-income people from using Medicaid to protect their ability to leave their homes to their children

The government also could help by improving the tax credit for the reserves backing LTCI policies, to help reinsurers' accept more LTCI risk, Thau said.

Glickman said the most important step the U.S. Department of Health and Human Services (HHS) could take to promote a revival in the private LTCI market would be to spend the $100 million that Congress allocated for LTC planning awareness spending in the Patient Protection and Affordable Care Act of 2010 (PPACA).

At press time, the U.S. Supreme Court had not yet released its ruling on the constitutionality of PPACA.

Congress provided the LTC awareness money to support the ill-fated CLASS Act voluntary worksite LTC benefit program, Glickman said.

But, even though HHS has decided that it sees no way to make the CLASS program an actuarially sustainable program, "there's nothing to keep them from spending the $100 million" in LTC planning awareness money, Glickman said.

Originally published on LifeHealthPro.com
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