Where does the LTCI industry go from here?
By Paul Wilson
As you probably know, the long term care insurance industry is in the midst of a very tumultuous period. Certain insurers, including John Hancock and Genworth Financial, are attempting to raise premiums by as much as 40 percent, while MetLife recently chose to drop out of the market completely.
According to LIMRA, LTCI sales plummeted 24 percent in 2009 before recovering somewhat last year.
Many believe that insurers initially miscalculated the cost of long term care insurance, and are now being forced to deal with their mistake the hard way.
Or as one MetLife spokesman put it, “… assumptions used to initially price many long term care insurance products have changed. Evolving assumptions and their impact on pricing is a challenge the industry is facing over all. The primary assumptions that have changed since the initial pricing of these products include: interest rates, persistency, morbidity and mortality experience, which have not materialized as expected.”
For one thing, people are living longer, meaning more Americans are relying on LTCI than was anticipated. The increased demand is forcing insurers to continue to raise the price, leading many to question whether it’s even worth it.
As mentioned in this recent Wall Street Journal article by Anne Tergesen, one area of concern is claim denials.
“The reasons for claims denials vary. When compared with modern-day coverage, some policies issued 20 years ago have tougher requirements, such as mandatory hospital stays, before benefits are paid out. As a result, even those with severe disabilities, including Alzheimer’s patients, may have trouble filing claims.”
She goes on to explain one of the best ways to avoid such claims is to reread the insurance policy’s fine print before hiring a caregiver or entering a facility.
Some critics argue that if the best advice offered is simply to reread the fine print or hire an expert, the product itself may not be worthy of Americans’ attention.
Companies offering LTCI have responded by offering new life policies and annuities that pay out long term care benefits, or “combo” products. According to LIMRA, sales of such policies rose 34 percent in 2009. Unfortunately, features such as accelerated benefits can increase premiums by as much as 20 percent. Other critics argue that such policies should be chosen soley based on their merit as life insurance.
In Kathleen Martin's article cited above, the author quotes Thomas M. Lilly, of Futurecare Assocates Inc., who believes the industry will “weather the storm.” He cites the importance of “a well balanced perspective” when considering LTCI policies.
Peter Gelbwaks, who is Chairman of Gelbwaks Executive Marketing Group, a member of the LTC Advisory Board, and ProducersWEB’s expert on long term care sales, offers his own perspective in his recent article, “Is the LTCI sky falling?” He says that “… we [the LTCI industry] have to be willing to accept change is upon us and we should welcome it with open arms. We all should know by now true growth and broad opportunity comes with change, and our industry very much needs to embrace the idea that we can be the catalyst to solve the financial risk of aging.” Be sure to read the entire article for more of his thoughts on the future of the industry.
There is no shortage of opinion on exactly where the industry is headed. What do you think? Is the future of LTCI still bright or will those storm clouds gathering on the horizon spell the end of the industry?