Due Diligence On LTC Insurers: What You Need To Know
Determining which long term care insurance policies are adequately priced and what the carrier is likely to do if a rate increase is needed, is a daunting task for agents and clients alike.
Since it is so difficult and subjective, many feel the best answer is just to pick the lowest price or the largest company and hope for the best.
Fortunately, thats not the only solution. There are some definite characteristics that the diligent agent can examine to help predict the adequacy of a companys pricing structure.
Probably the most important factor in a solid LTC insurance program is the thoroughness of the underwriting. Remember, the cost of any LTC program is a ratio (usually around 60%) of total claims, including those that should have been avoided, to total premiums collected. That means allowing only healthy individuals into the risk pool will minimize the programs cost.
Therefore, look for thorough underwriting. A prime indicator is a company that obtains medical records for anyone not employed full time, over age 65, or with admitted medical conditions. Also, check out whether the insurer requires a face-to-face assessment for applicants over age 70; this is necessary to avoid cognitive LTC claims (the most expensive type).
Finally, consider the competence and expertise of the underwriting staff. When underwriting errors are made, either due to incompetence or inexperience, it is no less costly to the pool than a purposefully issued policy from a liberal underwriter.
The next most important indicator of a solid program is the loss ratio experience of the carrier. Fortunately, there is a readily available publication to help determine a companys loss ratio experience. This is the Long Term Care Insurance Experience Reports, published each year by National Association of Insurance Commissioners.
This report shows the durational loss-ratio experience for each company selling LTC insurance, allowing an easy comparison of experience by duration. A careful review of this information readily exposes companies whose experience is out of line with the rest of the industry. In particular, focus on the actual loss ratios (not the anticipated loss ratios) and how they compare to the industry averages.