LTC Insurance Premiums: How To Respond To Future Changes
There is a consensus within the long-term care insurance industry that premium increases must be applied to future product generations.
Since few subjects are of greater interest to LTC agents than this one, it may be helpful to review some of the factors leading to this prediction and also how marketers can adjust their efforts accordingly.
LTC insurance is still a relatively new industry segment. Another 10 years may be needed before sufficient data are available to more accurately determine cost factors. As examples:
Persistency. How does LTC insurance persist? Carriers are beginning to realize that clients are keeping this coverage at persistency rates never before seen with any health insurance product.
This trend doesnt surprise LTC agents. They know that the purchase of LTC insurance is a serious decision, and clients who acquire this coverage understand the wisdom of protecting their nest egg. Further, they know that the importance of such protection actually increases with age.
From a carriers financial viewpoint, however, this trend means that twice as many insureds may maintain coverage into their elder years than was projected. That means twice as many claims may have to be paid, and the money will need to be there.
Assisted Living. More patients are reportedly living in assisted living facilities than in nursing homes. At the beginning of this trend, no one knew how to price for these benefits, because there simply was no experience upon which to draw. Now, the numbers are coming into focus and premiums must be reevaluated.
Regulations/legal actions. The National Association of Insurance Commissioners has proposed model regulations that will make it very difficult for carriers to obtain future premium increases. The message is clear: “Do it right the first time or suffer the consequences.” Recent lawsuits against some carriers enhance this message, whether or not such legal actions are justified or reasonable. These factors certainly emphasize the need to be conservative with LTC insurance pricing.
Younger insureds: The average age of new clients continues to decline. It is nearing 60 and even younger within worksite marketing. The big claims experience may be 25 or more years away. Considering inflation growth, $200 per day may compound to nearly $600 in that time. Together with high persistency, the potential claims impact presents important considerations.
Its not all bad news, however. Going forward, positive factors will affect pricing, as well. The most important of these is the anticipated improvement in morbidity.