As LTC Grows, So Will Reinsurers' Role

Reinsurers help with new product innovation, says Andy Perkins, senior vice president, General Cologne Re, Stamford, Conn., and they can also warn an insurer when a proposed innovation looks financially dangerous.

But transfer of risk and reduction of volatility are real strengths that reinsurers offer LTC writers, he continues.

“Everyone is looking for the edge,” says Dan Cathcart, vice president, pricing and product development with ERC Global Life & Health, Avon, Conn.

Reinsurers can provide that edge through traditional risk transfer and through turnkey solutions, says Nicholas Von Moltke, president USA Health, a division of ERC Global Life & Health, Overland Park, Kan.

If a reinsurance agreement includes product development, the reinsurer can bring knowledge and the direct writer an understanding of what the market needs, information developed from working with clients in the field, Von Moltke says.

That data is what a lot of carriers go to reinsurers for, he adds. Either they dont have the data or it would be too expensive for them to do the research, he says.

In fact, Von Moltke thinks that available data will make it possible to offer hybrid LTC products that are more linked to savings. The data is available to offer a product that combines universal life and LTC features, he says, adding it is really a matter of deciding how to structure and sell the product.

There are some products in the market that address combination of coverages, Cathcart says, but many more innovative possibilities exist.

There has not been a significant emphasis in the combination product direction, he continues, but in the future as the concept of both LTC and a combination of asset protection becomes more acceptable, there likely could be much more sales development in that area.

And for insurers who need to be able to offer a LTC product but who are not interested in developing necessary capabilities for a full program, reinsurers can provide a turnkey program, Von Moltke adds.

These programs allow a direct writer to develop products with desired features and split the risk, says Jim Glickman, president and CEO with LifeCare Assurance Co., Woodland Hills, Calif.

Most reinsurance used today is quota share where both direct writer and reinsurer share the risk, says Dawn Helwig, a consulting actuary in Chicago with Milliman USA.

A shared risk arrangement provides reinsurers a comfort level because “the risk and newness [of the market] can give them a little trepidation,” she says.

And, Helwig continues, the use of reinsurance gives direct writers the comfort of a “cross-check” on assumptions and pricing because reinsurers often take a more conservative approach.

Long term care product development may have been made easier by using reinsurance but newer features such as limited pay options probably would have developed anyway because of market demand, she says.

The evolution of the LTC market, and, consequently, how it is reinsured, is continuing, says Andy Castillo, vice president and actuary, Munich American Reassurance Co., Atlanta.

For instance, Castillo says the longstanding premise has been that people want to avoid entering an institution and would prefer to stay at home. But, he continues, given the upscale nature of some assisted living facilities, the premise may need to be reevaluated.

Reinsurers also offer direct writers perspective on benefits they plan to offer. For example, he says, if a direct writer wanted to pay a daily specified benefit for a month and the amount was not financially sound, a reinsurer might suggest a more reasonable daily benefit.

This is particularly important today given the weight of ratings assigned by rating agencies, Castillo says.

Reproduced from National Underwriter Edition, February 17, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.