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July 28, 2004 at 08:00 PM
LTC Marketers Have Suffered Growing Pains, But The Phones Are Ringing Again
In the last year or so, long term care insurance producers were dealt a series of blows with some big LTC carriers announcing that they were pulling out of the market.
Each of these companies had unique and different reasons for the decisions they made. Their justification for exiting the business was not likely driven solely by LTC issues, and each company made the right decision for itself.
That said, it is easy to see how an outsider would conclude that the LTC insurance market is doomed. But the fact isit isnt.
This product line certainly has suffered significant growing pains, no argument there. Pricing mistakes in lapse rate and interest rate assumptions, compounded with lack of good underwriting and claims management practices, have put many early pioneers in a tough spot.
Rate increases, though unpopular with both consumers and regulators, are a necessary cure to an underperforming block. Overlay this picture on an insurance industry that has been experiencing slow growth, low interest rates and sluggish capital markets, and it becomes apparent why there is pressure on this product.
However, dont write an obituary for LTC insurance. As you will see, the LTC insurance marketplace is changed but still here, and the buyersespecially baby boomers and seniorswill continue to need and want the coverage.
The Federal Reserve Boards move to raise interest rates is the first ray of sunshine to hit this market in a couple of years. Higher investment returns will ease the pinch on existing blocks of business while making it easier to price a competitive product today.
Although the interest rate increase was only a quarter-point rise, the general feeling is that rates will rise steadily over the next couple of years. This makes the prospects for return of LTC insurance look much better and it gives carriers some comfort.
