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.
Insurance always has been a cyclical industry, and LTC has gone for a ride, too. The product had slow but steady growth from its inception in the late 1980s.
Sales jumped in 1997 following enactment of the Health Insurance Portability and Accountability Act of 1996, which created the Tax Qualified (TQ) LTC policy. Many new companies jumped into the LTC insurance market at that time, and there was a lot of excitement and enthusiasm around the product. Then came the market crash of 2000, which triggered the current consolidation phase evidenced by slow sales growth and carrier exits.
I believe that the LTC insurance market is now poised for another round of growth. A new carrier can look at the landscape and see a bright picture.
First, the carriers do not have the baggage of an underperforming block. Next, there has been a lot learned on how to underwrite this risk properly and responsibly. Claims processing and care management also are being taken to new levels, as claims volumes increase with aging policies. The pricing environment is improving, not only with higher interest rates but also better morbidity.
The LTC demographics are too compelling to ignore if a carrier is looking for growth. There are 76 million baby boomers who are about to move into their 50s and 60s, the sweet spot for LTC buyersand purchases. The percentage of the population over age 65 will grow from 4% today to over 9% in the next 6 years. It becomes hard to ignore this product.
Lastly, there is a potential for favorable public policy. Ronald Reagans bout with Alzheimers disease has created increased awareness and actually has been the catalyst for a new piece of legislation, the “Ronald Reagan Alzheimers Breakthrough Act.” It was introduced on June 16 and had 42 co-sponsors in the Senate! This bill has a tax credit for caregivers and a tax deduction for individuals who purchase LTC insurance.
Aside from all this, the best validation for the premise that the cycle is changing is much closer to home: My phone is ringing! Carriers and reinsurers are calling with the news that they are “looking at the LTC market.” Calls like that did not come in for over 2 years, because no one new was getting into the market. This is about to change as the stars are slowly starting to align.
The product is needed, the target market of buyers is about to explode, and the ills of the past now can be intelligently addressed. So dont bury this LTC market. If you listen closely, you just might hear the phone ring.
Peter M. Goldstein is executive vice president of the Long Term Care Group, Inc., El Segundo, Calif. He may be e-mailed at: firstname.lastname@example.org.
Reproduced from National Underwriter Edition, July 29, 2004. Copyright 2004 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.