Industry analysts speaking at a conference here said they are taking a wait-and-see stance on the future of the long term care insurance business. Carriers have yet to establish a consistent track record of sales and financial performance, they argued.
LTC insurance is a “young product with a lack of credible experience” while at the same time being too complex and offering too much variety in underwriting and claims policies, said Neal Freedman, associate director, Standard & Poor’s, New York, speaking at the Society of Actuaries’ Intercompany LTCI Conference.
In setting rates and claims policies, the industry had significant challenges establishing consumer behaviors, Freedman said. Part of the challenge is paying claims fairly without presenting seniors with “beer money,” or excessive benefits, while avoiding “granny bashing,” or denying valid claims.
While it is closely watching efforts by regulators to loosen capital requirements for LTC carriers, S&P is unlikely to change its rating system anytime soon, Freedman explained.
After observing the impact of proposed capital reserves changes on some of the largest LTC writers, the rating service ultimately may make a “gradual migration” to lower capital requirements, he continued.
The important thing to remember about risk is that it begins when the policy is issued, not when the claim is made, he cautioned. The point is if the rating service is too lenient early in the game, the carrier will pay the price when S&P is forced to be too harsh in its credit score later.
Eric Berg, senior life insurance analyst, Lehman Brothers, New York, said investors are not sure how to perceive the LTC insurance market in large part because it is difficult to figure out how profitable the industry is and how fast it’s growing. Adding to the uncertainty is the large number of carriers that exited the market because mortality expectations turned out to be lower than expected.
Remaining carriers are playing their sales data close to the vest, making it a challenge for analysts to figure out just how healthy the industry is, he said.
For instance, he continued, many carriers say their market share is growing, “but there is no growth in sales or earnings. So, is the market shrinking?”
Only two carriers–Genworth and Manulife-John Hancock–consistently provide good data on their LTC business, he said. Yet he complained that even those companies’ figures left him wondering exactly how good their LTC business is.
As a case in point, the carriers insist on the one hand they are selling better business, with lower benefit ratios, yet this is not showing up in reported profits.
And both companies reported LTC earnings have been flat despite the fact their data shows they have been adding new business.
“It looks like Hancock is showing almost as much profit [on LTC insurance] as Genworth, which has much bigger sales,” Berg said.
In general, comparing products of competing carriers is extremely difficult even for agents because of multiple embedded features and optional riders. “It’s a complex mystery,” Berg said.
Finally, LTC carriers are making too much of an unproven assumption: that the coming retirement explosion of boomers is going to translate into huge profits. Investment analysts aren’t quite ready to buy that claim, according to Berg.
Investors’ message to the carriers, Berg said, is this: ‘Let us know when boomers start writing checks.’
Jeremy Pincus, principal, Forbes Consulting Group, suggested carriers could unlock more opportunities in the market by getting to know their most profitable consumer market niche and aligning their products to fit that slot. Partnering with proven distribution channels and using success to invite more competition into the industry also could be crucial to success, he said.
He pointed out that of all distribution channels, there are only about 2,000 LTC professionals and 8,000 certified LTC specialists. Those channels are too small to reach an estimated market of 82 million, he said.
On the other hand, there are 178,000 career agents and 161,000 independent brokers, he pointed out.
As for competition, the current situation where only four carriers dominate the market is inviting more scrutiny by lawmakers, misgivings by Wall Street and doubts from agents who worry about the commitment of so few companies, Pincus concluded.