It was distressing to see Penn Treaty units put into rehabilitation earlier this month by the Pennsylvania Insurance Department. It was a sad state of affairs for this pioneer in long term care insurance.
Back in October the parent company had warned that its subsidiary Penn Treaty Network would become insolvent unless it found new financing. Reinsurance agreements that had been in place were terminated and as a result the company needed to find new sources of funds.
It was not able to, thus leading to action by the Pennsylvania department.
Cynics might say this is just another black eye for the LTC insurance business, a bruising it definitely does not need.
For those of us who are great believers in the product, it’s just one more sign of how difficult it has been for this coverage to gain the traction that it so clearly deserves.
Penn Treaty’s units cover more than 126,000 people for LTC. I wonder what is going through their minds right now. Most of them are probably in their 60s, 70s and 80s and the last thing they want to feel is uncertainty about the future of their coverage. I hope the Pennsylvania department has a strong outreach program in readiness for these policyholders. LTC insurance, after all, is supposed to bring peace of mind, not anxiety.
Overall, I’d have to say the LTC insurance industry’s results have been pretty discouraging in recent years. There are some standout companies, of course; most of them are household names. But the number of companies selling the product has shrunk, and new entries to the business are few.
Part of the problem is due to the fact that some companies are still paying for miscalculations they made in the early days of product development. With little data to go on back in those days, companies gave it their best guess when it came to pricing. In many cases they underpriced the product, while at the same time overestimated what lapse rates would be.
The product, as it turns out, has remarkable persistency. You can take my dog, my Cheerios and my HBO, but you’re not gonna make me give up my LTC policy, sonny.
Faced with more policyholders keeping their policies in force than they expected, companies were put in a tight spot, particularly as costs for long term care just kept going up and up. Some companies have had to resort to big premium increases to keep the policies and themselves afloat.
For loyal LTC policyholders this has been the equivalent of having a large chicken bone pushed down their throats.
I’ve been a LTC policyholder for about 10 years now and I saw this happening all over the business, but not to the company with which I’m insured. Not until late last year, that is. At that point I was informed the premium would be going up 12%.
On the one hand I felt a bit of relief–at least it wasn’t 35% or 50%! But on the other hand, I was upset. I’ve been faithful to my part of the bargain for 10 years by paying my premiums religiously. The insurer, by contrast, has not been faithful to its original promise.
Yes, I’ve been offered an option of cutting my benefits if I want to keep the premiums the same. But that’s not what I signed up for and that’s not what I’ve been faithfully ponying up the premiums for all these years.
Do I understand why the company needs to do it? Sure. But I’m still feeling betrayed. And I think about all those other consumers who don’t have a clue about why the company needs to raise their premium. If the business wants to understand the image problem it has with consumers, it has to come to terms with promises betrayed.