LTC Producers React to Hancock Rate Hike

The increase gives agents “some good news and bad news” about LTC insurance, Slome adds.

“The good news is that more people are using it than expected, they’re on claim longer, and they’re being paid more money,” Slome says. “The bad news is that because claims are so much higher, premiums are more costly.”

Tom Riekse Jr., managing principal at LTC Insurance Partners L.L.C., Libertyville, Ill., a brokerage general agency, says, “All we can do is to go ahead and make moves to keep this block healthy and make it sustainable over a long period of time. Advisors who sold these policies are not going to be happy, because they didn’t anticipate the increase.”

Clients are getting used to increases, Riekse says.

“To Hancock’s credit, although premiums are going up, they are paying $1.5 million in claims a day,” he says. “That is what people buy these products for.”

Cameron Truesdell, chief executive of LTC Financial Partners L.L.C., Kirkland, Wash., thinks meager investment returns have hit insurers far harder than anyone would have thought possible.

“It used to be a reasonable assumption they’d get an investment yield of 5%,” Truesdell says. “Instead, it’s been 2%.”

If an insurer does $1 billion in business and holds on to that cash for 20 years at 2%, it would have $1.5 billion in the bank. If it had earned 5% on that same money, it would have wound up with $2.6 billion, Truesdell says.

“It’s not unreasonable to assume 5%, but what it amounts to is the consumer got one heck of a deal for 20 years,” he says.

Agents get skittish when carriers raise rates, Truesdell observes, but he says his experience has been that lapse rates following in-force increases have totaled no more than 1% of policies. (One reason that is the case is because when LTC carriers raise in-force rates, they allow policy owners to convert to a policy with reduced benefits.)

“I think the utilization rates shows long term care insurance is a good investment,” Truesdell says. “Utilization is higher than even carriers had foreseen. This validates to the consumer how important this product is.”