Clarification: The statement regarding the Conseco trust mischaracterizes the situation. On Nov. 12, 2008, Conseco Inc. completed the transfer of Conseco Senior Health Insurance Company to an independent trust for the exclusive benefit of CSHI’s long-term care policyholders. This transaction was approved by the Pennsylvania Department of Insurance.
An unexpected announcement by MetLife that it will exit the long term care insurance market in less than two months stunned an industry that has been forced to endure an escalating series of negative announcements over the last three years. The industry has worked for years to meet the needs of baby boomers would begin crossing over into retirement age, and long term care insurance policy sales should be booming. But instead, the industry has been set back by decreasing sales, rate increases, blocks of business being taken over by state risk pools, and now the sudden departure of one of the leading carriers and brand names for retirement and long term care security.
This storm has been brewing for some time, but it became particularly evident in the last three years through a series of disruptive events emanating from the leading long term care insurers. In 2007, John Hancock and Genworth began raising rates by 20 percent on new policies sold. At the end of 2008, the Pennsylvania Insurance Department took over a large block of Conseco policies and moved them to a state-run risk pool to ensure they would remain solvent. In September, 2010, John Hancock made a stunning announcement that it would increase rates on in-force policies by 40 percent and would suspend group product sales, and in October, Genworth announced it, too, would again raise rates on at least 26 percent of its in-force business.
And then, a truly unexpected and major blow to the stability of the LTCI market came with the announcement that Met Life would abandon the long term care insurance marketplace effective Dec. 30, 2010.
The domino effect
The common factor for all this action seems to be incorrect pricing on LTCI costs attributed to carriers underestimating the longevity of policyholders and the level of policy persistence. Simply put, long term care insurers underpriced the products, and it has become increasingly expensive for carriers to keep policies on the books for longer periods of time at the original price for which they were sold. Solutions to this situation have come in the form of rate increases on new and existing business, abandoning blocks of business, and leaving it to the states to take over – or, as in most recently, exiting the market altogether.
Genworth attributes its rate increases to “persistency, or the number of people who will retain, rather than lapse, their policies over time – leading to higher claims than pricing assumed for these older policies.” Similarly, when John Hancock examined its claims experience between 1990 and 2010, it discovered “unfavorable claims patterns,” according to Marianne Harrison, president of John Hancock Long Term Care.