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LTCI Watch: Float

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People I know and dearly love are making Rep. Paul Ryan out to be a monster because he wants to make all of Medicare more like the Medicare Advantage program and, possibly, have Medicare benefits rise less than the inflation rate.

Some insurance regulators, meanwhile, are expecting insurers to have a magical ability to make good on the disability insurance benefits and long-term care insurance (LTCI) benefits promises they made when the world was a different, happier world.

Moody’s Investors Service has sent me a report in which its analysts comment glumly on U.S. life insurers’ financial results for the fourth quarter of 2012.

The subhead section for the disability and long-term care insurance (LTCI) section says it all: “More Pressure on LTC; Disability Continues to Face Headwinds from the Economy and Low Interest Rates.”

Well, almost all.

“Although several companies are raising prices,” the analysts add, “these increases typically take 12 to 36 months to be fully implemented.”

The regulators and consumer group reps who are mad at the insurers for raising rates have point.

The whole reason that consumers pay money to insurers, in spite of all of the mean insurance agent jokes and periodic reports of complicated scandals, is that insurers seem to have the ability and size to make guarantees about the future.

The government, meanwhile, seems to have the ability to make promises about exactly what I, a hard-working, taxpaying individual born in 1965, will collect in Social Security and Medicare benefits from, roughly, 2037, when I turn 67, to, say, for the heck of it, 2054, when someone who read my palm told me I’ll die.

The truth is that the guy who read my palm probably had no idea how long I’ll actually live, and the government and private insurance actuaries have only a slightly better idea of how hard or easy it will be to pay me a set benefit in 2050.

The year 2050 is a long time from now. It will probably be a lot like 2013, just different, just as 2013 is quite a lot like 1965, but somewhat different. Insurers out there are actually making good right at this second on benefits promises they made in 1965.

Some people within the LTCI community are mad about the current need for LTCI rate increases because they were screaming as hard as they could around 2000 that rates were too low, and everyone made fun of them.

I don’t know what the regulatory answer should be for the in-force policies. Probably, in general, regulators should have insurers that sold LTCI come out the way consumers generally do when they get into battles with insurers: Without enough resources to keep moving, but feeling somewhat like punching holes in walls.

But, in the long run: I think one important step is to recognize that we know much better than we did in 1965, when whiz kids with computers seem to know everything, that a bunch of wise men hidden away in a deluxe caves somewhere really do not know much more than any 12 randomly chosen jurors.

George Soros and Milton Friedman are smart guys, but, really, they just don’t know what’s going to happen.

Somehow, products that include long-term guarantees, such as LTCI policies, need to have benefits pegged mainly to growth in the size of some kind of designated economic pie, such as the national income pie, the national wealth pie, or Dow Jones Industrial Average pie, with some kind of realistic guarantee built in, not expressed in terms of a set number pulled out of thin actuarial air.

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