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LTCI: The claims are coming

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Robert Oakes is making the case that one relatively low-cost, low-stress cure for what ails the long-term care insurance (LTCI) community could be a wave of system upgrades.

Some say that, to a man with a hammer, everything looks like a nail.

Oakes has a hammer: He is chief executive officer of InsPro Technologies, an insurance software and administrative services company.

InsPro already administers or helps other plan administrators administer about 975,000 U.S. LTCI policies, or about 10 percent of the policies that are now in force.

Oakes makes what sounds like a credible case that, if carriers with old LTCI administration systems don’t get a hammer to nail down LTCI claims problems from InsPro, they should get the hammer somewhere.

The American Association for Long-Term Care Insurance (AALTCI) reported in a summary of results from an industry survey that the 10 participating carriers paid $6.6 billion to a total of about 200,000 policyholders in 2011.

But U.S. insurers first began selling large numbers of LTCI policies in the 1980s, and holders of even some of the policies sold in those early days are just starting to have a need to file claims, Oakes said.

Many of the policies sold in the early 1980s and the 1990s offered generous benefits, based on the idea that the issuer could earn high returns on relatively safe investments in government and corporate bonds, Oakes said.

Insurers put in tighter benefits limits after 2000, and eventually began pulling back from selling new policies.

But “we don’t really see shrinkage in the current number of insureds,” Oakes said. 

Even at companies that have stopped selling new policies, the number of claims may not peak for eight to 10 years, Oakes said.

Meanwhile, he said, carriers with good underwriting have been used to seeing claims trickle in and are not used to seeing the kind of volume that tends to occur when the early LTCI buyers get into their late 80s and 90s.

“I think most carriers are on the side of the consumer,” Oakes said. “When in doubt, they err on the side of the policyholder.”

But, because the claims process is often so complex, and the systems many carriers are using are so antiquated, some companies have a difficult time tracking open claims, verifying claims and paying benefits in a timely manner, Oakes said.

Oakes said he believes that millions of LTCI policies are on systems old enough to interfere with smooth administration.

Migrating the policies on the worst systems might cost about $4 to $6 if inefficient carriers try to do the job themselves, and somewhat less if organizations with highly efficient system migration operations do the job, Oakes said.

At the LTCI carriers with dirtiest data, successful migrations could quickly pay for themselves, because a lack of clean, detailed policy information forces actuaries to require those carriers to back the policies with extra reserves, to protect the carriers and the policyholders against the fuzziness of the information about the block of business, Oakes said.

Oakes said he already sees most of the carriers and their plan administrators starting to organize efforts to get the data onto modern systems.

Simply having access to good, clean data could make some insurers more interested in writing LTC-linked products, at least in the form of life and annuity product riders, Oakes said. 

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