The Financial Accounting Standards Board (FASB) has just given executives in the disability insurance and long-term care insurance (LTCI) markets who thought they were safe from the kinds of paper mountains crushing health insurance executives some summer reading material.
The gist of Insurance Contracts (Topic 834) is that anyone accounting for long-term disability (LTD) or LTCI policies ought to use the “building block” approach.
I think that means that the insurer must recognize all changes in estimates other the effects of discount rates in net income immediately.
I think what that means is that disability insurance blocks and LTCI blocks will have a lot more ups and downs.
I think what insurers and officials need to do is to prepare folks psychologically for the change in approach and make sure that everyone understands that everyone is simply doing a better job of disclosing the ups and downs they were going through all along, not necessarily going to hell in a handbasket any more quickly they were before the new proposed rules take effect (if they take effect).
Disclosure that life is hard is great. But it seems important to explain to folks that life was always hard, and that opening a window on how hard it is doesn’t make it harder, just more open.
Otherwise, we may be left with a world in which no one dares to do anything worth doing, because everyone is perfectly aware of risk and perfectly adverse to assuming risk.
Life is about assuming risk. If we fail to understand the risks we assume, we’re foolish. If we understand the risks that are out there and then fail to assume a reasonable amount of risk, then we’re also foolish, and we’ll soon be assuming the quiet but deadly risk of shrinking away to nothing in our allegedly risk-free bunkers.