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September 11, 2013 at 12:09 PM
Before 2013, insurers always charged the same long-term care insurance (LTCI) price to males and females who were the same age; in the same rating class and jurisdiction; and had the same marital status, product design and association/work-site affiliations.
Of course, for decades, actuaries favored differentiating price by gender because women use much more commercial long-term care (LTC) than do men. If you have any doubt about that fact, just walk into any nursing facility other than a Veterans Affairs home. Those who live in nursing facilities are overwhelmingly female.
Women need more commercial long-term care than men because:
- They live longer than men. The longer you live, the more exposed you are to LTC risk.
- Most women do not have wives to take care of them. One of the reasons why males use less commercial LTC services is that our wives take care of us.
- Most women don’t even have husbands anymore when they die. 80 percent of men die married; 80 percent of women die single.
Marketing concerns overrode the actuarial inclinations. Insurers observed that women were heavily involved in decisions to buy LTCI, and they feared offending the decision-makers by charging them a higher price.
The actuaries seemed to find an acceptable solution. Because most buyers of LTCI are women, the prices for single people were determined assuming that a majority of buyers were women. Eventually, the actuaries realized that assuming that more of the buyers were female was insufficient. Because women live longer than men, the distribution of the in-force insureds gravitated more to women over time. So actuaries appropriately shifted the claims distribution to increasingly female in the later years of their projections.
When couples both bought, the gender distribution was nearly 50/50, so couples’ discounts were increased to adjust the “couples both-buy” prices back to a 50/50 gender split at issue (but increasingly female over time).
The situation seemed satisfactory for the industry, and stable. Couples (the bulk of the market) were priced appropriately. Single males were “overcharged,” if you believe that pricing should vary by gender. But few single males purchased coverage anyway. Single females were slightly under-charged, but overall pricing was in balance.
Differentiation of premiums by gender could not only threaten the marketplace, it could also be a contentious issue, and in this particular case, I am not aware of any male constituency that was campaigning to lower the price of LTCI for single men.
The LTCI industry was experiencing upheaval in other aspects, and there was no apparent compelling reason to change to gender-distinct pricing. Nonetheless, a major insurer decided to break with industry tradition. In the latter half of 2012, it announced that it would implement gender-distinct pricing in Spring 2013. (In Spring 2013, we learned that they cleverly instituted gender-distinct pricing only for single people. With married couples getting gender-neutral pricing, the insurer had less reason to fear a backlash from female buyers who were part of couples. I expect that they will have gender-distinct pricing for all applicants in 2014.)
