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.)
Other insurers feared that if one major carrier started to differentiate premiums by gender, that major carrier would attract single males, but single females would prefer to buy from carriers that continued to have gender-neutral pricing. Thus, they feared that their sales distribution would skew more to females, undermining their pricing. Over time, their new business prices would have to increase to reflect the new demographics of their business. To avoid this scenario, three other insurers quickly adopted gender-distinct pricing.
By mid-September, four major carriers (Genworth, John Hancock, Mutual of Omaha and Transamerica), which collectively wrote 57 percent of the individual new business premium in 2012, will have shifted to gender-distinct pricing in 32 to 41 jurisdictions each.
When a major change such as gender-distinct pricing occurs, carriers generally do so to varying degrees. They might disagree as to the proper ratio of female premiums to male premiums and/or might decide to “feather” the change in gradually over several “ratebooks,” for marketing or other reasons. So it is surprising and impressive that the carriers have reflected such a consistent ratio of premiums for females compared to premiums for males. Looking at ages 40, 50 and 60 for three carriers’ most common rating classifications, the ratios vary from 46 percent to 57 percent. From what I’ve heard, it appears that the fourth carrier will fall in that range as well.
At the same time, however, most of the carriers made other changes to their pricing, making their pricing more conservative. Overall, prices for single males were little changed or increased, while prices for females jumped significantly — more than 50 percent. Single females are often seeing prices increase 60 percent or more.
The carriers were unable to extend gender-distinct pricing to their multi-life and group businesses because Title VII of the Civil Rights Act of 1964 precludes an employer from making available an LTCI product that discriminates based on gender.
We are just beginning to see the impact of gender-distinct pricing ripple across the industry. There will be both anticipated and unanticipated consequences.
For example, some businesses that are interested in carve-out programs can’t muster enough lives to qualify for a multi-life program. Imagine a time when all insurers are using gender-distinct pricing. (That may never occur, but the prevalence of gender-distinct LTCI pricing seems likely to expand over time.) If a business cannot qualify for a multi-life product and is precluded from buying a “street” product by the Civil Rights Act of 1964, there would be NO product that the employer could buy or sponsor, hence no way to access the attractive tax breaks for an executive carve-out program.
The gender-distinct pricing genie is out of the bottle and probably cannot be recaptured (other than by laws that would preclude gender-distinct LTCI pricing in “street” products). Things to look out for:
- Will single male sales increase? (My guess: Very slightly; male prices are not dropping significantly.)
- Will single female sales decrease? (My guess: Yes, prices are soaring.)
- Will general sales decrease? (My guess: Yes, at least after fire sales.)
- Will more companies shift to gender-distinct pricing? (My guess: Yes; they’ll fear a change in their distribution of sales.)
- Will the multi-life work-site market suffer? (My guess: Yes, in the long-run although there may be short-term stimulus.)
- Will the multi-life association/affinity market be affected? (My guess: Yes, based on the fact that prices are increasing dramatically overall. In addition, potential complications could impact sub-sections of the association/affinity market.)
- Will the small corporate carve-out market be affected? (My guess: Yes, this is one of the more interesting markets to watch.)
- Will other things change? (My guess: Yes, some company administrative practices/rules will vary in the long run as a result of these changes).