Some have suggested that the long-term care insurance industry is in trouble.
The reality is, however, that the long-term care issues facing baby boomers are not going to go away, and that the number of people who need care is only going to increase.
There are an estimated 79 million baby boomers living in the United States today, and they are expected to retire en masse over the next decade.
The cost of dementia is set to double by 2040, and the number of people with dementia is set to triple by 2050. Most of those who need care will be women. Today, women account for about 70 percent of all long-term care claims.
The long-term care insurance industry has made major efforts to adapt to changes in its understanding of the environment, and those changes will help the industry continue to meet the growing need for protection.
One example is the moves long-term care insurance companies have made to shift to gender-based pricing.
There were initial calls of discrimination and claims of unfairness in underwriting, but, in truth, gender-based pricing is nothing new. Like issuers of car insurance, health insurance, and life insurance, long-term care insurance issuers now base rates on the estimated risk of the applicant.
Teenage boys are much more likely to be involved in a car accident, and they pay much higher rates for car insurance.
Women are much more likely than men to need custodial or medical care in old age, so they now face increased rates.
The details of gender-based pricing vary from insurance provider to provider, but the majority of gender-based rate moves target single women, because a woman is much less likely to have a loved one — namely, a spouse or adult children — caring for her when she needs care.
Another example of the industry preparing for the long haul is moves to respond to the prolonged low interest rate environment.
Long-term care insurance companies were significantly affected when the Federal Reserve Board began “quantitative easing” — buying Treasury bonds — and drastically lowering interest rates.
Though economists once expected the Federal Reserve to begin winding down quantitative easing this fall, given the recent budget turmoil, experts now doubt that tapering will take place any time soon.
Darrick Wilkins, the president of my company, LTC Tree, sat in on a meeting held by a major long-term care insurance player. The carrier talked about its initial lack of preparation for quantitative easing, but the carrier said it is now prepared for 50 years of the same low interest rate environment.
Like any relatively new insurance industry, the long-term care insurance industry is working to gather more data from claims, analyze the data, adapt to changes in the economic environment, and steady rates.
With the impending surge in use of long-term care that comes with the aging of the baby boomers, the long-term care insurance industry is here to stay.