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Life Health > Long-Term Care Planning

Why has LTD done better than LTCI?

By Allison Bell

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Premium flexibility has helped the U.S. long-term disability (LTD) insurance market weather low interest rates better than the private long-term care insurance (LTCI) market.

Carmi Margalit, a rating analyst at Standard & Poor’s Ratings Services, gave that assessment Tuesday at an S&P press briefing.

S&P has been publishing 2014 market forecasts.

In the U.S. life outlook report, analysts note that low interest rates have prompted life insurers to suspend sales of LTCI and some other products that depend heavily on interest-linked earnings.

“The potential benefits of a sharp rise in interest rates include the opportunity for higher new money rates, particularly for long-tailed in-force lines, such as long-term care and long-term disability insurance,” the analysts write.

But, for now, the level of competition is much stronger in the LTD market than in the LTCI market.

Like LTCI issuers, LTD issuers have increased prices to compensate for lower investment yields, but the number of significant LTD players is about the same as it was a few years ago, Margalit said.

In some ways, the LTD market is similar to the LTCI market. Working-age consumers use LTD to guard against the possibility that health problems could interfere with their ability to work. Older workers and retirees use LTCI to protect themselves against the possibility that the same types of health problems could lead to a need for home health care or nursing home care.

But “there are different pricing dynamics,” Margalit said.

Regulators have been relatively open to LTD price increases, but, historically, regulators have put tight restrictions on insurers’ ability to raise LTCI rates, Margalit said.

Some people involved in the LTCI community and the public long-term care (LTC) policy community have talked about boosting, supplementing or replacing private LTCI with new, government-backed or government-run LTC financing programs, such as reinsurance for private LTCI carriers, or public limited-benefit LTC programs.

So far, though, no one has been serious enough about those proposals to ask S&P to look them over, Margalit said.

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