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LTCI Watch: Cash flow

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Central bankers have been yanking interest rates around like a helium balloon at a 4-year-old’s birthday party.

The result is that insurers now have about as much ability to generate the kind of stable bond portfolio yields that could help lower the cost of long-term insurance arrangements as the 4-year-olds at the birthday party would. Insurers are having to jettison “non-core products” to get around the yield problem, or re-design and reprice the products they continue to sell to reflect reality.

The people who sell, use and regulate long-term care insurance (LTCI) may notice the effects more because they are working with a relatively new, complicated, rate-sensitive product, and an especially conscientious, vulnerable group of insureds. But, of course, the yield crisis is also having similar, less-publicized effects on other products.

Insurers have been trying to make offering some of those other products more practical by tying benefits to the performance of investment market indices, rather than yoking the issuer to fixed promises that may be impossible to meet in a rapidly changing world.

Meanwhile, consumers who could, in theory, be paying for new LTCI products or other products are facing sources of chaos of their own. They might very much like the idea of paying a modest, fixed amount each month to protect against the risk of needing long-term care (LTC) services, but they’re facing rapid fluctuations in work hours, gasoline prices, utility prices, food prices, school fees, and other prices, bills and income factors that never seem to show up in the official government inflation statistics but have a way of ruining budgets.

See also: Many workers want retirement advice (but say they can’t afford it)

They put cash on coffee cards in flush times, then get into bitter fights with the baristas at the end of the month, near pay day, when the value stored on coffee card may be the last purchasing value they have left.

Insurers have dealt with their own difficulties with handling fixed benefits obligations by shifting more toward variable benefits.

See also: FIA FAQ: 7 key facts about fixed index annuities

Maybe one of the solutions to narrowing the gap between the percentage of consumers who say they want LTC protection and the percentage who actually pay for some kind of protection would be to design products aimed at consumers who can pay premiums some of the time, but not all of the time.

Instead of selling only rich products that expire when consumers are unable to make premium payments, offer limited-benefit products that store up value when consumers can put some money in, and then hold that value when all consumers can afford to do is pay a small service fee. Find a way to offer consumers more of the kind of flexibility that insurers are realizing that they themselves need.