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.