Thursday, January 18, 2018
The Wall Street Journal has an update article this week on the financial health of the long-term care insurance industry, detailing recent rate increases and reminding us that even with contraction of this specialized market for sellers of new policies, there are still more than 7 million policies affected by the inadequate pricing structure issues.
Steep rate increases that many policyholders never saw coming are confronting them with an awful choice: Come up with the money to pay more—or walk away from their coverage.
“Never in our wildest imagination did we consider that the company would double the premium,” says Sally Wylie, 67, a retired learning specialist who lives on Vinalhaven Island, Maine.
In the past two years, CNA FinancialCorp. has increased the annual long-term-care insurance bill for Ms. Wylie and her husband by more than 90% to $4,831. They bought the policies in 2008, which promise future benefits of as much as $268,275 per person. The Wylies are bracing for more increases.
Even with the rate increases, companies are looking at losses in anticipation of claims as existing policy holders are now aging into a claims mode. General Electronic Company, has attempted to reassure shareholders about the impact of its LTCI business on profits.
Only a dozen or so insurers still sell the coverage, down from more than 100. General ElectricCo. said Tuesday it would take a pretax charge of $9.5 billion, mostly because of long-term-care policies sold in the 1980s and 1990s. Since 2007, other companies have taken $10.5 billion in pretax earnings charges to boost reserves for future claims, according to analysts at investment bank Evercore ISI. . . .
Almost every insurer in the business badly underestimated how many claims would be filed and how long people would draw payments before dying. People are living and keeping their policies much longer than expected. After the financial crisis hit, nine years of ultralow interest rates also left insurers with far lower investment returns than they needed to pay those claims.
Long-term-care insurers barreled into the business even though their actuaries didn’t have a long record of data to draw on when setting prices. Looking back now, some executives say marketing policies on a “level premium” basis also left insurers with a disastrously slim margin of error.
“We never should have done it, and the regulators never should have allowed it,” Thomas McInerney, president and chief executive ofGenworth FinancialInc. since 2013, says of the pricing strategy. “That’s crazy.”
For more of this detailed article, see Millions Brought Insurance to Cover Retirement Health Costs. Now They Face an Awful Choice. Our thanks to University of Illinois Law Professor Dick Kaplan and New York attorney Karen Miller for bringing this article to our attention.