By Mark Miller
CHICAGO Aug 15 When Genworth Financial talks,
people listen - especially when the subject is the long-term
care insurance business.
Genworth is one of two very large players left in
the industry; the other is John Hancock. Each provides long-term
care insurance to four times as many people as are covered by
the next-largest competitors, according to the American
Association for Long Term Care Insurance (AALTCI).
Indeed, the field has winnowed dramatically over the past
couple of years, with major players like Metlife,
Prudential Financial, Unum Group and Allianz no
longer writing new policies.
Right now, Genworth is sending this message: Long-term care
insurance (LTCI) is going to be more expensive, and tougher to
Thomas McInerney, the company's chief executive, told
investors recently Genworth is "conducting an intense, very
broad and deep review of all aspects of our LTC insurance
business." He said he hoped to improve Genworth's long-term care
insurance business by getting state insurance regulators to
approve big rate hikes on old policies written before 2001, and
smaller increases on newer policies.
And, he hoped to introduce new policies with higher initial
prices and tighter underwriting - meaning, they'll only take on
Genworth and other LTCI underwriters have already put the
brakes on the number of policies they write, as they try to
focus on the most profitable business, says Jesse Slome,
executive director of AALTCI (). "People
assume insurers are interested in writing as many policies as
they possibly can, but they really only want relatively healthy
people, because the policies are priced for that."
Some observers worry that Genworth could exit the long-term
care insurance business altogether. But a Genworth spokesman
said the company is committed to the business, noting the
country's age wave and the increasing strain on Medicaid, where
state budgets increasingly are devoted to funding LTC.
Indeed, it's far more likely the company is trying to set
the table for improving business conditions over the next few
years, the result of three key factors.
Rising interest rates: Ultra-low interest rates have made it
difficult for insurers to make adequate returns on their
portfolios, which fund about 60 percent of LTC claims. But with
interest rates rising, that problem should ease over the next
couple years, and that should contribute to a big positive swing
in profits on LTCI.
More realistic lapse rate assumptions: Insurers underwriting
LTCI back in the 1980s and 1990s assumed that about four percent
of policyholders would let their policies lapse before they ever
filed a claim - either voluntarily or "involuntarily" - an
industry euphemism for death. In reality, lapse rates have been
only one percent.
Policyholders, as it turned out, were smarter than the
insurance companies thought. Once you buy one of these policies,
it makes sense to hang on to it for dear life. Insurance
companies have been forced to pay out more in claims than they
expected. But newer policies are being written with more
realistic lapse rate assumptions built into pricing from the
Rising demand and less competition: The market for long term
care insurance can only expand as the baby boom generation ages,
and with most other carriers getting out of the business, "fewer
companies are competing for it," says Marc Cohen, chief research
and development officer at LifePlans, a consultant to the
long-term care industry.
New policies already are 20 percent more expensive this year
than in 2012, according to AALTCI. The average annual premium
for a traditional LTCI policy covering a 55-year-old couple is
$2,580 this year, the group says. And single women now pay 40
percent to 50 percent more than single men due to new
gender-based pricing major carriers are rolling out.
"The carriers that are still in the market understand what
the real experience has been, and they can price that into their
policies," says Cohen.
If rates jump on a policy you already have, and you can't
afford the increase, consider negotiating a smaller benefit in
return for keeping the premium flat. The same strategy can work
when shopping for a new policy.
Possible adjustments include a smaller daily benefit, a
longer wait before coverage kicks in (the "elimination" period),
or a limit on total length of benefit payments.
"It's never take it or leave it," Slome says. "Genworth is
one of the better ones when it comes to offering options."
In addition, hybrid life insurance policies that incorporate
a long-term care benefit are gaining some traction. Some
policies allow policyholders to take partial payments of the
death benefit early if they need it to pay for care. Others are
life insurance policies with long-term care benefit riders. They
can be pricey but cheaper than buying both life insurance and
Self-insuring is an option for people with substantial
wealth. Actuarial consulting firm Milliman has estimated that in
order to have a 95% chance of having sufficient resources to
self-fund a long term care need, you should be able to set aside
$500,000-$750,000 in retirement assets just for that.