Long-Term Care

Underwriting Reassessments Drive Long-Term-Care Reform

Carriers offering long-term-care coverage have been rocked by low lapse rates in a low-interest environment.
By: | October 21, 2016 • 4 min read

After years of public scorn for massive premium increases and internal wrangling over mispriced contracts, new forms of long-term care (LTC) coverage are seeing a notable uptick in sales.

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Professional and public organizations are digging deeply into the underwriting and actuarial assumptions that were behind traditional LTC policies in hopes of avoiding the same mistakes for the newer hybrid or combination contracts that are based on annuities or permanent life insurance with riders for LTC and disability.

There is, however, not yet any good answer for what to do with the traditional policies that remain in force.

“The cost has never really been a low as people wanted it to be, and carriers were never able to capture the [younger and healthier] people looking ahead.” — Robert Kerzner, president and CEO, Limra, Loma and LL Global

Robert Kerzner, president and CEO of Life Insurance Marketing & Research Association (Limra), Life Office Management Association (Loma), and LL Global, said that traditional LTC coverage was caught between multiple mandates.

“The cost has never really been a low as people wanted it to be, and carriers were never able to capture the [younger and healthier] people looking ahead,” he said.

“The LTC contracts sold were primarily to those close to the age where they would use them. So the business never really got off the ground. There were never a lot of carriers and also not a lot of distribution.”

External factors exacerbated the struggles of traditional LTC coverage. Two in particular were killers: low lapse rates and low interest rates.

“What were the lessons learned?” Kerzner asked rhetorically. “The industry did not have a lot of historical data. We all want to be innovative. I push the industry to innovate. But consumer behavior is not always logical. Another factor was medical breakthroughs. Those changed the game.”

The ideas for LTC 2.0 — hybrid or combination contracts — came from research as sales and premiums for traditional policies shriveled.

Long-Term Care Solutions

“People don’t like paying for insurance and getting nothing back,” said Kerzner. While one of the criticisms of traditional coverage was that they were too complicated, he said, the riders and options on combination contracts are seen as adding value.

Bruce Stahl is vice-chair of the LTC Reform Subcommittee of the American Academy of Actuaries, which expects to publish its analysis and recommendations of LTC by the end of the year.

He is frank about the value of what amounts to forensic underwriting in LTC. “It is helpful to understand the assumptions of the ’80s and ’90s. People made assumptions that were at the time reasonable estimates. The assumptions being made now on newer contracts are more conservative,” especially regarding interest and lapse rates.

“In the early ’90s, the assumption was that lapse rates for LTC coverage was going to behave like Medicare supplement policies, which were about 6 percent at the time. Actual lapse rates for traditional LTC contracts have been less than 1 percent. That has had a strong effect because of more benefits paid out.”

“Insurance companies are designed to be profitable. If traditional LTC is not profitable, it won’t be offered.” — Jesse Slome, executive director, American Association for Long Term Care Insurance

Jesse Slome, executive director of the American Association for Long Term Care Insurance, said that it is difficult to document the traction that hybrid LTC contracts are gaining because they are so new, and also because they are spread among permanent life and annuities.

“No one is really tallying the data, but at the Limra-Loma Conference in New Orleans [where he was chair of a panel discussion in September], I was told by carriers that on something between 50 percent and 80 percent of their new life policies, the insured checks the option to get an LTC payout.”

Slome is forthright about the future of the line. “Insurance companies are designed to be profitable. If traditional LTC is not profitable, it won’t be offered. If hybrids are, they will be offered.”

That still leaves the question of what becomes of the early adopters from the ’80s and ’90s, the ones who thought they were being economical and responsible and are clinging to their traditional contracts at the confounding lapse rate of less than 1 percent.

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For years, the financial press has been full of horror stories of premium increases of 50 percent, 60 percent and in some cases more than 100 percent. Carriers have been bombarded with outraged complaints, as have regulators and even Slome’s organization.

“What to do about old policies?” asked Slome. “I don’t know. But I suspect the few carriers remaining in that market are counting on state regulators continuing to approve premium increases, and also counting on interest rates rising. Shares of Genworth [the largest issuer of traditional LTC contracts] have become in effect a type of interest-rate play.”

Gregory DL Morris is an independent business journalist based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Management

The Profession

Wawa’s Director of Risk Management knows that harnessing data and analytics will be key to surviving the rapid pace of change that heralds new risk exposures.
By: | July 27, 2017 • 5 min read

R&I: What was your first job?

My first job was at the age of 15 as a cashier at a bakery. My first professional job was at Amtrak in the finance department. I worked there while I was in college.

R&I: How did you come to work in risk management?

A position opened up in risk management at Wawa and I saw it as an opportunity to broaden my skills and have the ability to work across many departments at Wawa to better learn about the business.

R&I: What is the risk management community doing right?

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The advancements in analytics are a success for the industry and offer opportunities for the future. I also find value in the industry focus on emerging and specialty risks. There is more alignment with experts in different industries related to emerging and specialty risks to provide support and services to the insurance industry. As a result, the insurance industry can now look at risk mitigation more holistically and not just related to traditional risk transfer.

R&I: What could the risk management community be doing a better job of?

Developing the talent to grow with the industry in specialization and analytics, but to also carry on the personal connections and relationship building that is a large part of this industry.

Nancy Wilson, director, quality assurance, risk management and safety, Wawa Inc.

R&I: What was the best location and year for the RIMS conference and why?

I have had successes at all of the RIMS events I have attended. It is a great opportunity to spend time with our broker, carriers and other colleagues.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

I think the biggest challenge facing most companies today is related to brand or reputational risk. With the ever-changing landscape of technology, globalization and social media, the risk exposure to an organization’s brand or reputation continues to grow.

R&I: What emerging commercial risk most concerns you?

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The changing consumer demands and new entrants into an industry are concerning. This is not necessarily something new but the frequency and speed to which it happens today does seem to be different. I think that is only going to continue. Companies need to be prepared to evolve with the times, and for me that means new risk exposures that we need to be prepared to mitigate.

R&I: Are you optimistic about the U.S. economy or pessimistic and why?

I try to be optimistic about most things. I think the economy ebbs and flows for many reasons and it is important to always keep an eye out for signs of change.

R&I: What have you accomplished that you are proudest of?

I am fortunate to have opportunities professionally that make me proud, but I have to answer this one personally. I have two children ages 12 and 9 and I am so proud of the people that they are today. They both are hardworking, fun and kind. Nothing gives me a better feeling than seeing them be successful. I look forward to more of that.

R&I: What is your favorite book or movie?

This is really hard as there are too many favorites. I do prefer books to movies, especially if there is a movie based on a book. I find the movie is never as good. I have multiple books going at once and usually bounce back and forth between fiction and non-fiction.

R&I: What’s the best restaurant you’ve ever eaten at?

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I have eaten at a lot of different restaurants in many major cities but I would have to pick Horn O’ Plenty in Bedford, PA. It is a farm to table restaurant in the middle of the state. The food is always fresh and tastes amazing and they make me feel like I am at home when I am there. My family and I eat there often during our trips out that way.

R&I: What is your favorite drink?

I do love a good cup of coffee (working at Wawa helps that). I also enjoy a good glass of wine (red preferably) on occasion.

R&I: What is the most unusual/interesting place you have ever visited?

Vacations aside, I do get an opportunity to travel for work and visit our food suppliers. The opportunities I have had to visit back to the farm level have been a very interesting learning experience. If it wasn’t for my role, I would have never been able to experience that.

R&I: What is the riskiest activity you ever engaged in?

My husband, kids and I recently did a boot-camp-type obstacle course up in the trees 24 feet in the air. Although I had a harness and helmet on, I really put my fear of heights to the test. At the end of the two hours, I did get the hang of it but am not sure I would do it again.

R&I: If the world has a modern hero, who is it and why?

The first people that come to mind are those who are serving our country and willing to sacrifice their own lives for our freedom.

R&I: What about this work do you find the most fulfilling or rewarding?

Every day is different and I have the opportunity to be involved in a lot of different work across the company.

R&I: What do your friends and family think you do?

My husband and children have a pretty good sense of what I do, but the rest of my family has no idea. They just know I work for Wawa and sometimes travel.




Katie Siegel is an associate editor at Risk & Insurance®. She can be reached at [email protected]