Changes in store for long-term care insurance
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Women live longer than men on average. That means they often have no natural caregiver, such as a husband, at home when their health deteriorates and they often survive longer in nursing homes than men do.
That's why Richmond, Va.-based, Genworth Life Insurance Co., the country's largest underwriter of long-term care insurance, is changing the way it prices policies, charging more to women than to men.
The change is one of several policy and pricing revisions in store for buyers of long-term care insurance, which provides a payout in the event that the policyholder needs to be cared for in a nursing or assisted-living facility. Some carriers are seeking dramatic premium increases and axing spousal discounts and lifetime benefits; others are coming out with new hybrid products; and still others are getting out of the product line altogether, citing its unprofitability and unpredictability.
One of the biggest changes is Genworth's announcement that it plans to ask state insurance departments to approve different premium rates for men and women -- rates that reflect women's higher likelihood of using the benefit.
The result is that women could be charged 40 percent more than men for a newly written policy.
"If you walk down the hall of an assisted living home, it's mostly ladies," said Rick Sabo, owner of RPS Financial Solutions in Gibsonia. "You see one man here or there. ... In order to stay competitive and keep proper pricing, they're going to have to start slicing up the" customer base.
In so doing, long-term care insurance is following in the footsteps of auto insurers -- which set rates based on age and driving record -- and health insurers -- which sometimes set rates based on health, age and gender.
"Other companies are taking a look" at Genworth's new pricing model, said Amy Pahl, principal with Milliman Inc., a Minnesota health and insurance consulting firm. "From an actuarial perspective, it's a good thing [because] the males are subsidizing the females under a unisex rating scheme."
In the short term, she said Genworth's policies will be less competitive among women, at least until the next generation of products comes out next summer, at which time competitors might adopt the same pricing tactics.
In Pennsylvania, long-term care premium increases continued unabated: John Hancock Life Insurance Co. notified the state of an 18.7 percent premium increase, the AF&L Insurance Co. implemented a 30.6 percent premium increase for several hundred of its policy holders, and the Bankers Life and Casualty Co. got a 35 percent increase.
And on Friday, two more LTC premium increase requests were announced by the state Insurance Department -- Allianz Life Insurance Co. is requesting approval to increase premiums by 25 percent on 1,759 policyholders, and Continental Casualty Co. is requesting approval to increase premiums by a whopping 80 percent on 6,668 Pennsylvania policyholders.
The premium increases have been so dramatic, experts say, because long-term care insurance was, in retrospect, underpriced, particularly for policies that were sold more than a decade ago.
Even as the pricing comes into what insurers consider better alignment, low interest rates over the last four years have been hurting the industry, which takes the premium money, invests it and uses the return to pay benefits down the road. Low interest rates means lower returns on investments and less money to pay beneficiaries.
"All of the carriers have been challenged by the record-low interest rates," said Steven M. Cain, principal at LTCI Partners LLC, an Illinois brokerage that specializes in end-of-life policies. The 10-year Treasury note, the favored investment vehicle for many insurers, now has a yield of 1.63 percent; 20 years ago the yield was 7.25 percent.
Despite the high cost of nursing care -- which can easily hit $50,000 a year -- long-term care policies have been a tough sell, partly because people don't want to spend thousands of dollars a year on a product they might never use.
The long-term care payout generally kicks in only after 90 days of nursing care, meaning many people -- even those who end up needing care -- will never realize the benefit, because they die within three months of falling ill. For seniors who have the coverage, the utilization rate is 50 percent, meaning there's a 50-50 shot that they never cash in.
That's why insurers have been coming up with hybrid products, such as life insurance policies with long-term care riders attached; it's a trend Mr. Cain expects will continue in 2013. A $500,000 life policy, for example, might have an option allowing for the policyholder to deduct up to 2 percent, or $10,000, a month to go toward end-of-life care.
Some insurers also are offering "shared-care" policies that allow a married couple to take out separate but connected, plans, and the benefits are transferable if one of the spouses dies.
"People are looking for alternatives," Mr. Sabo said. "They realize this is a huge problem. ... Boomers are seeing it happen to their parents," and realize it will be happening to them soon, too.
Mr. Cain noted the average age of a long-term care policy buyer is dropping -- what used to be a product aimed at seniors is now being aimed at people aged 55 to 65.
While the alternative policies are gaining favor among buyers, they aren't necessarily more profitable for the carriers. "The interest rate environment is still [damaging] the combo product market as well as the standalone product market," Ms. Pahl said.
She expects a few more carriers may drop out of the long-term care market segment before the industry stabilizes. A decade ago there were dozens of companies selling long-term policies, while now there are about 18.
First Published December 2, 2012 12:00 am