Think the rise and fall of the long-term care insurance market is unique? Surprisingly, if you look back, you’ll find a similar pattern in the fall and rise of individual disability insurance during the 1980s and 1990s. IDI Déjà vu: Optimism for the LTCI Industry, an article in the March issue of Broker World, explores the parallel paths of DI and LTCI. Will the industry take similar steps toward a similar outcome?
Disability insurance market corrections
DI carriers suffered significant losses and generally declining sales from 1980 through 1996. Profitability started trending upward in 1997 and steadily declining new business premium growth started to level off in the following years. During those years, carriers responded to the disability income insurance crisis through consolidation, better contract language, better underwriting practices and improved claims management.
Long-term care insurance market challenges
According to LIMRA’s Individual LTCI Participant Report, LTCi sales and profits have been declining since 2002. The combination of low interest rates, low lapse rates, and rising claim payouts presents a difficult challenge to long-term care insurance carriers in many ways:
- Consolidation. Only 16 insurers remain in the stand-alone LTCi product market; down from 125 carriers.
- Declining new business average premium. Even though policy premiums continue to rise, consumers are purchasing less coverage resulting in lower average premium per policy.
- The industry is responding to these challenges through an improved risk profile for this line of business, adopting some of the same strategies the DI market successfully used.
- Adopting gender-based rating. Women are by far the largest consumers of long-term care insurance benefits. Despite a chorus of protests, recent pricing changes allow for the increased risk of female applicants.
- Pullback for good health and spouse discounts. Discounts are still available for applicants in good health and for couples who are both covered by long-term care policies. The amount of the discount available has been limited.
- Examination of policy provisions. Many carriers have eliminated some of the most generous plans with unlimited benefit periods. Almost all policies being sold now have a defined maximum benefit period. Many carriers have also eliminated the limited payment options (10 pay and 20 pay).
- Honed underwriting practices. In addition to medical underwriting for long-term care, insurance carriers now may include cognitive evaluations, depending on the age of the applicant, paramedical exams, and prescription drug reviews. Early results of the new underwriting practices foretell improved claim ratios.
The need for long-term care insurance is evident. Policymakers in Washington realize American taxpayers will not be able to fund the growing cost and swelling numbers of people who need long-term care who are without the means to pay for it. The industry is making the changes necessary to sustain a product that is critical to the economics of an aging population. Now it’s our turn to tell our clients about affordable ways to reduce the expense of long-term care. Ready to get started? Contact DIS today, request a long-term care insurance quote or download our long-term care insurance broker kit.