FOR IMMEDIATE RELEASE
If you have read anything about long–term-care insurance, you know that rates are increasing, and more insurance companies are withdrawing from the marketplace. Here are the questions you should be asking.
Washington DC, July 1, 2013 — “If you have read anything about long–term-care insurance, you know that rates are increasing, and more insurance companies are withdrawing from the marketplace,” writes insurance expert Dave Beck in the July 2013 issue of “Be Inkandescent magazine.
A partner at Egan, Berger & Weiner LLC, Beck says there are three questions worth asking:
- Why are rate increases occurring? Will they continue to go up?
- What will The Affordable Care Act mean to long-term-care plans?
- What is the future of the long-term-care insurance industry?
1. Why did these rate increases occur?
The situation: MetLife increases rates by 42 percent, John Hancock increases rates by 100 percent, and the federal government long-term-care insurance premiums increase by 25 percent.
“Undoubtedly, if you own a long-term-care insurance policy or have thought about purchasing one, seeing these headlines probably petrifies you, and rightly so,” Beck explains. “If you have suffered through the premium increases or are getting ready to buy a policy, the one thing that you want to know is, are these huge increases over.”
“The long-term-care insurance industry thinks that these types of huge rate increases will not be occurring in the future, because they are now using a different set of assumptions than they did when they priced the policies originally.”
The assessment: What were the erroneous assumptions, and how have they been addressed?
“As you probably know, interest rates are at historic lows, and the insurance industry had originally planned on higher rates of return,” Beck shares. “As a result, the industry is now pricing new policies and increased premiums on older policies to account for the current low-interest-rate environment.”
Beck adds that when insurers originally priced these policies, they thought that policyholders would cancel these policies at the same rate that people with life insurance policies cancel their policies (that rate is known as policy persistence).
“They found out that was not the case—once people bought a long-term-care policy, they kept it,” he says. “So the insurance company did not get its anticipated profit from early cancellations of policies. (Think about it—you pay premiums and then cancel the policy before you receive any payout. You haven’t gained any economic benefit from the policy, but the insurance company, which gets to keep all the premiums you paid, certainly profits.)”
Coupled with the increased policy persistence, the industry was experiencing increased claims since the number of policies in force was much larger than anticipated.
“Once again, the new policies have been priced (and old policies repriced) to account for the higher number of claims,” explains Beck, who asks: Does this mean that there will be no premium increases going forward? “Probably not, but the rate increases should be much more modest than some of those in the past.”
2. What does The Affordable Care Act mean to long-term-care plans?
The situation: There are few more polarizing national issues than the discussion about the future of health care. Part of this program was supposed to be the Community Living Assistance Services and Supports Act (CLASS Act). But before it could begin, it was repealed.
The assessment: There was much debate about whether the program was sustainable, and as part of the “fiscal cliff” negotiations, Congress repealed this portion of the health-care act. So my answer to the question of whether the Affordable Care Act will affect long-term-care plans is simply—no.
3. What is the future of the long-term-care insurance industry?
The situation: The future for the long-term-care industry is a little cloudy currently, but getting clearer with each passing day. As most of the carriers have made their decision as to whether or not to stay in the market, that issue is gaining clarity.
Beck notes: “The remaining carriers have decided on the appropriate pricing model (based on increased policy persistence and lower interest rates), so the major issue of precipitous premium increases also appears to be resolving.”
The assessment: More to that point, Genworth and a number of other carriers are now going to sex-distinct pricing and increased underwriting scrutiny. With sex-distinct pricing, women will get charged considerably more for long-term-care insurance than men since women utilize much more long-term-care services.
“On top of that, carriers will now begin requiring exams (much like life insurance) so as to better evaluate the potential risk that the applicant may pose,” he insists. “They will also be offering a variety of underwriting classes to their reps to allow them to better quantify the risk and charge the appropriate premium level.”
The Bottom Line
“I can tell you that the long-term-care insurance industry has taken the necessary steps to try and minimize the risk of history repeating itself,” Beck believes.
“Insurers have even been proactive in trying to make certain that they are charging the correct premium to the perceived level of risk that policyholders may represent to them. So that gives me solace—despite my lagging jump shot.”
Do you have questions? Send Dave Beck an email at email@example.com.
About Dave Beck
- Partner of Egan, Berger & Weiner, LLC
- More than 26 years in the financial services industry, with a primary focus on insurance planning
- More than 15 years of experience working for two of the largest insurers in the United States
- Six years as the principal in a private insurance agency
- Graduate of George Mason University, with a BS in Business Marketing and a minor in Economics
Beck resides in Woodbridge with his wife Linda, and their three children: Brian, Nicole, and Michael. A former high school athlete, David plays softball and ice hockey in local leagues. David grew up in Springfield, VA, and is a staunch supporter of the Redskins, Capitals, and Wizards.
About Be Inkandescent magazine: www.BeInkandescent.com
Be Inkandescent is the online magazine for entrepreneurs, by entrepreneurs. Published by Inkandescent Public Relations, a PR and publishing company founded in 2008 that helps entrepreneurs get the visibility they need to keep their companies growing.
In January 2010, founder and president Hope Katz Gibbs, a journalist since graduating from the University of Pennsylvania’s Annenberg School of Communications in 1986, launched the online magazine to spread the word about the great entrepreneurial businesses and ideas her clients were spearheading. With more than 50,000 subscribers and 750,000 visits/month, it also offers useful tips to other entrepreneurs who are either new to the “work for yourself” world, or are looking to take their companies to the next level.
The gem of the magazine is the regular cover story featuring a high profile Entrepreneur of the Month. These savvy heavy hitters also offer valuable Tips for Entrepreneurs that any business owner can immediately put into practice.
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