Hancock's LTC rate hike puts advisers in tough spot

Average premium for existing policyholders could go up by 40%; ‘lot of explaining' to do

By Darla Mercado

Sep 22, 2010 @ 12:54 pm (Updated 2:37 pm) EST

Advisers and agents are shocked that John Hancock plans to increase dramatically premiums on its existing blocks of long-term-care-insurance business.

“It's a real tough situation where someone budgeted and now your premiums have gone up,” said James Ryan, president of Lenox Long Term Care LLC, the insurance agency of Lenox Advisors Inc. He noted that he is preparing an e-mail for firm's agency on the announcement from the carrier.

“Most of these clients are going to reduce benefits; it would be more expensive to go out and get a brand-new policy,” Mr. Ryan added.

John Hancock Life Insurance Co. yesterday notified its distributors and advisers who sell its products that it will file rate increases in September and October on its in-force group and individual policies, with rate hikes averaging 40%. The carrier estimates that states will start announcing acceptance of the rate increases by January 2011 and that the actual hike will be rolled out in April.

Aside from affecting policyholders with the Custom/Essential Care I and II, Gold Select, Advantage, and Fortis 7000s and 4060-6063 products, clients who used a John Hancock single premium fixed annuity to pay for LTC in the insurer's LTC EasyPay program will also experience a shortfall due to the rate, according to a John Hancock memo.

The insurer said it has little choice but to boost the rates. Since a previous claims study in 2007, John Hancock has had double the number of claims and four times the amount of claims at older ages, explained spokeswoman Melissa Berczuk.

The memo's release was first reported by National Underwriter Life & Health on Monday.

The announcement, which was discussed with executives from insurance general agencies in a conference call Monday, caught distributors by surprise.

“We utilized John Hancock as one of our top companies in the last two decades, and it's very surprising to see these kinds of increases,” said Julie Gelbwaks Gewirtz, executive vice president at Gelbwaks Executive Marketing Corp.

She added that the insurance brokerage has many agents who have been selling the Custom Care and Essential Care policies, “so there's going to be a lot of explaining and dealing with consumers, and even agents and advisers, on what all this means.”

Clients will have the opportunity to reduce their benefits in order to keep their premiums near their current level: For instance, customers with a 5% compound or simple inflation rider will be allowed to obtain reduced-inflation coverage.

The hike won't apply to policyholders over 80 when they buy their policies or to individual or group products that are based on the consumer price index.

Executives at insurance brokerages expect that clients likely will make adjustments and pull back on their coverage, particularly if they may now be harder to insure than when they bought the policy. Those who purchased their long-term care product recently may consider swapping to another carrier.

“The mutuals will say that they're tough underwriters and that they've priced realistically,” Mr. Ryan said. “We're trying to steer clients to the mutuals if they have the wherewithal and resources.”

Not all of the distributors are upset with John Hancock's proposed rate increase. “We're happy they're doing this sooner rather than just waiting,” said Tom Riekse Jr., managing principal at LTCI Partners LLC. “We have to manage the communication of this, but they're doing the right thing to make this business sustainable for a long time.”

If states approve the rate increase, it could put advisers in a tough spot.

“It puts everyone in a position where they planned for long-term care 15 years ago, and what you had planned for isn't even intact, because now you can't afford it,” said Caleb M. Nitz, an investment-marketing analyst at ValMark Securities Inc. “It really limits the plan from the get-go as far as LTC benefits go.”