State of the long-term care insurance industry

The future is brighter than the storm clouds of the past

Everyone, it seems, has a caregiving story.

That’s because the challenges of growing older affect us all. As a son and husband, I experienced this firsthand caring for my own family. My wife is now confronting the challenges of caring for her mother – 800 miles away.

Scenarios like these are playing out every day by the millions of families facing the daunting responsibility of caring for aging loved ones. It’s why we at Genworth believe strongly in the future of the long-term care insurance industry and are actively working to advocate for the change necessary for that future to occur.

The industry must focus on the three areas critical to revitalizing the long-term care insurance market: education to help consumers understand the financial implications of aging; product innovation; and legislative and regulatory reform to help make long-term care insurance more affordable and predictable.

Education: To overcome consumers’ overwhelming uncertainty about who will pay for care, we must first change the conversation – or better yet we have to “start the conversation.” This requires talking and listening, really listening, to consumers’ needs, wants and desires, and then educating them on how to address the financial implications of aging.

Product Innovation: Once we fully understand “how” a customer wants to age, we must tailor solutions to help them accomplish their objectives. Insurance firms must continue to innovate products and present them in a simple, compelling manner. PricewaterhouseCoopers recently conducted a study of long-term care claims and concluded that 75% of all long-term care will cost less than $250,000.

Regulatory and legislative reform: While pricing of recent generations of LTC policies better reflect the claims experience of the past and consumer behavior, the regulatory model is a signifcant impediment to growing the market. We are actively engaging state regulators to move from a level premium concept to an annual re-rating pricing model.

This would allow insurance companies to make smaller, single-digit adjustments (up or down) to premiums as product performance emerges, similar to the way health insurance is rated. Smaller annual premium adjustments would be more manageable for consumers than very large periodic increases.

GOVERNMENT

The presidential administration and Congress, working together with the industry, also have an opportunity to help make long-term care insurance more accessible. Public policy groups have proposed legislative and regulatory changes that would provide incentives to encourage people to buy long-term care insurance.

These include allowing penalty-free withdrawals from retirement accounts to purchase lower-cost LTC insurance products; providing incentives for employers to offer limited-benefit LTC insurance through workplace retirement plans on an opt-out basis; providing consumers various tax incentives to purchase LTC insurance; and a universal catastrophic plan to pay for longer-duration care, as a backstop to private insurance.

ADVISERS

Finally, financial advisers have an important role to play here that ties back to my first point about education. Your clients are or will be facing caregiving challenges, and if they haven’t prepared financially, a long-term care event can quickly decimate the best-laid retirement plans.

Financial advisers need to start these conversations by asking, “Who’s going to pay for your care?” Any adviser not bringing this up to clients is doing them a disservice. Are they really protecting their clients and their assets if they aren’t?

It will take a combination of regulatory and legislative changes, the industry and government coming together, to make long-term care financing solutions more accessible and affordable, and to foster a national dialogue about the importance of planning ahead for these costs.

I believe we can do it. We must do it, because the needs are too great for either private insurance or the government (meaning taxpayers) to shoulder the cost, let alone our families and communities. That’s why, when we look ahead, we see a future for the industry that is much brighter than the storm clouds of the past.

David O’Leary is president and CEO of Genworth’s U.S. Life Insurance division.