Another insurer bows out of LTC insurance sales

Does anyone want to write long-term-care insurance policies anymore?

More and more, the answer to that question is “no.”

Last week, yet another insurer — Guardian Life Insurance Company of America — said that it will cease sales of its LTC insurance products by the end of the year. Instead, the insurer will concentrate on life and disability insurance.

The company, which has been issuing LTC insurance through its subsidiary Berkshire Life Insurance Company of America, decided to get out of the business after five years in the market. Its departure follows on the heels of MetLife Inc.’s exit from the LTC market and a large rate hike announced by John Hancock Life Insurance Co.

Guardian was a small player in the LTC insurance market, according to Gordon Dinsmore, president of Berkshire Life.

“We weren’t terribly large to start with, and we were relatively new to the market,” he said. “To some extent, it was a question of whether we really wanted to stay in for enough years to have a bigger presence.”

The insurer had about $12.6 million in LTC sales in 2009, according to data from Milliman Inc. By comparison, Genworth Financial Inc., the biggest seller of such policies, sold $107.5 million in annualized premiums in 2009, according to data from LifePlans Inc.

Guardian informed its sales force this month about its exit from the LTC market, Mr. Dinsmore said.

Issues that have plagued the company’s larger rivals — low interest rates and low lapse rates — weren’t really a problem for Guardian because of its LTC insurance book’s small size and short tenure, he said. Low interest rates cut into the returns that insurers get on their investments — and those returns go toward paying claims.

Meanwhile, low lapse rates — which occur when insured individuals survive longer and continue to receive claim payments for longer periods of time — strain insurers’ ability to make payments.

“Interest rates are a consideration for all in the market, but we’re so new that lapse rates wouldn’t have been an issue,” Mr. Dinsmore said.

The company sold its product through a general agency system but did not sell through brokerage general agencies. If Guardian had, it likely would have sold more.

Guardian’s exit sent a shudder through the financial adviser community.

“This is really alarming,” said Greg Olsen, partner at Lenox Advisors Inc. “I’m surprised that they decided to exit the market.”

Mr. Olsen noted that his firm has an arrangement with Guardian’s general agency and has sold the product that way.

“The exit doesn’t decrease my confidence in the LTCI product line, but I’m not going to have egg on my face with this product,” he said.

“We’re only going with mutuals right now. We like the mutual form of ownership and with a company that has a small portion of business allocated to LTC the way Guardian did,” Mr. Olsen said.

Others expect smaller players to vacate as more insurers back off from traditional LTC insurance.

“If the big ones leave, it’s only a matter of time before the smaller ones leave, too,” said Henry Montag, owner of Henry Montag Associates.

“My clients are buying less traditional LTC insurance and are supplementing with new combination products. I’m sure the traditional LTC contract will be extinct down the road,” Mr. Montag said.

National Underwriter first reported Guardian’s announcement.

E-mail Darla Mercado at [email protected].