Mindful of past disasters with long term care insurers, financial advisers have found ways to balance financial viability with quality benefits.
But they continue to be skeptical of whether carriers are indeed ready to face the onslaught of claims expected from baby boomers.
“Long term care insurance has been priced to sell, and not to pay benefits,” said Peter Katt, principal of Katt & Co., a fee-only insurance advisory firm in Mattawan, Mich. “There's been a history of premiums going up drastically as companies have to re-price in order to maintain adequate reserving for what they sold.”
Advisers remain skeptical of what exactly LTC insurance companies can provide after a combination of low-priced products and higher-than-expected claims levels ultimately brought three insurance companies to their knees.
Those problems proved to be the undoing of Penn Treaty Network America Insurance Co. and its affiliate American Network Insurance Co., both of Allentown, Pa., as well as the now-defunct Conseco Senior Health Insurance Co. of Bensalem, Pa.
In those cases, Pennsylvania Insurance Commissioner Joel Ario stepped in, placing Penn Treaty and American Network under rehabilitation in January and allowing Carmel, Ind.-based Conseco Inc. to transfer Conseco Senior Health Insurance into an independent trust called Senior Health Insurance Company of Pennsylvania.
But LTC insurers said that things have changed, starting with greater efforts to price products appropriately.
AVOIDING RATE INCREASES
Charging higher prices initially can help keep the company from implementing drastic rate increases, a move that troubled carriers have had to make when premiums were insufficient to maintain reserves.
“Before, we were on the high end of premium levels, but we're on the right end of the levels now,” said Mike Gallo, senior vice president of long term care at New York Life Insurance Co. He conceded that the company's LTC product costs more than the household names in the industry, but argued that you get what you pay for.
Its policy has allowed the insurer to keep premiums stable for in-force business, Mr. Gallo added.
Northwestern Mutual Life Insurance Co. of Milwaukee also has managed to avoid premium hikes on its in-force LTC books. It not only went into the business with higher premiums and the expectation that many clients wouldn't lapse on their policies, but also took control of its premiums by managing the dividends it pays to policyholders, according to David W. Simbro, vice president of disability and long term care.
Some advisers recognize that insurers are more proactive in ensuring their viability, but they think that the products are still improperly priced.
“Cheapo premiums have had to be raised so that the new ones are more realistically priced, but I still think they have to go up a lot,” Mr. Katt said. “Agents want to be paid commissions, but if [product costs] are too high — high enough that the company can have adequate re-serves — nobody is going to buy it in the first place.”
Anticipating a wave of claims from boomers, Mr. Katt said, he adjusted his approach to LTC planning, focusing more on the extant support network so as to reduce clients' dependence on LTC insurance.
“If you have a couple of kids who live in the same state, chances are, the clients won't need strangers coming in to help,” he said. “Long term care insurance isn't skilled nursing; it's helping with the activities of daily living.”
Underwriting is another area in which carriers have tried to balance their risks and maintain their viability. For instance, Genworth Financial Inc. of Richmond, Va., doesn't issue policies to those with cognitive impairments, including Alzheimer's and Parkinson's.
“A few carriers have tried to write some substandard risks, but nobody has done that successfully,” said Beth Ludden, senior vice president of LTC insurance product development.
Currently, the carrier also is looking into a LTC product that encourages wellness for policyholders.
“Typically, they don't have a claim with us until 20 or 30 years down the road,” Ms. Ludden said. “They would benefit from ongoing value, and we would benefit from having later claims.”
Insurers that sign on many applicants are just as risky as the banks that freely distributed mortgages to borrowers, said David W. Demming, senior financial planner at Demming Financial Services Corp. in Aurora, Ohio. “One of our preferred carriers rejected close to 100% [of its applicants], and I do pre-underwriting.”
Through preliminary medical questionnaires, Mr. Demming has realized that it isn't just the most debilitating diseases that will knock clients out of the running for LTC coverage. Conditions such as high blood pressure, hepatitis and a history of pre-stroke symptoms could keep top carriers from selling a client a policy.
“I don't think companies are issuing contracts with the expectation that they'll take everyone,” Mr. Demming added. “Twenty years ago, it was like, "Can you walk, talk and chew gum?'”
E-mail Darla Mercado at [email protected].
