Genworth LTC strikes again

athena53 · May 22, 2018

Hermit said:
I am a little more cynical about the insurance companies than you. They have a lot of bean counters who do nothing but run numbers on this stuff. I would have a hard time believing that they don't know exactly what they are doing. I think they probably have some great spin doctors in the advertising department too. I don't think they lump the younger customers in with the older customers, but start new policy groups on a regular basis. The older policy groups have to self-sustain their policy plus a profit and their costs rise to make that happen. I don't have any references, just my humble opinion.

I'm a retired actuary but didn't work in the LTC field. The problem is that the "bean counters" (my actuarial counterparts in LTC) priced the product when there wasn't a lot of data around so they had to make assumptions about lapse rates, mortality, likelihood of entering LTC, duration of LTC, rates of return, etc. 30 years ahead. There were a lot of general population statistics that couldn't be used on their own because of "self-selection" (people who buy the product expect to live a long time and need LTC) and the fact that the very old in nursing homes probably live longer than the very old in similar condition trying to live at home because the ones in LTC are getting more care. So, yeah, it was guesswork. Throw in the wish to make the pricing attractive and there may have been a little too much optimism, too.

I can tell you that when GE sold most of its insurance-related businesses in 2006, the acquiring company, a well-regarded Swiss company, wanted nothing to do with Genpact!

REWahoo · May 22, 2018

Hermit, I think Hanlon's razor is probably applicable when it comes to the initial pricing of LTCI. The insurance companies apparently blew it.

Hermit · May 22, 2018

athena53 said:
I'm a retired actuary but didn't work in the LTC field. The problem is that the "bean counters" (my actuarial counterparts in LTC) priced the product when there wasn't a lot of data around so they had to make assumptions about lapse rates, mortality, likelihood of entering LTC, duration of LTC, rates of return, etc. 30 years ahead. There were a lot of general population statistics that couldn't be used on their own because of "self-selection" (people who buy the product expect to live a long time and need LTC) and the fact that the very old in nursing homes probably live longer than the very old in similar condition trying to live at home because the ones in LTC are getting more care. So, yeah, it was guesswork. Throw in the wish to make the pricing attractive and there may have been a little too much optimism, too.

I can tell you that when GE sold most of its insurance-related businesses in 2006, the acquiring company, a well-regarded Swiss company, wanted nothing to do with Genpact!

But, but, but... Wasn't GE considered the Gold Standard for megacorps back prior to 2006??

Hermit · May 22, 2018

REWahoo said:
Hermit, I think Hanlon's razor is probably applicable when it comes to the initial pricing of LTCI. The insurance companies apparently blew it.

You may be right. I don't know the ins and outs of LTCI industry. If I am mistaken on the insurance being lumped into groups where the participants age over time please let me know.

Independent · May 22, 2018

Hermit said:
I don't think they lump the younger customers in with the older customers, but start new policy groups on a regular basis. The older policy groups have to self-sustain their policy plus a profit and their costs rise to make that happen. I don't have any references, just my humble opinion.

You are correct. Each cohort of policies is supposed to stand on its own - no subsidy from other earlier or later cohorts.

Sam is also correct, one of the problems was that companies overestimated lapse rates. "Stand on your own" for LTCi means policyowners paying "too much" in the early policy years when claim rates are low and insurers buying bonds with the excess premiums. Then, in the later years when annual claims exceed annual premiums, insurers sell the bonds to fund the difference.

When healthy people simply drop their policies along the way, companies can use the accumulated funds from those policies to help pay the claims on other policies bought in the same year.

Companies anticipated certain levels of voluntary lapse when they priced the policies. Then, when those lapses didn't occur, they discovered they had more old people than they expected. They were short money.

This financial dynamic also appears in traditional level premium permanent life insurance plans. More than 100 years ago, legislators observed the problem in the early versions of life insurance, and corrected it by forcing insurers to give people who voluntarily dropped their policies their share of the accumulated funds. This prevented actuaries from assuming their employers would profit by lapses and led to higher, but sustainable premiums.

It amazes me that when LTCi became a thing, regulators did not recognize this problem and use the same solution that worked for life insurance. But, they didn't.

Chuckanut · May 22, 2018

Hermit said:
But, but, but... Wasn't GE considered the Gold Standard for megacorps back prior to 2006??

GE was the company those already meeting the Gold Standard were suppose to aspire to on the next level.

IIRC, the CEO walked on water or so the articles led us to believe.

Independent · May 22, 2018

samclem said:
From what I've read, this is the primary driver behind the increase in LTCI premiums. The insurers badly overestimated how many customers would abandon their policies. "Hey, boss, bad news. It looks like most of these folks are actually gonna keep these policies until they are really old, and we are going to have to pay out on a lot more than we'd figured."

This is true, see my post above to Hermit.

But, in the post that you quoted, I was talking about a different category of lapse.

Athena was suggesting an assessment spiral. A premium increase prompts some healthy people to quit, this leaves a less healthy group with higher claim rates, leading to another premium increase, leading to more lapses of healthy lives, leading to higher claims rates, ....

I said that the experience I recalled was that healthy people don't typically give up on their LTCi policies in response to premium increases. So, in practice, this type of spiral hadn't occurred. This doesn't mean there were never any additional premium increases. Lots of stuff went wrong, and everything wasn't visible at the same time.

athena53 · May 22, 2018

Independent said:
This financial dynamic also appears in traditional level premium permanent life insurance plans. More than 100 years ago, legislators observed the problem in the early versions of life insurance, and corrected it by forcing insurers to give people who voluntarily dropped their policies their share of the accumulated funds. This prevented actuaries from assuming their employers would profit by lapses and led to higher, but sustainable premiums.

It amazes me that when LTCi became a thing, regulators did not recognize this problem and use the same solution that worked for life insurance. But, they didn't.

As you noted, it would have resulted in higher premiums. It would also have required more assumptions and guesswork. Many people have dropped their policies because the premiums jumped to unaffordable levels. Since, at the time of issue, the pricing is assumed to be adequate, I suppose they could have built these lapses and refunds into their simulations as adverse scenarios but then they need to assign probabilities to it and I suspect they would have been overly optimistic.

It was also in the states' interest to have a reasonably-priced product. People who can't provide for their own LTC and don't have family members willing or able to take them in end up relying on Medicaid. This was a tool to help people plan for their own LTC expenses and it needed to appeal to as many people as possible.

Banned LTC Salesman · May 22, 2018

athena53 said:
Insurance Departments have two main responsibilities: protecting the consumer, and keeping insurance companies solvent. The well-regulated Departments realize that sometimes you have to give priority to the second objective even if the consumers are unhappy. Everyone loses if a company becomes insolvent and can't pay its claims.

There's also an "adverse selection" death spiral here. As rates go up, the policyholders who keep paying the premiums include a disproportional share of those who have a high probability of needing LTC for an extensive period of time, given health issues or family history, so the experience gets worse and the insurers need more money to pay claims.

It would seem logical that there would be a "death spiral" with long-term care insurance, but that has not been the experience with any insurer.

Even after a big rate increase less than 5% of policyholders lapse their policy. About 50% lower their benefits and about 45% keep their benefits the same and pay the higher premium.

The reason older policies have had such large rate increases is due to the unexpected popularity of long-term care insurance. Insurers assumed that about 4% of policyholders each year would let their policies lapse. Instead, only about 1% of policyholders each year let their policies lapse.

This resulted in about twice as many in-force policies (after 20 years) than the insurers had projected. All the "profit" they had projected from the lapsed policies did not materialize. With twice as many in-force policies, claims are twice as high as they had projected, resulting in a justification for some very large rate increases.

Fortunately, new policies have very different pricing regulations and more conservative pricing models.

Banned LTC Salesman · May 22, 2018

HNL Bill said:
Is there a risk that you might eventually not be able to afford payments, or that it will no longer make sense to make them? LTC insurance is such a conundrum. Most who need it can't afford it over the long haul (like my Mom, who paid maybe $15K into it, before I talked her into dropping it, as I saw her running out of money, long before 80 if she had kept up the payments), and those who don't need it can be self-insured.

If someone has little or no assets, they don't need long-term care insurance. Medicaid will pay for their care.

Long-term care insurance is best for the "middle-class". Long-term care partnership programs were especially created for the "middle-class". The programs allow for very affordable policies because the policyholder only need to buy an amount of benefits that is equal to the amount of assets he/she wants to protect from Medicaid.

Banned LTC Salesman · May 22, 2018

Marita40 said:
I'm very, very conflicted on my Genworth policy. Last year it went up hugely, to be phased over two years. It is due again in a month and, I'm again conflicted about renewing. Last year I did all sorts of research and reading, and for every yea-sayer there was a nay-sayer.

What a conundrum.

If the premium is less than one-half of one percent of your net worth, it's probably worth keeping it.

Banned LTC Salesman · May 22, 2018

mf15 said:
Ours is for 5 year coverage, but this is getting crazy. But then again who knows what will happen with health. My mother made it 3 years in a home, which ran about 3200/month and that was 10 yeas ago. I guess will go with option C, for now. One good clause in the policy is that if one spouse dies, then the other pays no premium for the duration. The other thing I dont like is the 90 day exclusion before any payment. Then you have to get them to start paying. The other option is to stop payments, and you get to use the money you have contributed over the years if you need to go into a home.

Bottom line is, I hope I never need it.
Oldmike

Is there an option to lower your inflation guard from 5% compound to 3% compound or from 5% compound to 5% simple?

Banned LTC Salesman · May 22, 2018

athena53 said:
I'm not quite that cynical- fortunately, I can happily squander a lot on travel and a similar amount on charity- but my top fiscal priority is having enough to provide for LTC if I need it. Given that most of my other expenses would be zero if I enter a nursing home, I should be fine. No LTC coverage here.

That's a good strategy for single people.
It's usually not-so-good for couples.

Banned LTC Salesman · May 22, 2018

Koolau said:
When my mom was in a facility, the meds were outrageously priced. I don't know if any of the insurance we currently have (DW and I) would cover any of these meds as distributed by care homes. I don't know if any of these "services" are negotiable (including NOT providing them.)

The whole thing sounds like a racket. How is it that care homes need to charge more than a luxury resort to keep you in a semi-private room with essentially no amenities (no pool, no ocean, no gym, etc.)? $10K/month seems outrageous. YMMV

R.N.'s (in NH's) are a lot more expensive than lifeguards (at hotels).
Liability insurance for NH's is a lot higher than liability insurance for hotels.

jzajzz · May 22, 2018

mf15 said:
Just got the notice this morning. Last year there was a big increase for us. They now want 1030 a quarter as opposed to 755, that is for a monthly max benefit of 9,428. Mine is lower.

Of course you can pick option C keep basically the same premium but reduce
payout to 6700/month.

I fail to see how state insurance people are approving these increases.

This is getting insane.
Oldmike

see the cost of your hospital bills? .. that is why they are approving these increases... it's not hard to tell..

Banned LTC Salesman · May 22, 2018

Hermit said:
I am a little more cynical about the insurance companies than you. They have a lot of bean counters who do nothing but run numbers on this stuff. I would have a hard time believing that they don't know exactly what they are doing. I think they probably have some great spin doctors in the advertising department too. I don't think they lump the younger customers in with the older customers, but start new policy groups on a regular basis. The older policy groups have to self-sustain their policy plus a profit and their costs rise to make that happen. I don't have any references, just my humble opinion.

They don't lump policyholders by age.
They lump policyholders by a specific "policy series".
Any policy series can have policyholders who purchase the policy at age 40 to age 75. The median age is usually late fifties/early sixties.

A policy series is like the make and model of a car.
A specific policy series is usually sold for 3 to 4 years before being replaced with a newer policy series.
Because of new regulations, in 41 states, each policy series has to have "more conservative" pricing than each prior policy series.

Banned LTC Salesman · May 22, 2018

Independent said:
You are correct. Each cohort of policies is supposed to stand on its own - no subsidy from other earlier or later cohorts.

Sam is also correct, one of the problems was that companies overestimated lapse rates. "Stand on your own" for LTCi means policyowners paying "too much" in the early policy years when claim rates are low and insurers buying bonds with the excess premiums. Then, in the later years when annual claims exceed annual premiums, insurers sell the bonds to fund the difference.

When healthy people simply drop their policies along the way, companies can use the accumulated funds from those policies to help pay the claims on other policies bought in the same year.

Companies anticipated certain levels of voluntary lapse when they priced the policies. Then, when those lapses didn't occur, they discovered they had more old people than they expected. They were short money.

This financial dynamic also appears in traditional level premium permanent life insurance plans. More than 100 years ago, legislators observed the problem in the early versions of life insurance, and corrected it by forcing insurers to give people who voluntarily dropped their policies their share of the accumulated funds. This prevented actuaries from assuming their employers would profit by lapses and led to higher, but sustainable premiums.

It amazes me that when LTCi became a thing, regulators did not recognize this problem and use the same solution that worked for life insurance. But, they didn't.

I wish I could write like that.
Very well done.

Banned LTC Salesman · May 22, 2018

jzajzz said:
see the cost of your hospital bills? .. that is why they are approving these increases... it's not hard to tell..

Actually, that's not the case.
Hospital expenses are covered by medical insurance, not long-term care insurance.

Hermit · May 22, 2018

Banned LTC Salesman said:
They don't lump policyholders by age.
They lump policyholders by a specific "policy series".
Any policy series can have policyholders who purchase the policy at age 40 to age 75. The median age is usually late fifties/early sixties.

A policy series is like the make and model of a car.
A specific policy series is usually sold for 3 to 4 years before being replaced with a newer policy series.
Because of new regulations, in 41 states, each policy series has to have "more conservative" pricing than each prior policy series.

So the answer is "Yes", they do age. After a series is closed, all participants age and there is no younger people coming in to the series. I wonder how it works out for the youngest in a series. They joined early because they were told it will keep the costs low, but when they are the only ones left I wonder what happens?

athena53 · May 22, 2018

Banned LTC Salesman said:
That's a good strategy for single people.

It's usually not-so-good for couples.

And that's why I'll never remarry someone who can't fund his own LTC.

Banned LTC Salesman · May 22, 2018

athena53 said:
And that's why I'll never remarry someone who can't fund his own LTC.

You're a smart woman.
A lot of people think pre-nups will protect their assets.
They won't protect assets if your second/third/fourth spouse needs long-term care and applies for Medicaid.

aja8888 · May 23, 2018

athena53 said:
And that's why I'll never remarry someone who can't fund his own LTC.

I think that would be what a lot of us would do if the need to marry again arises. I think I would just skip the marry part myself though!

Banned LTC Salesman · May 23, 2018

Hermit said:
So the answer is "Yes", they do age. After a series is closed, all participants age and there is no younger people coming in to the series. I wonder how it works out for the youngest in a series. They joined early because they were told it will keep the costs low, but when they are the only ones left I wonder what happens?

Your concerns about younger policyholders would be valid if long-term care insurance was priced like medical, auto or home insurance (e.g. next year's premiums are based upon this year's claims).

That's not how long-term care insurance is priced.

Long-term care insurance is "reserve-priced". Reserves are set aside 10, 20, even 30 years in advance of expected claims thereby protecting the younger policyholders even after all the older policyholders have passed away.

Scuba · May 23, 2018

aja8888 said:
I think that would be what a lot of us would do if the need to marry again arises. I think I would just skip the marry part myself though!

My in-laws divorced and FIL is in a nursing home on Medicaid now. MIL visits him and makes sure he has good care but it isn’t bankrupting her. Seems to be a viable option.

Marita40 · May 23, 2018

Banned LTC Salesman said:
If the premium is less than one-half of one percent of your net worth, it's probably worth keeping it.

Curious where you got this formulation: I never heard it before. I am single and my annual Genworth premium is $3400. I bought it at $2300 at age 55 and I'm now 61. That's a big rise, obviously, but it is still way below one-half of one percent of my net worth and is very good coverage. I keep it because my own research has demonstrated that it is a bargain, still, for the coverage, at least in terms of what my dollars would buy today.

Genworth LTC strikes again

Give me a museum and I'll fill it. (Picasso) Give me a forum ...

Give me a museum and I'll fill it. (Picasso) Give

Thinks s/he gets paid by the post

Thinks s/he gets paid by the post

Thinks s/he gets paid by the post

Give me a museum and I'll fill it. (Picasso) Give me a forum ...

Thinks s/he gets paid by the post

Give me a museum and I'll fill it. (Picasso) Give me a forum ...

Recycles dryer sheets

Recycles dryer sheets

Recycles dryer sheets

Recycles dryer sheets

Recycles dryer sheets

Recycles dryer sheets

Recycles dryer sheets

Recycles dryer sheets

Recycles dryer sheets

Recycles dryer sheets

Thinks s/he gets paid by the post

Give me a museum and I'll fill it. (Picasso) Give me a forum ...

Recycles dryer sheets

Attachments

Moderator Emeritus

Recycles dryer sheets

Thinks s/he gets paid by the post

Thinks s/he gets paid by the post

Similar threads