Will MetLife try to sell their current book, or just let it run off?
Ha
From what I recall they would keep existing policies - but expect rate increases.
DD
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They could deal with anti-selection using a Single Premium approach. You get a physical and medical checks. You undergo risk based underwriting and are rated somehow. Then you payup the full amount (like an annuity SP).... no backing out. The problem with this idea is that it would reduce the number of participants. Many more people can pay a payment monthly/yearly than can product a large Single Premium (e.g. $100k in current $).
But if the LTC were a catastrophic policy... for example: the insure bears the cost of the first year (about $100k) and the insurance company picks up the 2nd year forward... the premium cost would probably be reduced significantly. This might allow a single premium approach (no backing out) to work due to a smaller payment. But it would still be a substantial payment.
DH & I purchased a rated, compound index @ then 90% of cost of care, no limit term, joint 10-year paid up with a 90 day wait for a total of ~ $40,000 in our mid 50s (15 years ago) from a well known insurer. I hope their actuaries were spot on as, God willing, it will take us years before we file a claim.
It does, (you can Google "CLASS Act" for more on it). It's an optional program, the benefits are fairly low (IIRC $50 per day), and no one is sure what the premiums will be. It's supposed to be self-funded and have no underwriting, so I'm guessing it will either:I thought the Health Care Reform bill contained some sort of LTC component that would kick in after 5 years of w%rk.
DD
This is a LTC policy, no life insurance at all. Allianz
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Some other insurance companies have exited the market in the last few years.
Bottom line... they want to make a certain predictable profit margin. If they have trouble predicting then they lower risk by jacking up premiums. When the premiums increase, the market gets smaller because some people exit the plan.
I suspect the financial crisis and the economy has caused an increase in the ratio of people who will file a claim to those that will not due to anti-selection. People who are healthy drop the policy (as prices rise) and the sick keep it. Companies that priced their products wrong are probably feeling the sting.
This financial crisis is shaking out the dead wood!
In some ways, the bigger the pool, the lower the cost (assuming little anti-selection). 2 or 3 large carriers would be more optimum... larger pool to spread the risk. But there is often a problem with oligopolies over charging.
No matter what the cause... insurance companies need to be able to reliably project profitability and make a profit on the product line.
In the end... I think the government will have to create a private industry catastrophic back stop (like flood insurance) to make it a viable private industry. This would also lower premium prices and consequently increase LTC insurance participation.
For example: Private insurance is capped at $250k (indexed to general inflation). A govt fund picks up the slack. Insurance companies contribute some premium to the govt fund. It would have to be tightly regulated with very strict risk based capital requirements to ensure an insurance company did not game the system and make a bunch of cash and then exit or leave the govt to pay for it. All of this could be effectively regulated.
There are 2 basic things that need to be established to make LTC Insurance work for everyone:
- Insurance company profit with manageable risk to them
- Affordable premium to increase participation such that there is a large pool of participant (with little ability for anti-selection).
They could deal with anti-selection using a Single Premium approach. You get a physical and medical checks. You undergo risk based underwriting and are rated somehow. Then you payup the full amount (like an annuity SP).... no backing out. The problem with this idea is that it would reduce the number of participants. Many more people can pay a payment monthly/yearly than can product a large Single Premium (e.g. $100k in current $).
But if the LTC were a catastrophic policy... for example: the insure bears the cost of the first year (about $100k) and the insurance company picks up the 2nd year forward... the premium cost would probably be reduced significantly. This might allow a single premium approach (no backing out) to work due to a smaller payment. But it would still be a substantial payment.
The controversial part is that all the premiums collected are counted as "reducing the cost of health care" and served to reduce the overall price of the healthcare law, but the very large subsequent liability for all that upcoming LTC was pretty much beyond the 10 year window used by the CBO in their calculations of the cost of the bill. So, [-]some[/-] anyone with a calculator will view it as more of a way to hide the true cost of the legislation than a meaningful LTC initiative.
Some other insurance companies have exited the market in the last few years.
Bottom line... they want to make a certain predictable profit margin. If they have trouble predicting then they lower risk by jacking up premiums. When the premiums increase, the market gets smaller because some people exit the plan.
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I spoke with the head actuary of a large insurance company who recently stopped offering LTC.
He said other the drop off in long term interest rates, the largest factor that caused them to exit the business was that the persistency of LTC policies has been off the charts which they didn't plan for.
I saw that in an article on Genworth LTC policies.
They did such a good job of [-]frightening[/-] convincing people to get these that folks are afraid to abandon the policies. More afraid than they had calculated. It's interesting that the profitability of these depends on a certain number of folks abandoning the policies before needing them.
Thanks for posting this--I had a read a reference to this issue, but interesting to see it from the "horse's mouth". The best word I can think to describe this, is "troubling". As you pointed out, on one hand, Genworth has a sales force encouraging people to buy these policies, and on the other hand, the pricing set by the actuaries assumes (hopes?) that a certain number of folks will abandon their policies. I understand that there will be a sort of natural "attrition" for any product bought over time, but it just rubs me the wrong way that this is part of the business model--success/profitability is predicated on how many people abandon thier policies before Genworth has to payout any benefits.
Every long term insurance policy (i.e. life insurance, health insurance, disability, etc) has a certain lapse ratio built into the price of the product, not just LTC.