Posted on 12 Nov 2010
MetLife Inc., which is among the bigger sellers of long-term care coverage with about 600,000 policyholders among the eight million who have long-term care insurance in the U.S., announced that it will not longer sell this type of insurance.
The insurer joins a list of companieshat have exited the business rather than try to fight for customers in the small, but tricky, market. Many life insurers, having suffered losses in the financial crisis, have been rethinking product lines from long-term care to retirement offerings to reduce their exposure to volatile markets.
With long-term care, other insurers have raised prices and continue to seek approval for price increases from state regulators to offset costs they didn't anticipate. Policyholders are living longer and generating more in claims than initially projected, industry participants say.
In addition, they say, customers have held on to the policies at a rate many insurers didn't expect. Those lower lapse rates in the first years of the policy translate into more people filing claims years later.
Lately, the ultralow interest rates are hurting insurers' investment returns, making it even harder to earn a profit on the policies. The American Association for Long-Term Care Insurance estimates insurers need a 10% to 15% increase in premiums to offset every 1 percentage-point decline in long-term interest rates.
"In any environment, it's expensive for the companies that sell it and it has tremendous future risks associated with it," said Jesse Slome, the association's executive director. "The current economic situation makes this an especially difficult business right now."
While several strong companies continue selling the coverage, he said, others are concluding they can make better use of their limited capital by selling something else.
Allianz SE and Minnesota Life Insurance Co., a subsidiary of Securian Financial Group, Inc., are among the companies that halted sales of long-term care insurance in the last two years. Cutting off new sales doesn't affect existing customers as long as they keep paying their premiums.
Policies sold years ago are still creating problems for some companies. CNO Financial Group Inc. (CNO), formerly Conseco Inc., spun off a long-term care company with more than 140,000 customers to an independent trust in 2008 to cap its losses after plowing more than $1 billion into the unit that sold the ill-fated policies.
Though Broker World magazine ranked MetLife fourth in U.S. sales of individual long-term care policies in 2009, the coverage has never been a major part of MetLife's business. Its 600,000 customers with the policies are a fraction of its 90 million customers overall. It began the coverage in 1986.
Its $36 million in sales last year were dwarfed by perennial industry leaders John Hancock Financial, at $116 million, and Genworth Financial Inc. (GNW), at $108 million, according to Broker World. John Hancock recently said it would ask state regulators for an average 40% increase for about 850,000 of its 1.1 million policyholders. The insurer, a unit of Manulife Financial Corp., also suspended sales of new long-term-care plans to employer-benefits programs.
Despite the difficulties, some companies say they've figured out how to price the coverage. New York Life, which has sold the product since 1988, says it has never raised rates for customers once they've purchased a long-term care policy. Northwestern Mutual says it hasn't raised rates at all since it started offering the coverage in 1998.
Michael Gallo, the senior vice president in charge of long term care for New York Life, said the company's coverage used to be "significantly more expensive than some other companies. But frankly, we didn't really chase market share." Now, he said, there's less of a difference in prices as rivals have been forced to boost rates.
For consumers interested in the product, brokers suggest looking for a carrier with a history of price stability. Claude Thau, an insurance broker who, as president of Thau Inc., also consults to insurers, also suggests choosing a policy issued under a new product line because it is likely to be "priced with more-current assumptions." The premiums on such policies may be higher but are more likely to remain stable over time, he says.
Those concerned about future premium increases can ask the carrier to let them make higher payments over a shorter period of time, such as five or 10 years, to avoid premium hikes that would hit those still paying on an annual basis after that.