Over the past few months, we have witnessed a major reduction of players in the LTC market. It started with John Hancock pulling out of the multi-life and group market, a clear sign that they were looking to limit their exposure. This was followed shortly by MetLife's announcement that they were withdrawing from the market entirely. Why did two of the biggest players in the LTC market suddenly decide to jump ship?... They were facing the perfect storm!
Carriers that had been the LTC market since the beginning, used to be held in high regard. They were experienced, not some newcomer looking to ride the wave of awareness that has swept the nation. However, we have since learned that these trailblazers are getting hammered when it comes to claims.
Due to the relative newness of long-term care insurance, very little actuarial data exists to help carriers price their products. As a result, they missed BADLY. Lapse rates are much lower than expected. More claims are being filed and they are lasting longer than ever anticipated. LTC carriers have been hemorrhaging money over the last few years on these older blocks of business.
Combine these pricing mistakes with the current economic environment and you have created the perfect storm.
Will the long-term care insurance industry survive? Yes, but not in its present form. Over the next few years, LTC carriers will have to make hard choices when it comes to policy design and pricing. It has become evident, that the current model is not sustainable. What will the next generation of products look like? Who knows? We will have to wait for the clouds to clear.
News, updates, and discussions from the world of disability and long-term care insurance
