Today, the Long-Term Care insurance (LTCI) industry is maturing from its infancy and growing into a more stable product. In this document, Gary Katelman examines the changes that are occurring in Long-Term Care insurance.
We've learned a great deal during the past 20 years. LTCI has grown from a nursing-home-only product with restrictions to benefit access, to the comprehensive designs we know today. The product has endured a wave of mergers and has seen many carriers leave the LTC marketplace as well as others trying to enter it. The market has been chaotic, to say the least.
Companies active in today's arena are not only trying to grasp the resurgence of strong growth in the market, they're also trying to stabilize the product for the future. As a result, the one thing we know will happen as it relates to Long-Term Care insurance is rate increases.
In 2003, several major carriers announced rate hikes on current in-force business. I've witnessed increases from 16% to 50%, depending on the policy series sold. And, I've seen carriers exit and renter the LTCI market with increased rates on many of their product lines.
Why is this happening?
- Persistency: Few LTCI policy owners cancel, so lapse-subsidized actuarial projections are off as it relates to Long-Term Care insurance.
- Today's medical advancements allow people to live longer and lead more active lives, but with a stronger likelihood that they'll suffer later from chronic illness.
- Current investment returns are at historic lows.
I believe that as the LTCI market continues to mature during the next year and a half, rates will stabilize. However, higher rates on new policy series will encourage the need for build-your-own Long-Term Care products instead of pre-packaged ones. And, because claims histories are more readily available today, underwriting criteria will continue to tighten as companies look at the increased risks of multiple chronic health conditions.
With rate increases and the changing marketplace, it's even more important for agents to partner with companies providing expert advice and product designs.