More Bad News for Long-Term Care Insurance A Major Carrier Reassess the Business Amidst More Rate Hikes
Genworth Financial GNW +1.7%, the nation’s largest seller of long-term care insurance, is engaged in an “intense, very broad, and deep review of all aspects of our long-term care insurance business,” president and CEO Tom McInerney told investors last week.
Industry sources say the firm could withdraw from the market if it does not win regulatory approval for new rate hikes on about 650,000 older, existing policies. A company spokesman said the firm also needed states to approve changes that would allow the company to sell policies that are more tightly underwritten and that offer shorter benefit periods, lower daily benefits, and other changes.
“We are prepared to take actions such as suspending sales in states and ending new sales through distribution channels where we cannot offer products within an acceptable risk-adjusted return,” the spokesman told me today.
Genworth is aiming for $200 to $300 million in rate hikes on all policies sold between 1974 and 2001 and on one policy sold between 2001 and 2007. So far, McInerney estimates, the firm has received approval for about $115 million in increases from state insurance commissioners. In 2011, Genworth collected about $1.1 billion in premium from these policies.
The LTC insurance business is struggling from a major downturn caused by a combination of higher-than-expected benefits and lower than anticipated returns on investments. The weak investment income is largely due to a long period of historically low interest rates. Long-term care insurance companies earn a significant portion of their revenues from their investments of premium income, nearly always in high-grade bonds.
At the same time, consumer demand for policies remains sluggish. Genworth reported that it sold only $83 million in long-term care policies in the first half of 2013, compared to $128 million in the same period last year.
Earlier this year, Genworth announced it would tighten underwriting standards for new buyers. It has also begun raising premiums for women (who had paid the same as men even though they were more likely to receive benefits). The company is also looking for smaller, more frequent rate hikes on new policies, a shift from the current model where policyholders may go years without an increase but then face the shock of a double-digit rate hike.
In recent years, many of Genworth’s competitors have exited the long-term care market. This spring, Genworth temporarily stopped selling in California, though it returned to that market this week with a revamped product.
Keep in mind that even if a major carrier stops selling new policies, buyers can keep their existing policies as long as they keep paying premiums. Those premiums, however, may be increased.
Genworth’s announcement was yet another sign of an industry in deep trouble. Traditional long-term care insurance remains a useful product but as premiums rise, fewer consumers are likely to buy. A new survey by Broker World magazine reports (behind a firewall) that average premiums for new policies in 2012 rose to $2,449, 5.5 percent more than in 2011. The survey reported that about 233,000 stand-alone policies were sold in 2012, a modest increase over 2011 but far below sales a decade ago. These estimates are similar to an earlier study by industry analyst Marc Cohen.
The Broker World survey reported only about 17 companies are still selling stand-alone policies. Many are mutual companies that are largely immune from Wall Street pressures. Other firms are selling so-called combo products that combine long-term care with various forms of life insurance.
Genworth is one of the last remaining public companies still in the stand-alone business, as others have fallen to investor demands for greater returns and lower risk. Genworth promises to report on the results of its review by the end of the year.