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Anthony Cirillo

Long-Term Care Insurance a Dying Breed

By December 5, 2012

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A report earlier this fall by Moody's Investors Services - "Long-Term Care Insurance: Sector Profile" - says that despite the need for long-term care insurance, the product's future is in question because of persistent losses and a challenging operating environment.

The benefits under early policies were often too generous relative to factors such as actual benefit utilization rates and lapses, according to Moody's. To compensate insurers had to increase reserves and raise rates to improve the profitability of older products.

New, better designed and priced products seek to reduce risks for insurers, with changes including more restricted benefits and payout periods, as well as "combination" policies, which offer long-term care combined with a life insurance policy or an annuity contract.

"Key credit considerations for the sector are the relative newness of long-term care insurance and the long-tailed and complex product structure, which make it difficult to price the product profitably and to reserve for," says Laura Bazer, Moody's vice president and author of the report. "While recent hefty reserve and rate increases could improve the profitability of legacy blocks, or at least stem losses," Bazer says, "persistent low interest rates and anti-selection could confound the remediation process."

Nevertheless, Moody's believes potential buyers may balk at fewer benefits and higher rates, and sales could go down noting that senior citizens on fixed incomes form a highly sensitive constituency and regulators could therefore reject or limit new rate requests.

The exit or retreat of five key firms from the market since 2010 leaves only one dominant player.

MetLife and CUNA Mutual stopped selling LTC in 2010. In 2011, CNA and Berkshire pulled out. This year Prudential stopped selling individual to focus on group sales, while Unum stopped selling group but had previously pulled out of individual sales. Since the CLASS Act died, there are still few solutions to funding long-term care.

Make no mistake, this is a problem for providers. Because with dwindling options for paying for care and dwindling ability to pay for it, people will simply not be able to choose assisted living and nursing homes. And pushes for community-based services only add to the complexity.

Providers need to realize that in some respects as long-term care insurance is a dying breed so is the model for elder care living. People will want to age in place and are preparing their homes to do so. Medical advances are progressing so quickly that people will be monitored safely in their homes.

Administrators, providers and their associations need to think about a different business model and also become part of the solution for figuring out how to fund long-term care services.

Sources: Moody's, Broker World

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