Home > Employee Benefits > Long Term Care – pricing has been a consistent problem

Long Term Care – pricing has been a consistent problem

The recent announcement from John Hancock Financial to raise their long term care (LTC) premiums by an average of 40% may have come as a shock for some, but for the last decade, pricing for individual LTC has been a tumultuous task for the majority of companies in the LTC market. This market began developing in the mid-80’s with many companies offering basic LTC policies. In 1996 with the passing of HIPPA and the tax incentives placed on tax-qualified long term care policies, carriers enhanced their plans and the competition increased dramatically. The problem was that carriers and their actuaries were not accurate with their pricing assumptions. The first incorrect assumption was the lapse rate for individual long term care (ILTC) policies. ILTC was priced with approximately 8% to 10% lapse ratio, however companies were experiencing less than 4%. This makes sense when you think about the process and investment when purchasing ILTC.  Applicant’s do not go through a month long underwriting process and invest thousands of dollars to lapse their coverage down the road. They invest their time, share their personal medical records and commit to substantial premium dollars because they want to keep the coverage until they need it. The second incorrect assumption was the applicant’s average age. Carrier’s encouraged their distribution forces to market to younger ages and drive down the average age of the applicant. Again, this proved to be too difficult and LTC carriers were left with an older block of business which left them limited years to establish healthy reserves and grow interest on the premium payments. John Hancock my be the vilified company publicly, due to their recent announcement to increase rates, but this problem has been consistent with the ILTC market for the last 10 to 12 years.

Group Long Term Care (GLTC) has had greater profitability and hasn’t experienced the turmoil of the individual market due to their ability to attract younger applicants at the worksite, reduce carrier underwriting expenses with guarantee issue coverage for active employees, and produce higher lapse ratios given that the coverage is associated with the employer offering the coverage. All of these facts support a more profitable block of Long Term Care insurance. The lack of premium increases for GLTC policies supports these favorable attributes for the GLTC market. Of course that’s not to say GLTC will not experience some pricing fluctuation, but the group LTC market appears to be in a healthier state than the individual LTC market given the pricing actions from LTC carriers.

For more information, click here to view WGA’s latest White paper on Long Term Care which also includes a look at how valuable eldercare resources can be for an employer.

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William Gallagher Associates is a leading provider of insurance brokerage, risk management and employee benefits services to firms with complex risks and dynamic needs, within industries that include technology, life sciences, financial risks, health care, renewable energy & clean technology, and environmental services. WGA has offices in Boston, MA; New York, NY; Hartford, CT; Princeton, NJ; Columbia, MD; and Atlanta, GA.

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  1. August 4, 2014 at 9:06 am

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