Despite the need for non-medical coverage by an aging population, the future of long term care insurance is in question because of persistent losses and a challenging operating environment within the industry, according to a recent report by Moody’s Investors Service. Many providers have left the market due to poor returns, leaving the future of long-term care insurance in jeopardy.
According to the report, mispriced insurance plans have led to reserve increases, causing sizable losses for some providers over the past two years. The benefits under early policies were often too generous relative to factors such as actual benefit utilization rates and lapses, according to Moody’s. The industry’s relatively limited claims experience, along with significant benefit options and long policy horizons have created difficulties since long term care insurance came on the market in the 1980’s. This has led many providers to either leave the industry altogether or to impose large reserve and rate increases on its subscribers.
Newer long term care insurance products seek to reduce risks for insurers by restricting benefits and payout periods. However, the report notes that potential buyers may balk at fewer benefits and higher rates, and sales could go down. Furthermore, 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, Genworth, in the LTC sector, according to Moody’s. This trend puts the viability of the market overall in question.
Seniors looking for an alternative to the long term care insurance industry should consider asset protection strategies such as gifting or asset protection trusts to shield assets while achieving public medical benefits. To discuss you options for long term care planning contact the Heritage Law Center.
Sources: Moody’s, Insurance Journal