Insurers Hopeful LTC Slump Will Be Short-Lived
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A trend to higher premiums for new long term care insurance policies and continuing departures of insurers from the market were prime factors leading to a decline in sales for LTC products in 2004, say industry observers.
LTC insurers decided to raise prices on new policies after taking a long-term look at profitability, executives for leading carriers say.
The price increases were made easier by the fact that major carriers like Transamerica, TIAA-CREF, CNA and Aegon recently either left the LTC market or announced plans to do so.
"The shakeout explains the lull in sales, and we now are tailing off from that," says Brian Vestergaard, director of LTC products and marketing, Aetna Inc., Hartford. "It was caused by poor pricing and mismanagement. Most of the top carriers either left the market or cut back on sales."
"We think this is a really good business to be in," says Kenneth Grubb, senior vice president of New York Life Insurance Companys long term care operations. "There are companies that have been in the business for a long time but that made mistakes and developed a large in-force block that didnt play out because they made the wrong assumptions. They had to raise rates or exit. That opens up opportunities for other carriers who understand the business better."
Buck Stinson, president of the LTC business of Genworth Financial Inc., Richmond, Va., formerly GE Financial, thinks many agents and brokers have been spooked by the turmoil and price increases in the industry. Their shaken confidence has contributed to the problem, he believes.
"A lot of agents are saying, I dont know who to sell to now," Stinson says.
Michele Van Leer, executive vice president of long term care for John Hancock Life Insurance Company, Boston, expects to see more carriers exiting the business.
LTC insurance, she observes, is "a product line where a company has to have ample capital and specific expertise across every dimension, whether it be pricing, claims management, distribution, marketing and servicing. I dont think everyone [now in the market] has the volume where they will be able to stay in."
Van Leer acknowledges that Hancocks sales of individual LTC policies fell this year even more than the industry as a wholewhich was down 28% as of the 3rd quarter, according to LIMRA.
(Group LTC sales were down 23% in the period, excluding federal employees, LIMRA says.)
"Its not a surprise its been a down year," Van Leer says.
Part of it is due to the price increases. The departure of some carriers played some role in that because it took some of the supply out of the market, she points out.
Another factor in the higher prices also was caused by a positive development, Van Leer believes: an unexpectedly high persistency of the product. In other words, consumers have not been allowing their LTC policies to lapse as often as Hancock and others in the industry had projected originally.
(Lower than expected lapse rates means underwriters had to revise downward their estimates of the profitability of the product.)
Another issue Van Leer points to in the sales slump: do-not-call legislation, which has disrupted producers ability to prospect through cold calling.
"Our producers are finding the number of calls they have to make has gone up significantly to get the same amount of appointments from a given list and geographical radius," Van Leer says.
Industry executives seem confident the sales slump will be short-lived, for a variety of reasons.
One is that the group market is going to be increasingly receptive to offering LTC insurance as part of its benefits package.
"Total group sales for long term care are somewhere between 5% and 10% of our companys total group sales and should pick up a few percentage point over the next few years," says Michael Q. Simonds, vice president of product and market development, UnumProvident Corp., Chattanooga, Tenn. "Its been growing 15% to 20% faster than our other group lines."
