Moody's recently painted a predictably glum future for the long-term care insurance (LTCi) industry, calling it "uncertain…as it may be difficult for firms to profit from the product."
Laura Bazer, a Moody's vice-president, described the challenges facing the 40-year old product line. "The relative newness of LTCi and the long-tailed and complex product structure…make it difficult to price…profitably," Bazer said.
The dominant narrative in 2012 has been the number of carriers exiting the industry, always spun in one direction: "The product isn't viable."
The media have already reached their conclusion, and now they spin everything to fit their narrative.
Allow me to suggest another point of view: When carriers exit the field it's a sign of healthy competition; their departure is the natural disposition of capitalism. There's nothing catastrophic or explosive about it, and it goes on every day in every industry, routinely.
If we're going to wring our hands over the number of carriers "left" that now offer LTC insurance, it presumes we know the "correct" number of carriers that should offer LTC insurance. All right, how many is the right number? Is it two, or 20, or 200? As we formulate an answer, let's keep the following in mind:
1. LTCi didn't spring forth in 1972 like a "Big Bang" and expand to 200 carriers in milliseconds. Instead, our industry has evolved like a Bell curve—first there were a few pioneers, followed by imitators.
2. By comparison, how have other maturing industries evolved over time in terms of the number of competitors? Do consumers feel like we have adequate choice in the number of major airlines, cellular phone carriers, political parties, or fast food chains? For many categories, it would be unusual to support more than three to five national power players, or 10 to 12 on a regional or specialty basis. Would you be surprised to learn that 20 LTCi carriers sold new business in 2011?
3. My standing proposition to anyone who would cast a mote in LTCi's eye is to respond with, "What's the alternative?" That's not simply a flip attempt to deflect attention from our own industry's shortcomings—rather, it's a reminder that until the United States can answer the question, private LTCi remains the most viable solution.
