There are very few insurance companies selling individual long term care insurance policies currently. This is a result of a range of factors including initial underpricing/faulty assumptions and the prolonged low interest rate environment. While it can be argued that the faulty assumptions could have been easily avoided such as how you can you provide an unlimited benefit when you have no claims experience to base your pricing, the insurance companies still in the marketplace have made smarter choices in their policy designs. The question is if it it’s too late.
Unfortunately, instead of continuing to try to accurately price and simplify long term care insurance policies, most insurance companies have gone in the other direction and come up with more complex policies with many moving parts while combining them with life insurance policies. As discussed, universal life insurance policies have had their own issues with under-performance – policies terminating prior than anticipated and/or higher than projected premiums. So combining two types of policies that have had issues on their own into a single policy ignores the basic tenet of two wrongs don’t make a right. If you have two unsuccessful products, it’s doubtful that you can mix them together and come up with a successful product.
The focus should be on creating a thriving individual long term care insurance policy marketplace with policies offering a useful benefit structure with reasonable pricing that is easy to understand.
The question has come up about what happens if an insurance company can’t make it financially. Insurance companies do not simply vanish, there is a whole process that they go through if they are not financially viable that is dictated by Insurance Regulations. Insurance regulators continuously monitor insurance companies through the use of Risk Based Capital which is a tool that is used to give regulators legal authority to take control of an insurance company. Risk based capital is not the only tool used by insurance regulators, however Under the RBC system, regulators have the authority and statutory mandate to take preventive and corrective measures that vary depending on the capital deficiency indicated by the RBC result. These preventive and corrective measures are designed to provide for early regulatory intervention to correct problems before insolvencies become inevitable, thereby minimizing the number and adverse impact of insolvencies.
The NAIC RBC formula generates the regulatory minimum amount of capital that a company is required to maintain to avoid regulatory action. There are four levels of action that a company can trigger under the formula: company action, regulatory action, authorized control and mandatory control levels. Each RBC level requires some particular action on the part of the regulator, the company, or both. For example, an insurer that breaches the Company Action Level must produce a plan to restore its RBC levels. This could include adding capital, purchasing reinsurance, reducing the amount of insurance it writes, or pursuing a merger or acquisition.
The NAIC RBC system operates as a tripwire system that gives regulators clear legal authority to intervene in the business affairs of an insurer that triggers one of the action levels specified in the RBC law. As a tripwire system, RBC alerts regulators to undercapitalized companies while there is still time for the regulators to react quickly and effectively to minimize the overall costs associated with insolvency. In addition, the RBC results may be used to intervene when a company is found to be in hazardous condition in the course of an examination.
In a worst case scenario, policy holders have some protection through their State Life and Health Insurance Guaranty Associations (check out the National Organization of Life and Health Insurance Guaranty Association website for more information and links to your state’s guaranty association. If you have a Penn Treaty policy or are interested in the process, read Maryland issues consumer directive for Penn Treaty liquidation.
In the good news category, Genworth, which has the largest share of the long term care insurance marketplace announced, Genworth Beats Earnings Expectations in Q1. The proposed sale of Genworth to China Oceanwide is still ongoing regulatory review and possibly being held up for other reasons.
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