A Troubled History
To be sure , the long-term-care insurance industry has a troubled history . In the 1970s , when LTC policies first became widely available , there were as many as 100 carriers . Today there are only about a dozen providers of traditional coverage . One by one , they exited the business as their liabilities grew — and as customers lived longer and healthcare expenses grew faster than expected . “ The industry is in a continual state of trying to catch up to previous pricing missteps ,” says Tom Beauregard , founder and CEO of HCG Secure in Goshen , Conn .
These pricing missteps are largely attributed to insufficient actuarial data in those early years of the industry . Policyholders kept their policies instead of canceling or letting them lapse , explains Todd Wolfe , a senior insurance associate at Telemus Capital in Southfield , Mich . They also used them to file expensive claims more than was anticipated , he says .
The shadow cast by these problems still lingers . “ The LTC insurance market continues to struggle ,” says F . Michael Zovistoski , a managing director at UHY Advisors NY in Albany , N . Y . “ We are seeing fewer new policies being written .”
The Best News In Years
Yet other experts see a potential bright side to the highest interest rates in more than a decade .
Carriers are likely to “ prop up their margins and perhaps profitability ,” says Len Hayduchok , president of Dedicated Financial Services in Rehoboth Beach , Del .
The low interest-rate environment , he says , had until now been working against the investment results in carriers ’ portfolios , and that “ reduces the reserve available for claims and profitability .”
Stronger investment revenue — and profits — should mean “ lessening pressure for additional rate action on existing policies and stabilizing premiums for new policies .”
— Robert Bain , Edelman Financial Engines
Stronger investment revenue — and profits — should mean “ lessening pressure for additional rate action on existing policies and stabilizing premiums for new policies ,” says Robert Bain of the advanced planning strategy team at Edelman Financial Engines in Fairfax , Va .
Overall , this is “ incredibly good news for traditional long-term-care insurers — perhaps the best news in years ,” says Jesse Slome , director of the American Association for Long-Term Care Insurance , an industry group in Westlake Village , Calif .
The benefit won ’ t be felt immediately , he says , but it should be “ of significant value ” in the long run . Carriers will be “ in better financial condition to pay future claims ,” says Slome , and should have less reason to raise rates .
“ In fact , if interest rates remain at the current levels , I predict you might even see some rate adjustments on new policy pricing for certain features ,” he says .
“ This won ’ t happen overnight but could take place in 2024 .”
Hybrid Policies In the world of LTC insurance , there are two broad types . Stand-alone policies are the traditional ones . But socalled hybrid policies , which are linked to life insurance or annuities , could be among the first to reap the advantages of higher interest rates .
These plans guarantee a payout , whether as a long-term-care benefit or a life insurance or annuity distribution , and generally have less stringent underwriting standards than traditional LTC plans . They “ eclipsed the sales volume of traditional policies a few years ago , and that trend continues today ,” says Kevin Patrick Peters , a wealth advisor at XML Financial Group in Bethesda , Md .
Hybrids also tend to be more expensive than traditional plans — but for some of them , the premiums are already coming down , says Peters , “ some as much as 25 %.” The premiums , he adds , are guaranteed not to increase , “ and there is often just enough life insurance built into the product to recuperate the premium if benefits are never used for LTC , satisfying the ‘ use it or lose it ’ concern .”
Still , the repricing of new long-termcare plans has not translated into an across-the-board increase in benefits , says Michael Dugal , a financial planner at the Sentinel Group in Boston . He adds that has led “ to some fairly significant disparity between different carriers .”
So it pays to shop around , not least because long-term care is too expensive to bear without insurance — a fact that isn ’ t lost on the nation ’ s leaders . In 2019 , Washington state became the first to pass a comprehensive , public LTC benefit , funded through a payroll tax . It ’ s due to start in July 2026 , and other states have similar plans in the works .
“ All states will have to confront this ,” says Shane Johnson , a senior partner at Perspective Financial Group , an Alera Group company , in Berwyn , Pa . “ The question is how and where does it fall in their order of priorities .”
JUNE 2023 | FINANCIAL ADVISOR MAGAZINE | 53