Friday, November 12, 2010

Problems in the Long Term Care Insurance Market

One of the more frequent conversations I have in client meetings these days is about long-term care insurance (LTC).

All of us will eventually face the need for more help as we get older (as my mother points out, the alternative to getting older is not attractive to most people). Although medical technology has developed more ways to live longer, we still have not figured out how to help people live their later years in a safe environment without bankrupting their life savings.

The appeal of LTC insurance is to meet these needs. Problem is, even the insurance companies don't know how to correctly price these policies. No one knows, for example, how long someone might need assistance with the daily chores of everyday life. Moreover,with medical costs rising faster than inflation, and low interest rates hurting investment returns on insurance company portfolios, many insurance companies are finding that writing LTC policies is simply not attractive.

This morning's Lex column in the Financial Times notes that MetLife announced yesterday that it will stop writing LTC policies. Met, along with many other insurers, had once thought the market for LTC would be an attractive one from them, but it has turned out otherwise.

Here's an excerpt from the piece, with the full link below:

Insurer MetLife announced on Thursday that it will stop writing long-term care (LTC) policies, a segment thought less than a decade ago to be one of the brightest growth areas for the industry as baby boomers prepared for retirement. Medical cost inflation, rising life expectancies and poor investment returns have instead made it a disaster. Several small insurers have stopped issuing new policies in the past decade and, of those in the business, the average LTC financial strength rating by AM Best has dropped four notches to C++.

What policies are still on offer are becoming less attractive due to high premiums. Consider that Medicare will only pay for a full 20 and partial 80 days of nursing home care while the median cost has been rising nearly 5 per cent a year to $75,190 annually according to Genworth Financial. Policies could keep paying far longer than expected as more otherwise healthy seniors suffer from maladies like dementia. / Lex - Fixed rate blues