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Long Term Care Insurance - The Truth behind “What’s Bad for GE Will Be Worse for America”
From:
National LTC Network -- Long Term Care Insurance National LTC Network -- Long Term Care Insurance
Kansas City , MO
Thursday, February 08, 2018

 

"The overall point of Bloomberg's recent editorial (What's Bad for GE Will Be Worse for America, 1/29/2018) is important: we need to look more deeply at how we fund long-term custodial care in America. However, the editorial perpetuates several significant misunderstandings," stated Bill Comfort.

First, the LTC business that is at issue with GE is NOT the direct pricing, issuing, and managing of LTC policies (that business was spun-off into Genworth in 2004), but rather the REINSURANCE of other companies' LTC business. In fact Moody's recently issued a report stating that because of the limited scope of policies backed by GE's reinsurance and GE's indirect ability to manage those blocks, that this is NOT a good example for the health of the rest of the overall LTCI industry.

Second, LTC insurers did NOT miscalculate on how long people would live or how many would go on claim - the "claims rate" or percentage of policyholders who would claim - they have hit that pretty much on the mark. What they missed - dramatically - was the "lapse rate," that is how many policyholders would keep the coverage in-force over the long term.

Most LTC companies in the 1990s priced a disability/individual health insurance lapse rate of about 7%. Interestingly AMEX LTC - the early leader that was acquired by GE Financial now Genworth - priced its lapse rate at 4.5% in 1994, which was thought to be extremely conservative at the time. Actual lapse rate for the LTCI industry: 2%; actual lapse rate for Genworth/GE/AMEX: less than 1%. No financial insurance product EVER had such low lapses; the closest is whole life insurance at 3.5%. This was unknowable and devastating .After the lapse picture started to become clear, the claims issue was not more people (a greater percentage) going on claim, but rather that claims were lasting longer than expected. "We now have 70-times more claims data than in 2000 - it's approaching true "credibility" and not just an estimated assumption," added Comfort.

Finally, our historically-low for historically-long low interest rate environment put the final catastrophic spin into the perfect storm of LTCI rating problems. If long-term reserve earnings were priced at 6-7% (as they'd been for 60+ years in the industry), and all of a sudden new premiums and maturing reserves had to go into 3% bonds it's a problem.

"The Good News is that new business premiums today already have all of these more conservative realities priced-in. Looking forward, LTCI will be, must be, more rate stable. It IS an insurable risk, and it IS now being priced correctly," concluded Comfort.

About National LTC Network Member Bill Comfort

Bill Comfort, CLTC® is the owner of Comfort LTC, with offices in St. Louis, MO, and Raleigh/Durham, NC. Contact him at Bill@ComfortLTC.com  or 314-821-5001

About the National LTC Network

Founded in 1994 as a national alliance of leading long term care insurance experts and distributors, the Network includes some of the largest and most respected long term care insurance distributors in the nation, offering coverage from the Nation’s finest long term care insurance companies.  Network members are dedicated to promoting and distributing long term care insurance with ethics, excellence and integrity. Consumer inquiries are welcomed. 

For further information:   http://www.nltcn.com or email info@nltcn.com.

 
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