Rising interest rates helping to stabilize long-term care insurance policies

SALT LAKE CITY – When interest rates rose, it meant good news for insurers holding books of long-term care insurance policies. Or at least it should have.

But LTC insurers "didn't buy into it right away," said Steve Cox, head of life and combination products for Life Innovators, an independent product development company. After all, LTC insurers have been burned by bad actuarial projections in the past.

Bond yields started rising sharply in December 2021, but it took six months before any LTC insurers took any pricing actions, Cox noted.

"Companies started to get a little more confident" by the summer of 2022, Cox said. He was joined by Erik Wenzel, director, actuary for Assured Allies, an insurtech company working in the LTC market. They presented a session on LTCi trends at the LIMRA Life Insurance and Annuities Conference.

Rising interest rates allow insurers to make a greater return on investments, and reduce premium rates on products. After some initial premium adjustments in mid-2022, LTC insurers started trusting the new higher interest-rate environment as the year came to a close, Cox noted.

"We saw this huge wave of pricing changes that the market was in a little bit of turmoil about," he said. Securian led the way with a 25% decrease.

LTCi is needed but has a long and troubled history of inaccurate assumptions. Many carriers have either left the LTCi business entirely, are seeking repeated rate hikes, or both. But the market should remain stable for the near future as long as interest rates remain at least in the 5% range, Cox said.

"It's been an exciting market to watch over these last 18 months," he added.

Annuities and long-term care insurance

Wenzel followed and talked about the potential for annuity product with LTC riders. Sales of these products are currently small -- just four carriers selling about $1 billion of these "hybrid" products in 2022, he said.

But these products could solve a lot of issues for older Americans, Wenzel said. He presented four "barriers" to annuity/LTC hybrid products:

1. Morbidity risk. Morbidity risk is not well understood by carriers and therefore avoided, Wenzel said. "Most carriers don't want anything to do with morbidity risk," he said.

But annuities with long-term care insurance are actually "less sensitive" to morbidity risk than standalone LTCi, he added. Introducing wellness programs with LTCi can further help manage morbidity, as well as delay claims and create customer loyalty.

2. Need for underwriting. A hybrid annuity with LTC is a unique niche since annuities require not health underwriting, while LTCi can take up to six weeks to get through the underwriting process. There is a need to recognize the uniqueness of the hybrid product, Wenzel said.

3. Possibility of rejection. The possibility of rejection is a real fear for producers who might not want to devote a lot of time and effort to a case that gets rejected in the end, Wenzel said.

4. Cost of LTC coverage. The cost is something that needs explaining to potential customers and starts with learning what their true needs are, Wenzel said. The Pension Protection Act permits tax-free withdrawals, instead of merely tax-deferred, when the money is used for long-term care, he noted.

Prediction time

Cox and Wenzel concluded with their own five predictions for the future of the long-term care insurance space:

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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