The Future of Long-Term Care Insurance Looks Uncertain, Says Moody’s

Big-name providers fleeing the long-term care insurance market—think MetLife and Prudential—has contributed to uncertainty of the sector’s future, according to Moody’s Investors Services in a new report.

The U.S. population is aging and will almost certainly need non-medical coverage on a major scale, but persistent losses, a challenging operating environment, and the exit of key players have made for a risky product as it currently stands, says Moody’s.

“Key credit considerations for the sector are the relative newness of long-term care insurance and the long-tailed and complex product structure, which make it difficult to price the product profitably and to reserve for,” said Laura Bazer, a vice president at Moody’s and author of the report in a statement.

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The product is fairly young, as it wasn’t widely marketed until the 1980s, so the industry’s “relatively limited” claims experience paired with “significant benefit optionality” and long policy horizons have been key challenges thus far for providers.

Many early policies offered benefits that were too generous relative to factors such as actual benefit utilization rates and lapses, according to the investor services firm.

“While recent hefty reserve and rate increases could improve the profitability of legacy blocks, or at least stem losses, persistent low interest rates and anti-selection could confound the remediation process,” said Bazer.

These days, the long-term care insurance product is better-designed and priced as providers seek to reduce their risk. Changes include more restricted benefits and payout periods, as well as “combination policies” that offer long-term care combined with a life insurance policy or an annuity contract. But there’s danger that potential consumers will balk at less benefits for higher rates, forcing a decrease in sales.

For now, price hikes are helping insurers stay in business, but many seniors on fixed incomes won’t be able to sustainably afford higher rates. That opens the possibility for regulators to reject or limit new rate requests, said Bazer.

The bottom line, says Moody’s, is that five key firms have exited or retreated from the market since 2010, leaving just one dominant player (Genworth) and putting the sustainability of current sales volumes and the viability of the entire market in question.

Access the full report here.

Written by Alyssa Gerace

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