Update: Prudential Financial Latest US Life Insurer to Exit Individual Long-Term Care
By Fran Lysiak | |
A.M. Best Company, Inc. |
(Corrects information in the sixth paragraph.)
The current low interest rates, as well as uncertainty around interest rates in the future, were both factors in deciding to exit the individual LTC insurance market, said
As long as premiums are paid on time, and benefits aren't exhausted, coverage will remain in place, but premiums can be changed subject to regulatory approval, Prudential said. New customers can submit applications through
In
"People are holding on to their policies longer than companies expected and companies did not anticipate interest rates would be this low when they priced their older products," said
When a company's policy pricing assumed a 4% to 6% return but actual returns are significantly lower, "the financial pressure is enormous," and it becomes a "downward spiral" when the Federal Reserve signals no intent to increase rates for a couple years, Slome said.
At year-end 2011, Prudential had 85,730 policies in force in the individual LTC insurance business, which were generating
From a revenue standpoint, individual LTC isn't a big part of Prudential's overall business, Bridgeforth said.
The average yearly premium on an individual LTC policy is about
A problem for insurers is it's not easy to get rate increases approved by regulators on older blocks, particularly in some states, Austin said. It creates bad press "if companies are known to be going after 40% rate increases to seniors on fixed incomes."
The policies needing the largest rate increases are those older blocks of business with inflation riders and/or very rich in benefits, Austin said, noting people who drop their policy due to price will have a difficult time finding comparable replacement.
Policies that include 5% compound inflation growth are no longer sustainable when investment returns are 1%, Slome said.
Meanwhile, the federal CLASS Act, which would have created a federal LTC program, was shelved because neither political party is looking to address "the financial tsunami" called LTC that's approaching, Slome said. Insurers aren't required to sell LTC insurance, Slome said.
According to industry research organization LIMRA, new annualized premium for individual LTC in 2011 rose 4% from 2010 to
The top five individual LTC insurance carriers in 2011, based on in-force business, in alphabetical order, were
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