There are questions about the future of the group long-term care market, as two insurers have stopped offering the product in the past 17 months.
In November 2010, MetLife announced it would discontinue the sale of new LTC insurance, and Unum announced it would do the same for group sales in February. This leaves just two companies - Genworth and Prudential - offering group LTC insurance.
Interest rates
The main reason why MetLife and Unum stopped offering the product is because of interest rates, says Jesse Slome, executive director of the Westlake Village, Calif.-based American Association for Long-Term Care Insurance.
"Interest rates are historically low and the Federal Reserve has basically said we have no plans to raise interest yields for the next several years," he says. "Half of the dollars to pay [claims] comes from investment return, and when you're getting zero to 1%, you look and only have two options," raise premiums or realize it isn't a viable product.
With the interest rates so low, it was nearly impossible for the companies to make a return on investment, believes Barry Fisher, founder and principal of Woodland Hills, Calif.-based Barry J. Fisher/Paradigm Insurance Marketing. "I wasn't in their corporate boardroom, but clearly I'm sure they made the decision that [group LTC] is not a market segment that made the profit that shareholders require."
Slome says it's good business sense not to offer a product you can't make a return on. "The economic reality is an insurance company isn't obligated to sell a product that loses money," he says. "It's much easier for an insurance company to say, 'We have an obligation to stockholders so for the time being we are going to withdraw.'"
Unum says that the company's decision was made after a "careful and comprehensive review of the long-term care market.
"While we recognize there is a market need for products to help individuals pay for long-term care expenses, current economic, pricing and risk factors make [it] impossible for us to meet our financial and risk management objectives," says Gary Bertsch, VP for long-term care at Unum. "As you know, we are not the only insurer to reach this conclusion . . . given the historically low interest rates and the uncertainty of risk and pricing trends."
A shift
One way to now acquire LTC is through voluntary multi-life products, which Slome points out "have been in existence for many years."
LTC Financial Partners, a company selling voluntary multi-life products, believes they are the future. Todd Grove, national director for worksite solutions of the Kirkland, Wash.-based company, says that the group platform does not work well for LTC, but worksite sales do, "because it allows for the flexibly that is necessary on the contract designs."
The future
Slome says that while it is hard to predict the future, he does not believe that Genworth and Prudential will stop offering group LTC. "Less competition can be good if there is interest in your product," he says. "That said, who can predict the future? Nobody five years ago would have predicted sustained interest rates at these levels."
Debra Newman, founder of Richfield, Minn.-based Newman Long Term Care, believes that even with the pull outs, LTC is gaining traction. "We are still going to have a robust individual marketplace so the people making decisions about their financial security are still going to buy long-term care insurance independent of their employers."
