UPDATE: MetLife Discontinues Sales Of Long-Term Care Coverage
November 11 2010 - 5:23PM
Dow Jones News
MetLife Inc. (MET) said Thursday it will halt sales of long-term
care insurance, a type of coverage that has repeatedly flummoxed
insurers and forced some to pay significantly more in claims than
they expected.
MetLife is among the bigger sellers of the coverage, with about
600,000 policyholders among the eight million who have long-term
care insurance in the U.S., according to the company and an
industry trade association.
MetLife joins a parade of insurers that have exited the business
rather than try to fight for customers in the small, but tricky,
market. Many life insurers, having suffered losses in the financial
crisis, have been rethinking product lines from long-term care to
retirement offerings to reduce their exposure to volatile
markets.
With long-term care, other insurers have raised prices and
continue to seek approval for price increases from state regulators
to offset costs they didn't anticipate. Policyholders are living
longer and generating more in claims than initially projected,
industry participants say.
In addition, they say, customers have held on to the policies at
a rate many insurers didn't expect. Those lower lapse rates in the
first years of the policy translate into more people filing claims
years later.
Lately, the ultralow interest rates are hurting insurers'
investment returns, making it even harder to earn a profit on the
policies. The American Association for Long-Term Care Insurance
estimates insurers need a 10% to 15% increase in premiums to offset
every 1 percentage-point decline in long-term interest rates.
"In any environment, it's expensive for the companies that sell
it and it has tremendous future risks associated with it," said
Jesse Slome, the association's executive director. "The current
economic situation makes this an especially difficult business
right now."
While several strong companies continue selling the coverage, he
said, others are concluding they can make better use of their
limited capital by selling something else.
Allianz SE (ALV.XE) and Minnesota Life Insurance Co., a
subsidiary of Securian Financial Group, Inc., are among the
companies that halted sales of long-term care insurance in the last
two years. Cutting off new sales doesn't affect existing customers
as long as they keep paying their premiums.
Policies sold years ago are still creating problems for some
companies. CNO Financial Group Inc. (CNO), formerly Conseco Inc.,
spun off a long-term care company with more than 140,000 customers
to an independent trust in 2008 to cap its losses after plowing
more than $1 billion into the unit that sold the ill-fated
policies.
Though Broker World magazine ranked MetLife fourth in U.S. sales
of individual long-term care policies in 2009, the coverage has
never been a major part of MetLife's business. Its 600,000
customers with the policies are a fraction of its 90 million
customers overall. It began the coverage in 1986.
Its $36 million in sales last year were dwarfed by perennial
industry leaders John Hancock Financial, at $116 million, and
Genworth Financial Inc. (GNW), at $108 million, according to Broker
World. John Hancock recently said it would ask state regulators for
an average 40% increase for about 850,000 of its 1.1 million
policyholders. The insurer, a unit of Manulife Financial Corp.
(MFC.T), also suspended sales of new long-term-care plans to
employer-benefits programs.
Despite the difficulties, some companies say they've figured out
how to price the coverage. New York Life, which has sold the
product since 1988, says it has never raised rates for customers
once they've purchased a long-term care policy. Northwestern Mutual
says it hasn't raised rates at all since it started offering the
coverage in 1998.
Michael Gallo, the senior vice president in charge of long term
care for New York Life, said the company's coverage used to be
"significantly more expensive than some other companies. But
frankly, we didn't really chase market share." Now, he said,
there's less of a difference in prices as rivals have been forced
to boost rates.
For consumers interested in the product, brokers suggest looking
for a carrier with a history of price stability. Claude Thau, an
insurance broker who, as president of Thau Inc., also consults to
insurers, also suggests choosing a policy issued under a new
product line because it is likely to be "priced with more-current
assumptions." The premiums on such policies may be higher but are
more likely to remain stable over time, he says.
Those concerned about future premium increases can ask the
carrier to let them make higher payments over a shorter period of
time, such as five or 10 years, to avoid premium hikes that would
hit those still paying on an annual basis after that.
-By Erik Holm, Dow Jones Newswires; 212-416-2892;
erik.holm@dowjones.com
(Tess Stynes and Leslie Scism contributed to this article.)