"The important thing about these reformatted anonymous case histories is they do a much better job than previous case histories of identifying the rationale the commission used in reaching its decisions," Shaw says. "Previously, you couldn't figure out how the commission got from identifying the facts and violations to imposing the sanctions."
Rx Needed For Long-Term Health Care Companies
Even as more folks realize that long-term care (LTC) can have an outsized impact on their long-term financial health, and some financial advisors are incorporating this into their planning, many LTC health carriers are struggling in this capital-intensive industry.
According to a recent report from A.M. Best, the insurance rating company, most of the small- to mid-sized LTC companies it monitors are consistently unprofitable on their LTC book of business. In addition, these companies-and monoline LTC underwriters in general-face challenges in maintaining necessary surplus levels.
The reasons are many. For starters, the current low-interest rate environment has buffeted insurers because a sizable amount of claim payments are financed through fixed-income investments. On top of that, investment losses during the downturn, coupled with higher expenses and the need to boost claims reserves, are impacting the bottom line.
In addition, LTC pricing is based on assumptions that a high percentage of policyholders will drop coverage, resulting in fewer claims. But more people-particularly elderly policyholders-are maintaining coverage, and liabilities are rising as people live longer.
Jeffrey Lane, senior financial analyst at A.M. Best, says many LTC policies--particularly those written before 2002--were mispriced. "They had weaker medical underwriting, didn't anticipate life spans increasing, and used inaccurate assumptions for interest rates," he says. "In addition, they didn't anticipate increased medical costs or the costs of health-care facilities."
Lane adds that pricing and underwriting on newer LTC policies have improved, but that the 30-year-old LTC industry will probably need more time to get it right when it comes to true claims experience.
As for companies stuck with poorly written LTC policies, Lane believes these companies will have to boost rates to bolster reserves. But state regulators have been slow to approve rate hikes on the older books of business at the requested amounts. In short, these older policies are a drag on profits.
A.M. Best says few options exist to fix the mispriced older policies, and that selling those blocks won't be easy because there are few interested buyers.
Lane says larger LTC carriers with more diversified operations and more access to capital are better able to withstand these challenges. As such, these types of companies have maintained "superior" ratings (A+ to A++) during the past decade.
The top five in the LTC space are Genworth, Bankers Life & Casualty, John Hancock, MetLife and Transamerica.