There's no denying the market has been hard hit. The potential liabilities have grown so onerous that John Hancock quit writing new LTC policies last year, and Prudential did a similar about-face in 2012. In 2017, the number of traditional LTC policies sold amounted to just 10 percent of those 20 years earlier.
"One would think that the increase in medical costs is a factor, but it is not," said Lewis Walker, a wealth advisor at Capital Insight Group in Peachtree Corners, Ga. "LTC contract obligations are a fixed benefit with a specific pool of dollars available."
In reaction to rate increases, Walker said, policyholders may scale back coverage or even drop their policies altogether, putting additional pressure on insurers' bottom line. "That trend is accelerating," he said.
Having fewer premium payers to support existing benefits obligations makes for an unsustainable business model. "That's a major squeeze for a Genworth, one of the earlier carriers to offer benefits," said Walker.
But, according to Westermann, fully 78 percent of Genworth's policyholders "elect to pay the rate increase rather than reduce their coverage."
Still, Walker insisted that rate hikes are "scaring off both new applicants and advisors who are dealing with the complaints of clients. We are recommending traditional LTC less and less, finding hybrid policies more attractive."
"Hybrid policies" refers to those that link LTC benefits to life insurance or other products. Clients seem to like such products for the promise of a guaranteed payout one way or another, unlike a traditional standalone LTC plan, which only rewards policyholders if and when they require LTC help.
With fewer dollars flowing into traditional LTC coverage, and more dollars coming out than anticipated, Walker is pessimistic about the industry's future. "I do not expect increased stability," he cautioned. "In fact, the traditional LTC model is headed for ultimate destruction."
But Gordon at MAGA is more optimistic. "Current actuarial assumptions have now taken those [past] missteps into account, especially underwriting and investment yield," he said. "If there are future rate increases, they should be minimal."
Indeed, Genworth is working with state regulators to adopt a new pricing model, similar to home, auto and health policies. If approved, it would "revitalize the industry and result in more predictability and manageability," said Westermann.