My parents bought a LTC policy from Bankers Life and Casualty about 6 years ago when they were 52 and 51. They received a letter last month informing them of a 25% increase in their premiums over the next 2 policy years. What is going on here? I thought the "major" point of buying a LTC policy when your relatively young is the so called "locked-in" premiums. Has anyone else ever seen anything like this with a LTC policy...Bankers or otherwise? I think this would pretty much would spell doom for any future LTC sales Bankers Life would hope to sell. Thanks for your thoughts......Sean

LTCI rates can not be raised arbitrarily or individually. Any rate increase has to be justified to, and approved by, the state insurance commissioner. Your parents rate increase would be a result of higher than anticipated claim payments on that "family" of ltc policies. Any company can only use actuary science to make their best predictions on how many people will eventually make claims on their ltc policies. Unfortunately that science is not alway exact, as your parents are experiencing. The letter you mentioned probably outlined options your parents had in addition to accepting the adjusted premium. Bankers Life and Casualty is having another strong year, once again showing growth. They are not the first, nor will the be the last, company to adjust ltc rates. Some companies that at one time were major players in the industry have stopped issuing new programs all together. The most important thing remains that your parents had the foresight to cover themselves for something that could be physically, emotionally and financially catastrophic. Far too many seniors remain uninsured against the biggest risk they have in retirement.

Your situation is not unique. A couple other companies have raised rates for certain blocks of LTC too. John Hancock raised premiums on an old block of policies that they bought off another company, and Thrivent Financial raised their rates on an existing block too. Those are just two that I know of.

Don't be worried about the increased premium. At least the company is having the foresight to make sure they are going to be able to pay the claims when your parents start to use the policy, which could be 30-40 years down the road yet. The reason for increased premiums is likely two-fold: 1) a low lapse rate, and 2) higher than anticipated claims and medical costs. The lapse rate is the number of people who cancel/lapse their LTC polices for whatever reason. Fewer people than expected have been dropping policies, since they realize this kind of coverage is extremely important.

A lot of companies that used to offer LTC have either stopped issuing polices altogether and/or sold off their blocks of business to other companies because they cannot handle the claims. Bankers has been writing LTC since about 1974, longer than any company still issuing policies, so the fact they've been doing it longer than anyone else may be one of the reasons premiums are going up.

As far as "dooming" LTC sales for Bankers, no company can guarantee that their rates won't go up in the future. I think we'll most likely be seeing rate increases from every company in the years to come. If you search the forums on this site, I remember there was a thread about a rumored John Hancock increase, and discussion of GE/Genworth (I believe it was) possibly having to do the same because in the early years of issuing polices they went out and wrote anyone and everyone, and hence have a huge block of business right now that wasn't underwritten as strictly as it should have been. This may lead to them having a pretty substantial claim payout in the future.

I welcome any feedback on this topic from anyone, since I haven't read about this topic in a while, but this is how I remember it.

Lurker,

Thanks for your post. You make some good points, but there are also statements that I am not completely agree with. Most notably, when you write "I think we'll most likely be seeing rate increases from every company in the years to come". I think it sounds too pessimistic - especially for those who are shopping for the ltc insurance now.

Your main point is that since on average it takes a long time for an ltc insurance policy owner before she may need an LTC benefit (up to several decades), rate increases now is the result of aggressive pricing and sloppy underwriting decades ago. I totally agree with this - the lack of understanding of LTC claims and underwriting is what caused substantial changes on the LTC insurance market. Companies like CNA and Conseco are no longer major ltc insurance providers. But what we see now is a much more mature market and major underwriters are having much better idea about how to insure new clients.

What I worry about is the new products sold because the goal is to protect new clients from expected rate increases as much as possible. In this regard, if a company has extensive claims history, that's a plus, not minus. That means that they know underwriting better than the others. Genworth is a good example. Yes is it possible that they might have old blocks of business that are not profitable anymore but as long as they do a good job with their new business - I am happy. They (Genworth), by the way, are quite proud of their underwriting and keep on refining it. They also claim that every book of their business is responsible for itself and new policyowners would not pay for any mistakes possibly made in old books of business.

So even if we are going to see rate increases from every company, will everyone purchasing policy now, in a more mature market, be affected? I don't think so. Your post seems to be missing the fact that companies close their products and open new ones - like MetLife VIP 2 last year. I believe that helps to control expected rate increases tremendously and I wanted to point that out. For today's LTC insurance shopper, risk of a rate increase exists but it is much less significant than your post may imply.

On a separate note, when did John Hancock raise premiums? Can you give me more information? I have never heard of them raising rates and, after all, they have A++ rating.

Thanks.

Alexey

Hey Alexey - great contributions.

John Hancock purchased the Fortis LTC Insurance block of business, after doing so they realized that the block of business was vastly underpriced and did a rate increase only for Fortis policy holders.

Before Genworth was Genworth they were GE and when GE purchased the Travelers block of business they also noticed the under priced product and did a rate increase also but again just for the Travelers policy holders.