Choosing a Strong LTCI Carrier What to Consider When You’re Considering Buying Carrier Financials We purchase insurance for security. Furthermore, we want to know that this security we purchase is indeed secure. Consequently, evaluating the overall health of a carrier is likely one of the most important aspects of a Long-Term Care Insurance (LTCI) purchasing decision. This assessment can be challenging, as there are many financial rating sources that rate insurance carriers (A.M. Best, Standard & Poor’s, Moody’s, Fitch, and Weiss). All of these
rating agencies have different perspectives from which they view the overall health of the insurance company. We advise that consumers look to Comdex Rankings to get a balanced perspective. Comdex integrates all these rating sources and “grades” carriers on a curve (1 to 100, with 100 being the highest). If the carrier you are considering has a 90 Comdex ranking, you know that they are in the top 10% of carriers. Purchasing from a highly rated carrier gives you confidence that the backing you purchased is secure.
The Diversification Principle While many consumers are concerned about the financial stability and viability of an insurance company, we advise that you not only consider the stability of the carrier itself, but also the role that LTCI plays in their overall business model. LTCI is a relatively new insurance product over the last several decades, and as a result, the real liabilities of the claims on these products have yet to be fully realized. The more diversified a carrier is, the less impact any single line of business (such as LTCI) will have on the larger company. Conversely, if a carrier has an over-abundance of LTCI it can impact the overall health of the company if the product is not profitable. Generally, we advise that you purchase from a large diversified carrier with a small concentration of LTCI.
Carrier Commitment to the LTCI Market In addition to purchasing from a welldiversified carrier, we also advise that this prescription is balanced and shows a demonstrated commitment on the part of the carrier to continue offering LTCI in the future. These products are “guaranteed renewable,� so once purchased, the product can never be non-renewed. However, carriers that discontinue new sales of LTCI have historically been more prone to have less hesitancy in raising rates on existing policies, as they are no longer attempting to sell new policies.
Risk Management Practices Most of us are familiar with the concept of a “spread of risk.” This is what makes insurance work. If many individuals are insured, the risk is spread and stabilized. However, few stop to consider what is likely the most telling dynamic of a health-related product like LTCI: the “depth of risk.” This is likely the largest indicator of the carrier’s ability to maintain more stable rate structures. In the last decade, insurance carriers have become more conservative in their assessment of the health conditions of applicants. This has both pros and cons. For those who have major medical problems, it may be more difficult to obtain LTCI. The pro is that carriers who are more conservative generally have a lower volume of claims, which may result in more stable rates. Though LTCI premiums are designed to be level for life, a carrier has the right to petition the state regulators for an increase in rates if they can prove claims to be higher than initially anticipated. As a consumer, the rule of
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thumb is to purchase from the most conservative carrier that will still insure you at an affordable rate.
Mutual vs. Stock Carriers Since the financial crisis of 2008 emphasis has been placed on the difference between “Stock” companies (publically traded companies) versus “Mutual” companies (carriers owned by policy holders). All financial services companies are in the business to make money. However, the question becomes, “Who are they making money for?” Stock companies are ultimately in business to produce financial returns for investors. Mutual companies are still in business to be profitable. However, they are largely exempt from the external pressures of Wall Street as they are not owned by investors. This is a subtle difference, and perhaps not as predictive as the dynamics previously discussed, but is still worth noting.