Realigning the Misaligned

The long-term care (LTC) insurance industry has experienced a lot of pain during its lifetime. Several decades ago, when these policies first became widely available, there were about 100 carriers; now there are only around a tenth of that. As customers lived longer, and health expenses grew, the financial losses hitting carriers forced them out of the business.

Those that remain or wish to enter need to be strategic – and our team helps insurers every day with their top priorities.

LTC products which were sold over 15 years ago have caused significant financial strain on the insurers as consumers retained their policies and claimed at much higher rates than expected. There is a huge demand for long term care insurance, but the challenge is balancing the cost to consumers with insurers’ risk appetite.

The COVID19 pandemic has contributed to already rising demand for these products as awareness of the devastating effects of protracted health problems has grown.

Political changes are also fueling demand. In 2019, the state of Washington passed the Long-Term Services and Supports Trust Act (also called the Long-Term Care Trust Act). The payroll-tax-funded program, the first of its kind in the nation, was supposed to go into effect in January 2022. Crucially, it allowed anyone who owned private long-term-care coverage before November 1, 2021, to opt out of the tax.

Although the program has been delayed, (while legislators iron out issues such as self-employed people or those who work in the state but live or retire elsewhere) in the six months before the November 2021 deadline, more than 450,000 people opted out of the tax by buying or retaining their existing coverage.  California, Minnesota, New York and other states are also weighing public long-term care programs.

Rising demand should be something any industry wants to experience. But the problem comes where you have competing interests and a misalignment of risk view. The insurer can build and price a product and make it perfectly aligned with their interests – but then it can turn out to be too expensive for the consumer. Conversely if it’s very inexpensive and lucrative to the consumer, the insurer may lack the financial returns required to launch the product.

Trying to capture all of that into a product that is sellable and scalable is a significant challenge for the industry.

So what makes it such a thorny problem? LTC claims are costly, and consumers find value in the product, but not all consumers think about it at a younger age. On top of that, there is a complicated combination of health and longevity risk – and when you have all of the unknowns and complications about health insurance layered on top of longevity risks, that makes LTC unique in the insurance industry in terms of complexity.

At illumifin, we understand the LTC risk component better than anybody, due to the amount of data we have, our experience, and our intense focus on all aspects of the industry.  We stand out for having the right people and the right resources to gain the expertise we need –  it’s not just a minor or peripheral part of our business. Our staff’s experience is focused in long-term care and it will continue to be so in the future.

Not only do we deploy innovative analysis methods, but we have the most data in the industry, because of our third-party administration business as well as the consulting-based data. Our database of LTC insurance experience is extensive and continually growing. To date we have analyzed nearly one million unique LTC claims.

For our clients, that means they can leverage that combination. Nobody has enough data themselves to do what they would like to do – but here at illumifin, we can supplement and build tools and analysis for their own actuarial teams. We utilize data driven decision making in all aspects of our work, to develop customized solutions and work with our clients to educate and assist their own actuarial teams with challenging problems.

The way that we analyze the experience that’s occurred over the last 20 years, and our approach has consistently been successful, year after year. Right now we are focused only on LTC and are at the leading edge of looking at how to develop the next generation of LTC products.

We like to think we see beyond traditional actuarial consulting services, important though they are – as our unique position within the LTC industry transcends actuarial technical skills.

That’s not to say that we have perfect product solutions to realigning the risks within this market – however, the fact that we have a seat at the table means we can provide insights that few other companies can. As we said, you need to be smart in this business – and partnering with illumifin, you’ll benefit from decades of experience and focus in the LTC space.

— Ralph Donato · Principal Consulting Actuary

— Matt Morton · Principal Consulting Actuary