Far be it for me to predict the outcome of Genworth’s strategy to remake itself as a mono-line long-term care insurance company. It does bring to mind how UNUM gobbled up many competitors in the 1990s, only to suffer major indigestion. At the time, many predicted the end of non-cancellable disability income insurance. Today, less than 20 years later, this marketplace is reasonably robust and UNUM seems to have ridden out the storm. My sincerest hope is that Genworth can do the same.
Believe me; I’m not trying to put a happy face on what’s going on at Genworth. Those folks in Richmond, Virginia have their work cut out for them. But keep in mind that Genworth is not the long-term care insurance industry. Based on preliminary 2015 LIMRA statistics (3Q) Genworth is no longer “the big dog” when it comes to overall traditional premium production; best guess is that it will fall to number three. It also appears that the total number of policies sold last year, including some form of chronic illness benefit (long-term care), may have exceeded the previous all-time high reached in 2003 (@500,000). This includes traditional, hybrid, linked and short-term care policies. Additionally, help is on the way. In about a month, National Guardian Life will join the traditional marketplace and many companies are working feverishly to add meaningful chronic illness benefits to life insurance and annuity products.
It is notable that a robust private insurance market, with accessible and affordable policies, may actually have entered the minds of the hemp clothing crowd in Sacramento. Governor Brown vetoed efforts to create another unsustainable long-term care entitlement, and the State Senate Committee on Aging is looking into what they can do to expand coverage choices. My suggestions have always been to remove impediments to product innovation, including unnecessary regulations and a bureaucracy bent on micro-management. Unfortunately, efforts to unleash the free market will face stiff opposition from the usual suspects, but the demographics of long-term care marches on and many agree that private insurance choices need to be expanded.
Insurance and financial advisors play a key role in helping people plan for long-term care. What can we say to consumers today who are concerned about the bad press from Genworth, and how can we help them plan?
- Despite Genworth’s downgrade by A.M. Best and others, existing policyholders face little risk of claims not being paid. Genworth’s claims reserves are quite sufficient; their Risk Based Capital is 430. We also know Genworth is developing individual and group products, priced for current realities, which will be essential for them to remain a viable force in the long-term care insurance market.
- Traditional long-term care insurance is far from dead. Mutual of Omaha, LifeSecure, John Hancock and Transamerica, and several career companies continue to aggressively pursue this market. As mentioned previously, National Guardian Life is coming on-line with many of the features that advisors and consumers liked in the past, such as lifetime benefits and limited pay options.
- Evolution in hybrid and linked products continues. I’m particularly impressed with OneAmerica and its expanding Care Solutions portfolio of life and annuity policies. These IRC §7702(b) products contain many features we expect in traditional long-term care insurance with the guarantees of whole life insurance. Life insurance products using IRC §101(g) riders continue to proliferate and improve. The gap between policies using either of these Internal Revenue Code sections continues to narrow. Stay tuned for many new innovations.
- The expansion of smaller policy solutions is also taking place. This is vital to the mid-market consumer. Recent studies indicate that the vast majority of claims are well under $100,000. Unfortunately, many Americans do not have this amount salted away for any eventuality, let alone long-term care. With this in mind, it makes sense to recommend a modest life insurance policy with a chronic illness benefit, or a short-term care insurance policy to bridge the gap. This solution is affordable and available to most consumers and can go a long way to solving an important need.
With history as my guide and the future ripe for positive change, I don’t think last week’s news from Genworth impacts us a great deal. As insurance companies grapple with pricing issues, the low interest rate environment and regulatory challenges, agents and advisors need to take the long view. Be creative with the products we currently have, and embrace the new tools presented in the coming years. The need to plan for long-term care is not going away: in fact, it’s becoming more critical. So, be prepared to help your prospects and clients with this vexing issue, or someone else will.