General Idea of the Long term Care Industry

General Idea of the Long term Care Industry

The first long-term care policies were offered about 30 years ago. These were primarily nursing home-only policies designed to take over when Medicare rehabilitation ran out. They were not the comprehensive benefit policies we see today. It took until 1987 for the total number of policies nationwide to reach 800,000, a literal drop in the sea of traditional US health insurance policies. Since 1987, the number LTCi policies has increased annually at an average annual rate of 21%. It is estimated that at the end of 2000 there were approximately 6,000,000 LTCi policies in the US generating about $4.8 billion in annual premiums; about 80% of these policies were individual and 20% were employer sponsored group plans. (However, group premiums are only 7.9% of total premiums). Over 2,500 US employers now offer LTCi group plans.

The number of companies selling LTCi peaked in 1989 at 143 and has been declining since then. About 1/3 of these companies are Blue Cross/Blue Shield organizations selling in only a few states. Ten or so of these companies offer LTC cash benefits as riders to life insurance or annuity contracts. There are about 60 or 70 Life/Health companies licensed to sell LTCi stand-alone policies in more than 40 states, but their numbers are decreasing year to year.

There is not enough market share to support the current number of carriers. In 1998, 10 companies accounted for over 70% of yearly premiums. In 2000, G.E. Capital with 29% market share and the Conseco group of companies with 17% share, accounted for 46% of the market alone. By 2000, 10 companies owned about 84% of the market. There is a lot of consolidation going on in this industry.

Companies selling LTCi as a new product require additional capital to build distribution channels and staff administrative and claims departments. Many of these companies report , year after year underwriting losses on their long-term care business. This is not a business for small, poorly rated, or undercapitalized companies. Nor is it an endeavor for companies not committed to years of loss in order to build an eventual profitable book of business. Companies that play the middle ground and sell few policies will eventually exit the market due to high overhead and adverse selection from stagnant sales of LTCi.

In the past 5 years, 18 major companies have sold out their long term care insurance business may sell out or are gone from the market. Transamerica was bought by AEGON and recently Transamerica and four other AEGON companies, selling long term care insurance, have pulled out of the market. The long-term care business of Time/John Alden/Fortis was acquired by John Hancock. Travelers sold it's LTCi business to GE Capital. Conseco and Bankers United are also gone. CNA put it's individual life and LTCi business on the block in 2002, but withdrew the sale because of inadequate offers. CNA now offers only group. American Travelers was bought by Conseco. Lincoln Benefit, Farmer's, IDS, TIAA/CREF and AFLAC are also gone. And finally, Penn Treaty Network America, a leading producer selling only LTCi-- but a small company asset-wise-- has run out of capital. It has no deep-pocketed parent company so may be up for sale. Probably no one has kept track of the number of smaller companies selling long term insurance that have pulled out of the market as well.

When the dust settles, if it ever does, 6 companies may represent over 80% of the market: Genworth (formerly GE Capital), Banker's Life, John Hancock and MetLife with Aetna and UNUM/Provident leading producers of group plans.

On the other hand, the future may hold an entirely different scenario. There are a number of large, well-respected and well-funded companies like Prudential, New York Life, Northwestern Mutual, Mass Mutual, Allianz and State Farm who are currently in the market and they are determined to build market share. These companies have proven in the past they can be successful latecomers to new markets. Their sheer size and financial resources make it possible to carve out significant market niches if they choose to focus those resources directly on long-term care insurance.

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