I have a titanium knee. I’m not complaining. It is certainly a dramatic improvement over my old knee, which was simply worn out and, frankly, aggravatingly dysfunctional. I remember the orthopedic surgeon telling me that I needed to trade up and join a new bionic future because my current motion reality was “bone on bone”—meaning the protective meniscus which I was born with was no longer available. Our industry suffers from the same affliction. There is no longer any margin of error or anticipated pricing lubrication. No more investment margin, no more margin of error for anticipated claims, no more slack in underwriting practices, no more obvious manipulation of benefit availability.
Is there anyone who wishes to argue with me about the reality of limited carrier options, the certainty of much higher premiums, a world of substantial benefit reductions, and underwriting practices tantamount to induction into the fraternity of Navy Seals? Our world has changed. We don’t exist in a vacuum. There was a crash in 2007-2008 and we got it on us. Bond rates are down, consumer confidence is down, and somehow Dow Jones is up. Recovery has been slow, interest rates have flat-lined with no resuscitation anywhere on the horizon. And it may be politically incorrect to recognize the obvious, but the ACA has sucked the oxygen out of far too many insurance protection rooms.
At the recent Intercompany Long Term Care Insurance Conference in Colorado Springs, those in attendance were treated to an analysis of recent history, an evaluation of the current state of the industry, and a predictive analysis of current rate stability. It is no secret that A.M. Best is not a fan of LTCI. We are all aware of a decreased market, with ongoing underwriting concerns, pricing confidence issues and benefit reductions. A.M. Best anticipates continuing rate increases on older blocks of premium. However, for companies with diversified lines of business, the outlook is “stable.” There is greater concern for monoline companies. There is some cautious optimism for new product offers.
It is, however, the initial data and not yet final research coming from the SOA that has attracted the most attention, currently titled “How stable are premiums on new blocks?”
Begin again with acknowledgment of the obvious:
• Higher prices have contributed to more stable rates.
• We have learned from our experience.
• We do now have a lot of rate, sales and claims data.
• New products are being built that are less risky by definition.
• We have begun to develop an acquired skill in managing this risk.
• Actuaries have better and more sophisticated modeling tools.
• We have intentionally over-priced those benefits which we consider the most harmful, such as 5 percent compound and lifetime benefits.
• We are doing a much better job of anticipating problems allowing for greater margins of adverse risk.
• Gross premiums have risen dramatically.
We now live in a world of expanding product diversity, increasing premium stability, underwriting requirements that may have actually gone too far, rate increases primarily on older blocks, and a valiant core of dedicated LTCI carriers. For all the reasons that are painfully obvious to us all, now is the absolute best time to accept the reliability and sustainability of that metal knee. According to this preliminary research, in the year 2000 there was a 40 percent chance of a rate increase. However, in 2014 there was only a 12 percent chance of a possible rate increase.
According to the report:
“New business with stronger margins, better understanding of morbidity and rock-bottom lapse assumptions indicate a relatively low probability of a rate increase.”
And “If companies can achieve relatively moderate portfolio yields (e.g., 4.9 percent), there is a good chance companies will make satisfactory profits.”
All right, at this point we should all be very happy with what is obviously really good news. I’ll be honest—I liked my original knee better, but I have to admit the new one does work without all the pain. It’s better, I suppose, although somewhat different; but absolutely necessary after all.
Other than that I have no opinions on the subject.
