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We May Be About To See A Big Change In How Long-Term Care Insurance Is Priced (Time to Consider the Universal Life Hybrid?)

April 7, 2017



The way you pay for long-term care insurance policies may be about to change in a big way.

Genworth, the biggest seller of stand-alone long-term care insurance, is about to ask state insurance regulators for permission to fundamentally revise the way it structures premiums. Instead of holding premiums flat for several years followed by big double-digit rate hikes, it wants to be able to revise premiums annually.

In this design, unfortunately called the Annual Rate Sufficiency Model, buyers of new policies would likely see modest, single-digit rate hikes each year or two. If Genworth thinks it is likely to pay fewer claims than expected or if investment income is higher than projected, consumers might even see small rate reductions in some years.



A Critic of the Existing Model

Genworth CEO Tom McInerney has been a long-time vociferous critic of the existing model, which the industry has been using for decades. He argues that it limits a carrier’s flexibility in designing and pricing products, antagonizes consumers who hate big rate increases, and sours investors who worry about insufficient claim reserves. These problems have helped drive 90 percent of sellers out of the long-term care insurance market over the past decade.


In the coming days, Genworth will formally roll out its new idea to the National Association of Insurance Commissioners at the NIAC’s annual meeting. The firm is also negotiating with individual state regulators for permission to sell a product that it can re-price every year. It is likely to take a couple of years for the NAIC to green light the change, though individual states could act more quickly. Genworth hopes to have a product on the market in at least a few states in early 2018. Annual repricing would apply to new policies only.


Will Consumers Respond?

How would consumers respond to seeing their premiums revised every year? This happens routinely with health, auto, and property and casualty coverage. But not with most term life insurance, where premiums may not change for decades.


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