Thursday, November 11, 2010

MetLife Bows Out of Long-term Care Business

There was big news today in the long-term care insurance (LTCI) market with MetLife’s announcement that it will bow out of the business.

What is more interesting is the juxtaposition with data that suggests that there is a greater need than ever (see yesterday’s posting.) The Genworth Financial survey comes in the midst of Long-term Care Awareness Month which seeks to highlight the value of the product.

MetLife cited “the financial challenges facing the LTCI industry…” At the time of this posting, a MetLife spokesperson had not responded to a request to explain if those challenges are referring to today’s economic climate or the difficulty of getting the public interested in LTCI.

It is unclear what is causing the product’s lack of traction with consumers. Is it simply cost? The product is not cheap and gets increasingly expensive as potential buyers age and near the time when they may need it. But, then again as the Genworth Financial study in yesterday’s posting pointed out, the cost of care for loved ones is even more cause for concern.

Is it simply that people don’t want to think about tomorrow especially if those thoughts are unpleasant? Well quite possibly except that the survey found that people are worried about being a burden on family members. So, in a concrete way, they are thinking about tomorrow. It also found that there is a gap between concern and the action needed to stop that concern. Or maybe it is concern that if the contract is not used, the contract owner will not get any money back.

What is clear is that the number of carriers in this segment of the market is shrinking. Whether it is a normal market consolidation or concern that the product is just not taking off or is too unpredictable is unclear. Those who buy it are keeping it, belying an assumption that people would lapse their contracts over time. The future cost of care is another unpredictable factor.

If there is concern among survey respondents about the future, there is also concern among insurers about how proposed international accounting could impact products with long-term obligations. The proposed standards, while not yet in place, could directly impact products like long-term care insurance creating volatility in financial statements and increased capital requirements. It could encourage insurers to leave the business, discourage companies from entering the business and create another hurdle for those wanting to do business in Europe. The potential issue for companies has been addressed in a number of venues: in an Ernst & Young webinar; in an interview with Laura Bazer and Wallace Enman, analysts with Moody’s Investors Service, New York; and during discussions at the National Association of Insurance Commissioners, Kansas City, Mo., and the National Conference of Insurance Legislators, Troy, N.Y.

MetLife had not responded to a question about whether this potential accounting change was part of its decision to exit the long-term care market.

MetLife says that its current policyholders need not be concerned about existing contracts. The New York-based insurer says it will continue to accept new applications for individual LTCI policies received on or before December 30, 2010. In addition, in 2011, MetLife will be discontinuing new enrollments into existing group and multi-life LTCI plans. The timing will vary based on existing contractual obligations.

The company also offered the following assurance: “MetLife’s decision to stop writing new LTCI business will have no impact on existing insureds’ coverage. As long as premiums are paid on time, coverage cannot be cancelled. All current insureds can continue to make coverage changes per the terms of their policy or certificate, including inflation protection offers and requests to increase or decrease coverage.”

And, MetLife says that while it is exiting the LTCI market, it is not giving up on differ ways to meet a growing need to take care of older Americans. “MetLife is committed to exploring potential solutions, including combining LTCI with other products, which the company believes can effectively address the long-term care financing needs of the public as well as its business goals.”

Recent changes in federal law allow companies to combine annuity and long-term care features in products, a combination that would fit in with MetLife’s sizeable annuity business.

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