The second source of information was discussions with key executives who were either directly involved in the decision making process relating to leaving the market, or to those with intimate knowledge about their company's decision to exit the market. The instrument was administered in two ways: (1) in-person and telephonic interviews with executives, and (2) a web-based survey that was sent to those individuals who did not complete the in-person/telephonic interview. In total, executives from 29 companies that have exited the market or exited specific market segments over the last 15 years responded to the survey. Of these companies, three surveys were with executives from reinsurance companies, and the other 26 from direct writers of LTC insurance. In-person or telephonic interviews were completed with executives from16 companies and the other 13 were completed on-line.
Executives from the following companies were interviewed and/or provided responses to the survey.
|TABLE 1. Participating Companies|
Based on an analysis of data for 2010 (and excluding Transamerica, which is now back in the market), these companies represent slightly more than 95% of the total earned premium and 90% of covered lives of companies among the top 100 of all companies who have left the market. Thus, the results of the survey can be generalized to the population of companies that have left the market.
The survey instrument itself typically resulted in an interview time of between 30 minutes to an hour. All data was captured and put into an analytic database so that frequencies and cross-tabulations could be completed. Additional information from the interviewees provided contextual information to many of the responses. This too is included where appropriate. The survey results that are reported here focus exclusively on the direct writers of LTC insurance; when appropriate, the issue of reinsurance is addressed separately and responses from the three participating reinsurance companies are reported.
Analytic Lens for Understanding Insurer Behavior
A primary focus of this study is to understand why firms have recently left the market. Therefore, having a frame for understanding such behavior can be helpful in interpreting the aggregate data as well as company-specific information. We use the frame of "profit maximization" which posits that firms either enter a market or exit a market depending on whether they are able to obtain a target return or profit level commensurate with their expectations. Thus, the basic concept is that companies exist and make decisions in order to maximize profits.12 Clearly, the model of profit maximization is a simplification of reality and assumes that profits are not the only relevant goal of the firm. In fact, additional objectives may affect profits indirectly or be equally as important such as sales maximization, public relations, gaining market share, increasing the attractiveness of complementary products, acquiring power and prestige, and other goals more related to managers maximizing their own utility rather than insurer profit maximization. We do not ignore these other goals and in fact test their validity by asking direct questions to the executives about the various motivations underlying their decision making.
We begin by presenting information on why firms entered the market and then present abridged summaries of key historical developments in the market focusing on changes in product design, marketing and sales, risk management, consumer profiles, and the regulatory framework that has developed over the past 30 years.13 This is followed by a discussion of why in recent years most firms have left the market. We focus on a number of key issues affecting profitability such as pricing strategies, capital requirements and distribution challenges. We conclude with an examination of the factors that might influence firms to consider re-entering the market, and present some specific actions that might encourage them do to so.