Exiting the Market: Understanding the Factors behind Carriers' Decision to Leave the Long-Term Care Insurance Market. D. Current Market Activity

07/01/2013

Given the dramatic changes in market participation over the last decade, it is challenging to obtain an accurate count of the total number of companies selling policies in the marketplace. Some companies report sales of less than ten policies a year and others show no policies in one year and then a small number of policy sales in a subsequent year. In the year 2000, AHIP conducted a survey and found that 125 companies were selling policies in the marketplace; by 2002, however, this number had fallen to 104 -- a 17% decline in just two years.52 This survey has not been replicated since 2002.

Today, the most reliable source of information on company-specific activity is provided by the NAIC. Their most recent report, published in 2011, focuses on the top 100 companies reporting premium and claims information on any LTC insurance policies that they have in-force in 2010. The report showed that fewer than 20 companies were actively selling stand-alone LTC policies in 2010; by 2012, only 11 companies were selling at least 2,500 new stand-alone individual or group policies annually in the marketplace.53, 54 It is important to note that these figures do not include companies that are selling various combination-products such as Life-LTC or Annuity-LTC products. These products still account for a very small -- but growing -- part of the overall market. Some view such combination-products as the wave of the future for the industry and the most promising way to increase the number of people covered by insurance. Moreover, given some of the off-setting risks in these products, they may also exhibit more premium stability over time, thus enhancing their attractiveness in the market.

During 2012, companies writing at least 2,500 policies include:55

  • Bankers Life and Casualty
  • Genworth Financial
  • John Hancock Financial Services (Individual Market)
  • Knights of Columbus
  • MassMutual Financial Group
  • MedAmerica Insurance Company
  • Mutual of Omaha
  • New York Life Insurance
  • Northwestern Long Term Care Insurance Company
  • Prudential56
  • State Farm
  • TransAmerica Life Insurance

     

As of the end of 2011, policy sales for these companies totaled 223,000 which were below 1990 levels.

Table 10 shows the top ten companies selling individual LTC policies in 1995 and their status as of 2012.57 Noteworthy is the fact that six of the companies are no longer actively selling policies in the market and three have been acquired by others in the top ten. Moreover, in 1995 these companies together sold slightly less than 300,000 policies, and by 2011, had experienced a net decline of 43% in annual policy sales.

TABLE 10. Experience of 1995 Top Writers of Individual LTC Insurance in 2011
Company   # Policies  Sold 1995   # Policies  Sold 2011 Exit/ Acquisition Date
Total 299,300 128,819  
Aegon/Transamerica 22,000 7,095 Exited in 2005 and 2010 re-entry
CNA 24,000 0 Exited individual in 2000 and Group in 2003 although continuing to take enrollments on existing groups.
Bankers Life and Casualty 38,800 10,948 In Market
American Travellers (Conseco)   51,700 0 Exited in 1996
Amex/Genworth 58,100 90,190 In Market
IDS 24,000 0 Acquired by Genworth in 1995
John Hancock 16,700 20,586 In Market (2010 pause in Group Market)
Penn Treaty 27,400 0 Exited in 2008
Fortis LTC 18,600 0 Acquired by John Hancock 2000
Travelers 18,000 0 Exited in 2000 and reinsured by Genworth in 2000

Currently, individuals with LTC insurance policies are either being serviced by companies who continue to sell in the market or by those who have exited and are no longer selling policies. The latter are considered to be in "closed-blocks".58 In order to determine the size of the closed-block market, we analyzed and updated information from the 2010 NAIC Experience Exhibit reports. Table 11 shows the current state of the market for companies that comprise 95% of total market share, and are selling at least 2,500 policies a year. For the purposes of this analysis, we define a company as having left the market to be one that ceases selling new policies to any part of the market or to a particular market segment (e.g., group versus individual).59 For companies that have only pulled back from a specific market segment, all reported performance-based data applies only to that market segment.

In general, company size, product offering, and geographic location do not differentiate firms that have left the market versus those that have remained. In 2010, annual premiums for companies still selling policies in the market totaled $5.3 billion compared to $4.7 billion for those who exited the market and were administering "closed-blocks" of business -- 53% compared to 47% of the total. On a cumulative premium basis, however, closed-blocks represented 55% of all earned premiums. Regarding claims, in 2010, closed-block companies represented 53% and 57% of annual and cumulative total claims costs. As demonstrated below, just one year earlier, the picture looked very different.

TABLE 11. Distribution of LTC Insurance Companies by Current Market Status
Companies Still Selling in the Market Companies Out of the Market
SOURCE: Analysis of NAIC Experience Exhibit Reports, 2011 and LifePlans Sales Survey 2012.
  • Bankers Life & Casualty Company
  • Genworth Life Insurance Company/Genworth Life Insurance Company of New York
  • John Hancock (individual policies)
  • Knights of Columbus
  • Massachusetts Mutual Life Insurance Company
  • Medamerica Insurance Company/Medamerica Insurance Company of New York
  • Mutual of Omaha Insurance Company
  • New York Life Insurance Company
  • Northwestern Long Term Care Insurance Company
  • State Farm Mutual Auto Insurance Company
  • Thrivent Financial For Lutherans
  • Transamerica Life Insurance Company
  • Ability Insurance Company (Medico)
  • Aetna Life Insurance Company
  • Allianz Life Insurance Company of North America
  • American Family
  • American Family Life Assurance Company of Colorado
  • Continental Casualty Company
  • CUNA Mutual Insurance Society
  • First Unum Life Insurance Company
  • Guardian Life
  • Guarantee Trust Life Insurance Company
  • John Hancock Group
  • Kanawha Insurance Company
  • Lincoln Benefit Life Company
  • Metlife Insurance Company of Connecticut
  • Metropolitan Life Insurance Company
  • Monumental Life Insurance Company
  • Penn Treaty
  • Physicians Mutual Insurance Company
  • Provident Life & Accident Insurance Company
  • Prudential Insurance Company of America
  • RiverSource Life Insurance Company
  • Senior Health Insurance Company of Pennsylvania
  • Southern Farm Bureau Life Insurance Company
  • Time Insurance Company
  • Union Security Insurance Company
  • United Teacher Assoc Insurance Company
  • Unum Life Insurance Company of America
  • WEA Insurance Corp

The 2009 NAIC Experience Exhibit Report is the last that contains detailed information on actual-to-expected loss experience by company. In that year, 192 companies reported their individual claims experience. We extracted and analyzed information from that study in order to determine whether or not the experience of companies that left the market differed from those that remained in the market. At that time, there were about 27 companies (among those reporting that year) that were actively selling policies. The remainder administered closed-blocks or had negligible sales. Figure 15 summarizes key market size and performance indicators for each of these distinct segments in 2009. As indicated, quite a few companies left the market between 2010-2012, so the picture would likely look different today than it did just a few short years ago.

FIGURE 15. Market Indicators by Company Sales Status 2009

Bar Chart: Company still selling policies--% of Total Policyholders (75%), Actual-to-Expected Incurred Claims (93%), Standard Deviation in Actual-to-expected Cumulative Claims Experience (29%); Company no longer selling policies--% of Total Policyholders (25%), Actual-to-Expected Incurred Claims (115%), Standard Deviation in Actual-to-expected Cumulative Claims Experience (33%).

SOURCE: LifePlans Analysis of NAIC Experience Reports, 2010.

There are a number of important issues of note. First, in 2009, a majority of individuals with LTC insurance policies were being serviced by companies selling policies (75%). However, not shown in Figure 15 is the fact that by 2010 -- when additional companies exited the market -- the percentage of policies serviced by companies' still selling policies in the market had fallen to 45%. Second, on a premium-weighted basis, the actual-to-expected incurred claims experience in closed-blocks was 115% compared to 93% for companies still selling policies at that time. Thus, experience was markedly worse for the companies that had already left the market, and the impact on profitability was clearly negative. Finally, there was also somewhat greater volatility in the cumulative actual-to-expected claims experience among companies that exited the market. Volatility is an important performance indicator, because the greater the level of volatility, the greater is the range of possible negative (and positive) outcomes. Typically, when there is more variability in expected outcomes, to attract capital, the return needs to be greater than for products or industries with less volatile results. Taken together, these data suggest that unless there are significant new entrants to the market, over time overall financial performance will be increasingly dominated by the experience of closed-block companies, and such experience to date, has been less positive than for companies still selling policies in the market. To some degree, the relative difference in performance is not unsurprising given that closed-blocks tend to derive from companies whose policies were sold many years ago when there was less certainty around key pricing parameters affecting premiums and claims.

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