A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. VII. Summary and recommendations

10/14/2011

The market for traditional LTCI succeeds because of a reliance on personal sales effort and sophisticated medical underwriting. Not only do these features allow commercial carriers to avoid adverse selection, they minimize internal rivalry and raise entry barriers. But these features come at a cost; selling expenses in LTCI are considerable. The creation of the CLASS program provides a unique opportunity to break down entry barriers. But this alone will not guarantee the success of CLTCI.

CLASS must also devise ways to avoid adverse selection. If CLASS can minimize selection and exploit access to employers to minimize entry barriers, then its considerable cost advantage could allow it to more than effectively compete in the LTCI market. We have described two products--“vesting period” and “Tontine”--that we believe can compete successfully against commercial LTCI. Of the two, the former is simpler and therefore offers a greater chance of success. Ironically, the success of either product could break down entry barriers and allow other low cost insurers to successfully compete. Even so, this would be a win-win for consumers, and should not stand in the way of CLASS’ entry into the LTCI market.

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