Friday, June 16, 2017

Penn Treaty Update: Well, D'Uh edition

The Penn Treaty story (our last update of which is here) continues to take (unexpected?) turns. In that last update, we learned that the cost to bail out the now-defunct carrier is running north of $4.6 billion (yes, that's billion, with a b).


Left unsaid in all these reports has been what, exactly, these other carriers are bailing out. Well, thanks to FoIB Jeff M, we learn that at least PT's agents were on the ball, product-wise:
■ 55% of the unit's long-term care insurance policyholders chose compound inflation protection
■ 56% of the long-term care insurance policyholders with inflation protection have policies with no elimination period
■ [Very few] have policy benefit periods with 36 or fewer months
That last is important, because it means that most plans are for longer than 3 years. Those can quickly eat up a carrier's reserves. And it's compounded by the fact that about 40% of their policies are for lifetime benefits (which haven't been available open market for a while now).

The terms of the bailout require that all policy provisions remain intact; participating carriers may be on the hook for some big claims, both in terms of benefit amounts and for how long they'll have to pay them. On the other hand, they plan to somewhat mitigate this exposure with substantial rate hikes.

On the gripping hand, history has shown us that even 40% hikes aren't enough to scare off most insureds. This, of course, has long been a problem for LTCi: the original models assumed attrition rates matching Disability Insurance plans. Alas, that turned out to be wishful thinking.

And if you're thinking that PT's problems are isolated, think again. The folks at Berson-Sokol Agency tell us that TransAmerica is requesting new rate hikes in 38 states.

So if you're shopping, better sooner than later.
blog comments powered by Disqus