Problems in Long Term Care Insurance and Lessons for the Rest of Us

I criticized the New York Times a couple weeks back about an article on the NFL’s pension and disability plans, basically because the article was animated by an underlying ignorance of recent legal events concerning those plans. It may, perhaps, have been too much to expect that the reporter would have a full understanding of the subtle interplay of the legal and factual history involving that plan, as it played out in the case of former Steeler Mike Webster and his family’s attempt to obtain the benefits to which he had been entitled. Indeed, I recently received a nice note from the wife of a retired player noting that she was just happy to see the Times mention anything about the problem of retired players and long term damage inflicted on them by the sport.

But fairness - along with a couple of points about the article that are germane to the subject matter of this blog - compels me to point out that a prominently placed article in yesterday’s Times, about the claims processing and claim denials of certain companies providing long term care insurance to the elderly, embodies what that paper can do better than almost anyone else, which is put in the person power and intellect to evaluate, and then report on, issues involving massive amounts of information. For those with any interest in long term care insurance, or who may be forced to select a company to buy such coverage from, the article is excellent reading.

Moreover, there are two particular “take aways,” as they say, that jump out at me from the article, and which apply not just to long term care insurance but to all insurance purchasing decisions, from personal policies up to corporate liability policies. First, the article distinguishes the high rate of complaints against certain insurers from the much lower rate of complaints lodged against other insurers. In this area of insurance as well as every other, all companies are not alike. In seminars and in meetings with business lawyers and their clients, I tell people all the time that you need to decide among competing quotes on more than just price, and instead have to make an informed decision about the nature and quality of each of the insurers competing for your business. There is almost always room to quibble over the exact scope of coverage or an exclusion when a claim is made, and some insurers, almost by their DNA, will give the insured the benefit of the doubt on those issues in deciding whether to cover the claim; other companies may well not. This is something that always needs to be factored in when selecting a carrier, rather than just accepting the cheapest quote for the same limits of coverage. The insured needs to have advisors, whether insurance brokers or experienced insurance coverage lawyers, who can inform the insured about those kinds of differences among the insurers offering to underwrite the risk before a decision is made as to which carrier to sign up with. An ounce of prevention being better than years of insurance coverage litigation later, so to speak.

And the second point is on the same theme. The article references as well that the carriers with, according to the article, shall we say debatable claims practices, had undercut the market in their pricing to build up market share, only to later discover that their premium dollars could never cover their claims exposure. In any field of insurance, you can almost always find some carrier or another underpricing the competition in an effort to build market share. While that lower price may be a short term benefit for the insured, there can be longer term costs to taking advantage of that price reduction and joining that particular carrier. The most obvious ones are that the carrier may well change - in fact will probably have to change - its pricing down the road, forcing insureds to either go looking in the market again for a new carrier or accept a large premium hike, one that may well eliminate whatever pricing benefit the insured received the first time around. The carrier may also, having underpriced, have little appetite for covering claims where coverage is in dispute, possibly leading to claim denials that might not happen with a market rate carrier. And finally, in an example I’ve seen frequently enough to be wary of, the underpricing can lead to such limited ability to withstand a large hit that a few significant claims drives the carrier to simply abandon that product line, throwing the insured into the marketplace, looking for coverage from carriers it had previously rejected in favor of the underpricing competitor.
Written By:W. Wright On April 2, 2007 1:04 AM

The NY Times article highlights two insurers that have had a large portion of the complaints in the industry. According to the Times, these two insurers have 30 times as many complaints (proportionately) as some of the leading long term care insurers.

The message of the article is NOT that the long term care insurance industry has failed. The long term care insurance industry, as a whole, has paid, and continues to pay, billions of dollars in long term care claims.

The majority of long term care policies have never had a rate increase. The largest, highly rated, long term care insurers have NEVER raised their rates on any of their long term care policyholders, including: Genworth, John Hancock, Met Life, Prudential, and others.

Nothing sells more newspapers than a story about mean-old-nasty-insurance-companies. If 1,000 long term care insurance claims are paid, the newspapers will print the story about the 1 claim that was denied. That's the nature of the print media. It's been that way since Gutenberg.

Here's an interesting reply to this article that should be of interest to most:


http://www.ltcinsuranceshopper.com/


WW

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