Long-Term Care awareness month is almost upon us – which always provides a timely opportunity to emphasize the importance of Long-Term Care insurance [LTCi] and its place in one’s financial plan. Part of this conversation typically includes the urgency to act now to limit exposure and lock-in more affordable premiums. Another consideration, however, is the fact that one’s chances of obtaining coverage decline with time. Age is a factor, of course, but advancements in underwriting are quickly becoming part of the equation and highlighting the importance of acting quickly on one’s long-term care plan.
There’s a well-documented history showing how miscalculated assumptions regarding the frequency and duration of claims made during the early days of the LTCi industry opened the door to the rate increases that many policyholders are experiencing today. While in-force rate action continues to be a hot topic in the media, it’s an issue that many industry leaders feel is under control, thanks in large part to the fact that carriers have become much better at pricing the product properly1.
Armed with scores of claims data, carriers now have a much better idea of what conditions and collective medical histories are likely to lead to a long-term care insurance claim, as well as how long such claims are likely to last. The rise of big data and advanced analytics have allowed carriers to sort through decades-worth of experience to find ways to meaningfully cut down on adverse selection and price new products more accurately. The more carriers know about what is likely to lead to a need for long-term care services, the more well-defined underwriting guidelines become.
The evolution in underwriting does not end with standards becoming more well-defined, though. Carriers are also evolving in terms of the sources from which they collect underwriting evidence. One development that’s really shaking up the underwriting landscape is that some carriers are now considering an applicant’s family history when determining insurability2, with some even using the results of genetic testing when deciding whether to offer clients coverage3. Though this is something Life insurers have been doing for some time, this is a unique development in the LTCi industry.
What this all boils down to is that carriers are only getting better at predicting who is most likely to need long-term care in the future, meaning it’s going to get more difficult for clients with questionable health histories, who may have breezed through underwriting under past standards, to obtain coverage. It’s a harsh reality, but one that cannot be ignored.
It will be interesting to see how the landscape of LTCi underwriting shifts in the coming years. With some states like Florida proposing restrictions on insurers’ use of genetic test results in underwriting4, perhaps there will be some pushback regarding what sources of information can and should be used to determine an individual’s insurability.
Another interesting development to follow would be insurers’ use of social media data, financial transaction history, and other sources of information that can be used to develop a greater picture of one’s actual behavior and habits. The state of New York recently put forth guidelines regarding insurers’ use of social media history, raising a lot of questions about how publicly available data should be used in underwriting5.
The situation is quite complex, with companies relying on predictive models to sort through this data and develop a picture of one’s overall risk profile. Some feel it is an invasion of privacy, even though it is publicly available information.
The consideration of social media and financial transactions seems to pertain only to the life insurance industry at this point, but the implications for the LTCi industry are quite intriguing. It is not far-fetched to imagine a world in which an LTCi insurer looks into people’s social media histories or credit card transaction histories to see if their behaviors are consistent with what was expressed in the application process or during phone/face-to-face interviews. Applicants who engage in healthy behaviors that would otherwise go undetected by insurers may benefit from such situations, while others who engage in unhealthy or high-risk behaviors may suffer.
No matter the case, one thing is certain – a client’s chances of obtaining LTCi coverage are unlikely to improve the longer they wait. Even in the unlikely event that overall underwriting standards become more lenient based on new claims data, it is not a great strategy for a client to postpone a decision in anticipation of that happening, especially when adding in the fact that a client’s chances of being approved decrease as they age anyway. As we say time and again here at ARM, the best time to buy is now, and advances in modern underwriting certainly underscore that message. Use Long-Term Care Awareness month as an opportunity to further the conversation around these ideas.
1. “Long-Term Care Insurance: The SOA Pricing Project”, Society of Actuaries, 2016
2. “Parental Medical History Now Influencing the Cost of Long-Term Care Premiums”, Financial Advisor, 2014
3. “Genetic Tests Can Hurt Your Chances of Getting Some Types of Insurance”, NPR, 2018
4. “Florida May Restrict Life Insurers’ Use of Genetic Test Results”, ThinkAdvisor, 2019
5. “Life Insurers Can Use Social Media Posts to Determine Premiums, As Long As They Don’t Discriminate”, Forbes, 2019