Long Term Care Insurance Default

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fandango
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Long Term Care Insurance Default

Post by fandango » Wed Nov 06, 2019 4:48 pm

20 years ago, my wife and I purchased a long term care policy. As everyone knows, there is a tremendous upheaval in that industry now with some of the best companies becoming marginally solvent.

My question is> What happens if an LTC insurance company defaults? Does the state insurance departments assure that all benefits are paid? We purchased the policy in North Carolina.

Thanks.

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JoeRetire
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Re: Long Term Care Insurance Default

Post by JoeRetire » Wed Nov 06, 2019 6:09 pm

fandango wrote:
Wed Nov 06, 2019 4:48 pm
As everyone knows, there is a tremendous upheaval in that industry now with some of the best companies becoming marginally solvent.
Which best companies do you believe are becoming marginally insolvent?
My question is> What happens if an LTC insurance company defaults?
What do you think "defaults" means?

Are you imagining that some insurance company will decide to not pay back a loan? Or not pay the insurance benefits?

I have no idea what loans and which insurance companies worry you.

I wouldn't worry about benefits not being honored. If somehow your insurance company actually became insolvent, it would be placed in receivership by your state.
Don't be a lemming.

dpm321
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Re: Long Term Care Insurance Default

Post by dpm321 » Wed Nov 06, 2019 6:39 pm

JoeRetire wrote:
Wed Nov 06, 2019 6:09 pm
fandango wrote:
Wed Nov 06, 2019 4:48 pm
As everyone knows, there is a tremendous upheaval in that industry now with some of the best companies becoming marginally solvent.
Which best companies do you believe are becoming marginally insolvent?
My question is> What happens if an LTC insurance company defaults?
What do you think "defaults" means?

Are you imagining that some insurance company will decide to not pay back a loan? Or not pay the insurance benefits?

I have no idea what loans and which insurance companies worry you.

I wouldn't worry about benefits not being honored. If somehow your insurance company actually became insolvent, it would be placed in receivership by your state.
While it's true that the state will take over the responsibility, the coverage provided varies widely by state. So there may indeed be reason for concern depending on policy limits.

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nisiprius
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Re: Long Term Care Insurance Default

Post by nisiprius » Wed Nov 06, 2019 6:40 pm

Insurance is governed by state law, so the details are different in every state.

You need to go to this website: NOLHGA, the National Association of Life and Health Guaranty Associations, and, in particular go to Choose Your State Association. The guaranty association that serves you is the one in the state where you reside, not the one where you bought the policy. Find and read the FAQ for your state. A typical FAQ, like this one for the North Carolina guaranty assocation, explains what the guaranty associations does, and what is and is not protected.

People do not know much about the guaranty associations because the insurance industry doesn't want you to know about them. It is against the law for an insurer to use them "as an inducement to buy insurance." You are supposed to think you are taking all the risk yourself so that you'll pay attention to the insurer's financial strength.

All I know about them is what I've read. But if an insurer becomes insolvent, the guaranty associations provide a "safety net" of sorts. It's not called "insurance" because nothing spells out exactly what they have to do, which they figure out on a case-by-case basis. But, basically, up to the protection limits, they are supposed to make sure you are taken care of if your insurer fails.

Q: A couple of incomplete snippets from the North Carolina FAQ:
Are all policies fully protected?

A: Not always. If your insurance company fails, the maximum amount of protection provided by the North Carolina guaranty association for each individual is $300,000 no matter how many policies you bought from your company....

Q: What will happen to my insurance coverage if the guaranty association becomes liable for my policy?

A: Protection can be provided in one of several different ways. For example, a financially sound insurer may take over the troubled company's policies and assume the responsibility for continuing coverage and paying covered claims. The North Carolina guaranty association may provide coverage directly by continuing the insurer's policies or issuing replacement policies with the guaranty association; in some situations, the North Carolina guaranty association may work with other state guaranty associations to develop an overall plan to provide protection for the failed insurer's policyholders. The amount of protection provided and when you receive it may depend on the particular arrangement worked out for handling the failed insurer's obligations.
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nisiprius
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Re: Long Term Care Insurance Default

Post by nisiprius » Wed Nov 06, 2019 7:14 pm

Also, a quick web search will usually turn up the insurer's "financial strength" ratings on the insurer's own website.

For example, I happen to have long-term care insurance from John Hancock. A web search on John Hancock financial strength turns up a "John Hancock fact sheet" which, in turn, shows:

Financial Strength
A.M. Best
A+ (2nd highest of 13 ratings)

Standard’s & Poor’s
AA- (4th highest of 21 ratings)

Moody’s
A- (5th highest of 21 ratings)

Fitch Ratings
AA- (4th highest of 19 ratings)

These ratings are IMHO intentionally obfuscated, but the way I look at it is that A. M. Best has four "A" ratings: A++, A+, A, and A-. Fitch, Moody's and S&P all have seven A ratings.

So I don't think of an A+ from A. M. Best as "2nd highest," I think of it as "middle of the A's." In this case, I see that all four of the ratings agencies agree that John Hancock is somewhere in the middle of the A range. So that's probably fine.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

WoW2012
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Re: Long Term Care Insurance Default

Post by WoW2012 » Thu Nov 07, 2019 12:21 pm

fandango wrote:
Wed Nov 06, 2019 4:48 pm
20 years ago, my wife and I purchased a long term care policy. As everyone knows, there is a tremendous upheaval in that industry now with some of the best companies becoming marginally solvent.

My question is> What happens if an LTC insurance company defaults? Does the state insurance departments assure that all benefits are paid? We purchased the policy in North Carolina.

Thanks.
NONE of the best companies are anywhere close to "marginally solvent".
Keep in mind that if an insurance company is losing money on their long-term care insurance policies, they can't just "declare bankruptcy" and "walk away". They are legally obligated to pay all claims. If they use up all their LTCi reserves (which is not likely) they would have to sell other company assets to pay the LTCi claims.

Of the 170+ companies that have sold long-term care insurance over the years, 3 of them are going through liquidation.
All 3 were VERY small companies. All 3 had VERY low financial ratings.
Combined all 3 of those companies have about 1% of the long-term care insurance policies that are in-force.
Interestingly, all 3 of those companies were domiciled in the state of Pennsylvania.
What was going on in Pennsylvania in the early 90's that resulted in this?

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Re: Long Term Care Insurance Default

Post by fandango » Fri Nov 08, 2019 6:49 pm

One name says it all: GENWORTH

10 years ago it was rated A+++. Now hoping to be bought by the Chinese.

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Re: Long Term Care Insurance Default

Post by RickBoglehead » Fri Nov 08, 2019 6:57 pm

Based on the troubling history of the LTC insurance industry, to NOT be concerned about the stability of a company would be naive.
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Phineas J. Whoopee
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Re: Long Term Care Insurance Default

Post by Phineas J. Whoopee » Fri Nov 08, 2019 7:30 pm

State guarantee associations are not backed by state governments, despite their names. To be licensed to sell insurance in any state, and insurance is a state-regulated industry, the company has to agree to participate in the guarantee association.

If one insurer in a large market fails the others should be able to cover the policies. If most insurers in a market, large or small, fail, there may not be enough assets left to cover them.

It's best to keep in mind a guarantee is only as good as the guarantor.

PJW

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JoeRetire
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Re: Long Term Care Insurance Default

Post by JoeRetire » Sat Nov 09, 2019 8:37 am

fandango wrote:
Fri Nov 08, 2019 6:49 pm
One name says it all: GENWORTH

10 years ago it was rated A+++. Now hoping to be bought by the Chinese.
And yet not in any danger of avoiding benefit payouts.
Don't be a lemming.

donall
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Re: Long Term Care Insurance Default

Post by donall » Sat Nov 09, 2019 11:21 am

The long term care company a relative had a policy with went was insolvent when services were needed. No issues with approval or payment, though the total amount paid was less than the maximum amount.

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Re: Long Term Care Insurance Default

Post by WoW2012 » Sat Nov 09, 2019 11:57 am

fandango wrote:
Fri Nov 08, 2019 6:49 pm
One name says it all: GENWORTH

10 years ago it was rated A+++. Now hoping to be bought by the Chinese.

Over the past several years, Genworth has had to add several billion dollars to their long-term care insurance reserves. Reserves are the funds insurers are required by law to set aside (and safely invest) in order to be able to pay all future claims.

As a publicly-traded company adding funds to "reserves" is considered A LOSS.
So, when Genworth has announced the billions of dollars that they've been losing over the past few years, what they mean is that they had to re-allocate funds from the "profits" side of the ledger to the "losses" side of the ledger.

From a policyholder's perspective it's a GOOD thing that they moved billions of dollars to reserves.
From the stockholder's perspective it's a bad thing.

Long-term care insurance is great for policyholders and not-so-great for stockholders.

The last time I checked, Genworth was collecting about $2.75 billion in premiums each year and incurring about $2.25 billion in claims each year. And, the last time I checked they had $19 billion in long-term care insurance claims reserves.

Nowhere near insolvent.

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Re: Long Term Care Insurance Default

Post by WoW2012 » Sat Nov 09, 2019 12:56 pm

RickBoglehead wrote:
Fri Nov 08, 2019 6:57 pm
Based on the troubling history of the LTC insurance industry, to NOT be concerned about the stability of a company would be naive.
Of the 170+ companies that have sold long-term care insurance, only 3 of them have gone through liquidation:

Penn Treaty/American Network
Life & Health Ins. Co. of America
Senior American Ins. Co. (formerly American Fidelity & Liberty, aka: AF&L)

There are about 7 million people who own long-term care insurance. Life & Health Ins. Co. of America and Senior American were both very small; no more than 30,000 policyholders. Both had terrible financial ratings when they sold their policies.

Penn Treaty also had below average financial ratings, but they had about 125,000 policyholders.

The NY Times writer, Leslie Scism, wrote one of her annual hit jobs on long-term care insurance a few years back highlighting Penn Treaty's failure. She was either ignorant of (or ignored) that Penn Treaty’s mistakes went well beyond mispricing. Penn Treaty’s failure was due to the fact that they ignored the federal guidelines for long term care insurance benefit triggers.

The federal government recommended, and the rest of the long term care insurance industry uses, “Activities of Daily Living” to determine when a policy would pay benefits. Penn Treaty used “Instrumental Activities of Daily Living“. Basically, Penn Treaty's policy would pay benefits if someone needed help with cleaning and cooking. I'm not joking. It's no wonder they went bankrupt. It was no surprise to those of us in the industry.

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Re: Long Term Care Insurance Default

Post by WoW2012 » Sat Nov 09, 2019 1:26 pm

Phineas J. Whoopee wrote:
Fri Nov 08, 2019 7:30 pm
State guarantee associations are not backed by state governments, despite their names. To be licensed to sell insurance in any state, and insurance is a state-regulated industry, the company has to agree to participate in the guarantee association.

If one insurer in a large market fails the others should be able to cover the policies. If most insurers in a market, large or small, fail, there may not be enough assets left to cover them.

It's best to keep in mind a guarantee is only as good as the guarantor.

PJW
Penn Treaty's liquidation is one of the largest insurance failures in history. It will require about $4 billion from the guaranty associations. The health insurance companies in every state will be required to cover that $4 billion shortfall. That works out to about $1 per month per insured for the next three years.

$4 billion is chump change in a trillion dollar industry.

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