Pru LTCi Suspended in CA

Announced this morning, Prudential is “temporarily” suspending sales and marketing of their LTC3 in California.   Applications for the current version of the LTC3 product in California must be received in the Prudential Long-Term Care New Business area by Wednesday, February 29, 2012, to be considered for issuance. Individual applications received March 1, 2012, or later, will not be accepted.  This action does not affect in-force LTC3 policies in California; nor does it affect the availability of LTC products in any other state.

Comment:  Prudential and other LTC insurance providers have recently done extensive claims history and marketing research and the results were, in a word, scary.

• More claims are being submitted than expected.
• More claims are being submitted earlier in the life cycle of the contract than expected.
• Policy owners are not lapsing their policies in as great a number as expected, even when rate hikes come into effect.
• Sales of new policies have been flat for the last seven years and show no sign of increasing any time soon.
• Current percentage of Americans owning their own LTCi (7%) is far below projections made in the late 1990s and early 2000s.
• Surveys indicate a heightened awareness of the probability of needing some type of long-term care before death, but also reflect both denial and fear regarding actually doing anything about it.
• Long-term care insurance is believed by a majority of those surveyed as prohibitively expensive.
• Increases to in force premiums (rate instability) have further  turned off a great number of people from buying their own coverage.
• Promised greater tax-favored treatment of premium payments by government, both federal and state, have not gotten beyond the discussion stage and legislation for such is not a high priority at this time.

The biggest single driver of increased premiums, both on in force and new plan series, is uncapped benefits and  riders (lifetime or unlimited benefit periods, and automatic inflation riders).  Many carriers are offering lower cost capped benefit periods and inflation riders, but these have not been embraced by selling agents who still propose plan designs with the high-cost contract provisions.  Many carriers have dropped the availability of lifetime/unlimited benefits altogether.

Prudential dropped unlimited benefits with the introduction of the LTC3 plan design and added cash beneifts for a percentage of home care costs where surveys had shown that policy owners wanted more freedom to pay whom they chose to provide care for the insured.  Pru continued to provide uncapped inflation riders, but also provided lower cost options such as a 5% compound benefit increase rider with a 2X cap, and a “guaranteed purchase option” rider which allows 15% increases in policy values every three years without the need to medically qualify.

The “refreshed-priced” LTC3 for CA proposes the dropping of it’s popular 50% cash alternative for home care and the option to take up to 150% of the nursing facility care maximum daily benefit for home care costs.  The CA Dept. of Insurance has not responded to Prudential’s proposed rate increase or the changes in the home care cost benefits to date.  The changes were proposed almost two years ago.  Like John Hancock before them – and for the same reason – Prudential has decided to leave the California LTCi market until the CA DOI responds.

This effectively leaves only Genworth*, Transamerica, American General, Bankers Life*, CalPERS*, Mutual and United of Omaha, MedAmerica, Northwestern Mutual, Mass Mutual, and New York Life* as the major providers of long-term care insurance to Californians.

*Carriers providing Partnership plans.