It’s safe to say the long-term care (LTC) landscape has changed quite drastically over the last 30 years.
During the LTC insurance “boom” of the 1990s, most of these providers were targeting the middle class for coverage. A variety of factors influenced this. First, affluent clients assumed they could self-insure all ranges of claims. After all, the potential costs and impending effects of undertaking such feats were still unknown variables. On top of that, many of the lower income families either couldn’t afford the coverage, or planned to rely on government programs for support.
But, once claims began to occur, the carriers realized two major flaws in their process:
- They insured virtually everyone, meaning adverse selection was working to their detriment
- The money being paid out for claims far exceeded premiums received
Many of these early carriers exited the LTC market altogether while others decided to tighten up their underwriting protocols and increase premiums for existing policies to make up for their previous shortfalls.
Furthermore, the clients who experienced these rate increases were faced with a tough decision: surrender these policies and forfeit all premiums paid; or find additional revenue sources to keep these policies intact.