Is long-term care insurance inherently unsustainable?
One could easily reach that conclusion based on a new report from Moody's Investor Service that throws into question the long-term viability of a complicated product that brokers have found difficult to sell in a down economy, even to aging boomers.
Moody's notes that five major insurance companies have ceased writing long-term care insurance in the last two years: MetLife and CUNA Mutual departed in 2010, CNA and Berkshire dropped out the following year, and Prudential pulled out of the individual market this year.
That leaves the bulk of the market to Genworth, Northwestern and John Hancock, which combine for 61 percent, according to a 2012 report from Broker World magazine.
If you've ever purchased long-term care insurance, you know that the question that keeps you up nights throughout the selection process is: Which company is most likely to be there 10, 20 or 30 years from now, when I'm most likely to need them?
The Moody's report won't help you answer that question or sleep any better.
According to Laura Bazer, the Moody's vice president who wrote the report, long-term care insurance suffers from a short track record, having only appeared on the market in the 1980s. What limited claims experience does exist shows that insurers mispriced those early policies and were overly generous with terms. The miscalculation forced many to increase reserves, which they did in large part on the backs of new customers over the past two years.
It can be pretty hard to sell a "new" product by jacking up its price, as the industry has found out recently. To further correct course, Bazer says long-term care insurers also have gotten jiggy with their products, restricting benefits and payout periods and combining long-term care coverage with life insurance and annuities to make it more attractive to some.
Unfortunately, that approach can make a complex product even more confusing -- and perhaps more suspect in the eyes of unenthusiastic buyers.
Moody's concludes that the recent exit of five major players, combined with a low-interest-rate environment, throws into question whether long-term care insurance is a sustainable product.
The Moody's assessment echoes concerns expressed last year by Health and Human Services Secretary Kathleen Sebelius when she announced that the feds were temporarily suspending their search for a sustainable long-term care solution under health care reform.
The rap on long-term care insurance has long been that those who can afford it don't need it and those who need it can't afford it.
To that, Moody's has added a third possibility: that it may be impossible for even the savviest actuary to devise a long-term care product that brings in more money than it gives away.
Follow me on Twitter: @omnisaurus.
Subscribe to Bankrate newsletters today!