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Headline: IBM stops selling computers–future of computer industry in doubt!

In December of 2004, the company that set the standard for personal computers (remember “IBM-compatible”), stopped selling personal computers.  After dominating the PC market for most of two decades, IBM abruptly left.

No newspaper editor was silly enough to write the headline:

IBM stops selling personal computers–
future of PC industry in doubt!

Yet, earlier this month, after one of the larger long-term care insurers announced that it would stop selling new long-term care insurance policies, “experts” concluded that the future of long-term care insurance was “in doubt”.  The headlines read:

“Long-term care insurance begins to fade away”
“Is long-term care insurance doomed?”
“Is the long-term care insurance market sick?”

IBM made a simple business decision in 2004.  They concluded they were not nimble enough to profit from low-margin, price-sensitive, computer manufacturing.

Insurance companies also make simple business decisions. There are significant overhead expenses to create, market, and underwrite long-term care insurance.

These expenses are incurred regardless of how many (or how few) policies are actually sold.  If sales are too low, the overhead costs per policy make it less desirable for the company to sell new policies.  It’s MicroEconomics 101.


Fact:  More people own long-term care insurance today
than ever before in history.

More than twice as many individuals own long-term care insurance today as did in the year 2000.

The number of individually purchased long-term care policies has increased by 129% in the past 10 years.

Does that sound like a market that is sick?

While some LTC insurers’ sales have been down over the past few years, other long-term care insurers have had double-digit growth.  One of the leading long-term care insurers had a 36% increase in sales last quarter, compared to the 3rd quarter of 2009!

One highly-rated insurer that sold long-term care insurance for nearly 20 years, and then stopped selling new LTCi policies, started selling new LTCi policies again after significantly reducing their overhead and streamlining their business processes (something some insurers will have to do in order to be competitive again in this industry).

Medicaid and the CLASS Act are not the solution to the “long-term care tsunami” headed our way.  Government-approved long-term care partnership policies ARE the solution.

This recent announcement, however, has revived some common misconceptions about long-term care insurance.  In the next few posts, I will address these misconceptions:

  1. Can my long-term care insurance policy be cancelled by the insurance company?
  2. What happens to my long-term care policy, if my insurer stops selling new policies?
  3. How do I know if the long-term care insurance company will still be in business when I need to make a claim?
  4. What happens to my long-term care policy if the insurance company goes bankrupt?
  5. What happens to my long-term care policy if the insurance company sells my policy to another insurance company?

(originally published Nov. 6th, 2010).

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About Scott A. Olson

Scott A. Olson, is the author of “The Guidebook for Making Long-Term Care Insurance Easier.” He is a licensed insurance agent and has specialized in long-term care insurance since 1995. He is licensed to sell long-term care insurance in over 40 states. Scott was born and raised in New Jersey and attended Rutgers University. Scott was a caregiver for a close relative for two years. That personal experience has made him acutely aware of how to help his clients design and choose a long-term care policy that will benefit them when they need it the most. Scott and his wife Carolyn live in Redlands, California. Scott and Carolyn have four sons.

12 comments on “Headline: IBM stops selling computers–future of computer industry in doubt!

  1. Excellent blog, Scott! Thanks.

  2. Very good recount of history & analogy and application to the LTC industry. Thanks

  3. Nice blog post, Scott! Great analogy!

  4. Scott –
    Nice post and blog! Thanks for the humorous perspective on such an important issue…

    • Thanks, JP.

      To survive in this economy EVERY business needs to cut overhead and streamline their business processes.

      This recent announcement is a perfect example of why the free market works. Bloated, inefficient business models canNOT survive in today’s economy. It is true for manufacturing, retail, the service sector, and it is true for the insurance industry as well.

  5. Scott,
    Excelent! Wish I had thought of it myself. Carriers in the LTCi market will come and go. The need will remain.

  6. Hey Scott!

    Nice job buddy! Thanks for the comparison! very clever!
    I hope that some of the outside of the industry get a better understanding. This is a serious issue. It is not something as many have taken lightly. The need has grown since I started in 1998. The rates are finally going to be inline with the risk to protect the policy holders. We do not need to apologize for the rate increases. It no different than health, auto or home owners risks where rate increases are understood. It was NEVER an investment but pure protection.
    Best wishes,
    Rene

  7. Hi Scott,

    This is an interesting reference to history, but IBM sold the pc division to a foreign manufacturer who utilizes less expensive foreign labor. While foreign labor will probably not sell ltc, the internet has become the site of less cost intensive insurance sales, and many in the industry proclaimed that auto insurance would never be sold on the internet, let alone life insurance.

    Direct selling of long term care will explode if the baby boomers ever recveive real consumer information from the biased media that the govenment will have insufficient funds to provide care for those in need.

    Government-approved long-term care partnership policies ARE the solution.

  8. Nice work, Scott.

  9. Well said, Scott. Nice to have a voice letting people know that the sky is NOT falling regarding LTCI! Thanks for your perspective.

  10. Here is my response to Anthony at About.com

    http://assistedliving.about.com/b/2010/11/12/met-life-drops-ltc-insurance-more-trouble-for-the-industry.htm#gB3

    Anthony,

    I use the example of IBM because IBM did NOT leave the personal computer market because the market was “in trouble” or “coming to an end.” The production of personal computers has nearly tripled since IBM left the personal computer market.

    IBM left the “personal computer” market for two reasons:

    1) IBM realized that they were not nimble enough to remain competitive in a very tough industry. Other companies like Dell and Compaq/HP were nimble, fast, and very competitive.

    2) IBM realized that they could have a much greater ROI by investing their human and capital resources in high profit “IT consulting services”, rather than low-margin manufacturing. In other words, they did not leave a “bad market” for a “good market”. They re-allocated their resources from a “good market” to a “better market.”

    In my opinion, one or both of those reasons apply to the few LTC insurers that have stopped selling new LTCi policies in the past 5 years.

    Scott A. Olson
    Redlands, CA

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