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:
- Can my long-term care insurance policy be cancelled by the insurance company?
- What happens to my long-term care policy, if my insurer stops selling new policies?
- How do I know if the long-term care insurance company will still be in business when I need to make a claim?
- What happens to my long-term care policy if the insurance company goes bankrupt?
- What happens to my long-term care policy if the insurance company sells my policy to another insurance company?
(originally published Nov. 6th, 2010).