Rate increases are one of the most common complaints and worries for people who have existing long-term care insurance policies.
Many factors are at play including misguided pricing, companies exiting the business, as well as a general lack of understanding of the actual risk the insurance companies were facing when they developed their policies…
Basically, a lack of data.
Today, lapse rates (when a client cancels their policy) on long-term care insurance policies are approaching zero, meaning clients are hanging on to their policies once they are in place. Originally, insurance companies assumed lapse rates would be somewhat similar to other insurance products which may be 50% or more and they priced their policies accordingly. Since lapse rates are lower than expected, insurance companies are now paying out more in claims than they expected.
Big Data has changed everything.
Insurance companies can now process 16 times the policy data and 70 times the claims data as more information is available and more computing power allows the companies to analyze data they couldn’t before. This means better underwriting on the front end and a more realistic claim risk on the back end for the insurance companies. This really translates to more accurate pricing when new policies are issued.
The likelihood of a rate increase on new policies has dropped from over 40% in 2000 to about 10% in 2014. That means thanks to Big Data, current pricing makes it unlikely that a rate increase will be needed on new long-term care insurance policies.
Remember, long-term care insurance was developed here in the U.S. in the 1970’s and like any new product, it has evolved. Unfortunately many of the older policies were priced using models that did not hold true. Today the overall number of companies offering traditional long-term care insurance has dropped from well over a 100 to less than 15. In the State of Washington, we have access to about 10 of those companies, of which 4, or 40%, of them have never had a price increase on their existing clients.
Don’t let the fear of a price increase on long-term care insurance deter you from looking into this important planning tool.
Thanks to Big Data, we now have better information available which has led to more stable pricing on new plans. We also have new guaranteed level premium options available as well so you never have to worry about a rate increase in the future.
You can learn more about these new options at 525LongTermCare.com