A handful of publicly held life insurers dominate the market for traditional long-term-care insurance, but mutual life insurers are beginning to make inroads with agents and financial advisers.
Genworth Financial Inc. and John Hancock Life Insurance Co. dominate the list of LTC policies sold last year, with 1.1 million and 725,000, respectively.
However, sales are climbing at insurers such as Northwestern Mutual Long Term Care Insurance Co., which had 120,000 policies as of the end of last year, up from 103,187 at the end of 2009. Massachusetts Mutual Life Insurance Co. has also picked up sales, with a total of 65,113 policies, up from 60,780 in 2009.
Although mutual insurers represent just a fraction of the LTC market, advisers and agents are giving them a closer look.
For one thing, there are fewer companies offering LTC insurance, so the universe is smaller. But more importantly, mutual insurers, with their tough underwriting standards, haven't had to raise rates as often as their bigger counterparts.
“I stick with companies like MassMutual because they don't raise costs,” said Sara Bohn, an adviser at JSW Financial, which has $100 million in assets under management. “[And] I can feel comfortable that that company is going to be around for 100 years.”
(Click here to read about cut-backs in coverage, also part of the Long-term-care special report.)
The LTC insurance industry has been subject to many changes as it has matured. Companies that have bailed on writing new policies include Conseco Senior Health Insurance Co., MetLife Inc. and Penn Treaty American Corp.
Public companies jumped into the industry with optimistic underwriting and lapse rate expectations, and priced products improperly, observers said.
Those issues, along with low interest rates, have squeezed insurers and forced them to drive up premiums on existing policies — and, where applicable, new business — so that the costs adequately reflect the risk that they are taking.
Mutual companies such as MassMutual, New York Life Insurance Co. and Northwestern Mutual, on the other hand, got into the business later and learned from the mistakes made by their predecessors. Their policies generally were priced about 30% higher than those sold by publicly held insurers, avoiding the periodic rate increases imposed by the bigger public companies, advisers said.
'PRICED HIGHER'
“You could argue that a company like Northwestern Mutual would be more stable, but they priced higher to begin with, years ago,” said Harley Gordon, president and founder of the Corporation for Long-Term Care Certification Inc. “Companies that have been in the business for 30 years, and have seen claims come in higher than expected, raise the premiums because they have to.”
These days, prices for new policies from mutuals and stock companies are about the same, and advisers are turning toward mutuals when possible.
“The stock insurers have recognized that they need to price more, so the gap in price has narrowed,” said Claude Thau, president of Thau Inc., an insurance wholesaler.
Also, a track record with few or no rate hikes on existing policies could mean fewer surprises for the client in the future.
Greg Olsen, a partner at Lenox Advisors Inc., has been recommending MassMutual policies to clients, particularly after some clients were hit with a 13% rate increase on their MetLife policies.
“I've given these mutuals so much of my business,” he said. “Looking back over 20 years, when I go to companies that put profits over clients, I get burned.”
When asked to respond, Jodi Anatole, MetLife's vice president for health risk products, said, “While we are sensitive to any rate increase that impacts our policyholders, assumptions used to initially price many long-term-care insurance products have changed. Rate increase filings have been necessary to ensure that we deliver on our promises to all of our policyholders.”
LTC insurance specialists noted that although they have seen more agents and advisers asking about the major mutuals, some of that might stem from the fact that there are fewer players in the business now.
“With MetLife leaving and John Hancock making a ton of changes, that $100 million of new business had to go somewhere,” said Julie Gelbwaks Gewirtz, executive vice president of Gelbwaks Executive Marketing Corp., an insurance brokerage.
It makes sense that money would flow to the other insurers, she said.
But there is a flight-to-quality element under way as well, some say.
“Certainly, as some of these stock companies have been beat up over the last couple of years, there's a flight to security and safety,” said Steve Cain, executive vice president and national sales leader at LTCI Partners, a brokerage specializing in LTC insurance.
Aside from the shift in preference, however, observers noted that because of a more narrow distribution system, mutual insurers probably will never overtake their stock counterparts in market share. Although MassMutual and Mutual of Omaha Insurance Co. can be sold through insurance brokerages, New York Life and Northwestern Mutual sell their policies exclusively through their career agents.
“You have some brokers who'll sell mutual companies, and that's true with Mutual of Omaha and MassMutual, but other [mutual companies] won't deal with brokers,” Mr. Thau said.
To some extent, having that limited audience of agents can help regulate growth and discourage LTC sales from taking off too quickly.
“Other companies have had erratic growth, but we still sell through an exclusive distribution system,” said Steve Sperka, vice president of LTC insurance at Northwestern Mutual. “We don't have to be sensitive to having the cheapest prices, and this allows us to train the sales force to look at how the product is sold.”
Most other LTC insurance brokers go either for the lowest cost or the fanciest feature, as opposed to seeing the product as part of a holistic planning solution, Mr. Sperka said.
As a result, advisers' increased interest in mutual insurers will notch a few new policy sales for the insurers but probably won't siphon off much business from the biggest LTC insurance providers.
“We've seen a lot of push to promote mutuals, and the agents feel comfortable doing that because they felt the clients would be safer. But it hasn't shifted the industry. Agencies like mine are still status quo,” Ms. Gewirtz said.
dmercado@investmentnews.com
