Massachusetts Mutual Life Insurance Co. is seeking steep premium increases on long-term-care insurance policyholders, a move that will make it much costlier for thousands of customers to pay for nursing homes, assisted living and in-home assistance.
The potential increases would apply to about 54,000 of its 72,000 long-term-care policyholders, the company said. In total, the insurer is asking state regulators to approve increases averaging about 77% per customer, a company spokeswoman said.
Before this week, MassMutual had been one of relatively few holdouts, resisting raising rates on existing policyholders as errors in pricing have haunted insurers and turned many consumers against the product. Over the past decade, some rivals have saddled customers with a doubling in premiums.
While the 54,000 customers is a small slice of the approximately 7.3 million U.S. policyholders across all insurers, financial advisers say the move dramatizes how serious the mispricing problems are for the industry. MassMutual has more flexibility than most to absorb poor results without asking longtime customers to pay more. The Springfield, Mass., company is also one of the most diversified and financially strongest, and it is owned by its policyholders, not shareholders.
“This was a difficult decision, made only after our ongoing analysis indicated it was absolutely necessary to preserve our ability to continue to protect our policyowners given the many factors that have changed over the years, such as people living longer, the need for long term care growing rapidly, and the cost of long term care services increasing,” MassMutual spokeswoman Laura Crisco said in an email.
The reverberations will hit as investors and policyholders are still absorbing the disclosure in January that General Electric Co. needs to add $15 billion to back its long-term-care policyholder reserves, over seven years. The unexpectedly large size of the shortfall has investors and analysts concerned that additional reserve charges and rate increases are ahead as more insurers come to grips with past mistakes.
“The challenges occurring [at GE] will broaden and impact additional insurers,” Evercore ISI analyst Thomas Gallagher said in a note to clients.
MassMutual began selling long-term-care policies in 2000. At the time, many insurers thought they had the perfect product to profit from people’s concerns about becoming unable to care for themselves and outliving their savings.
But by the end of the decade, growing numbers of insurers concluded they had badly miscalculated how many people would hold on to the policies and file claims, and how long they would draw benefits before dying. Since 2008, ultralow interest rates have hurt their ability to earn interest income as they await claims.
From a peak of more than 100 insurers selling long-term-care policies, only about a dozen still do, including MassMutual. Sales have collapsed amid consumer alarm and fewer agents pitching the product.
Just 66,000 traditional policies were bought last year, insurance-industry-funded research firm Limra says. That is down from hundreds of thousands a decade ago.
MassMutual said the increases would apply to its “earlier policy series,” some of which have lifetime benefits that are no longer sold. Policyholders will have options for holding down an increase. Typically, insurers allow consumers to give up features such as inflation adjustments or otherwise reduce benefits.
Policies sold today typically cost significantly more and have less-generous benefits than earlier versions. A buyer in his or her late 50s to early 60s can expect to pay roughly $3,000 annually for a policy whose benefits grow to just over $300,000 or so when the owner is in his or her 80s, when claims are often filed, according to financial advisers.
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