Pricing Long-Term Care Insurance for Long-Term Profitability

The LTCI market is evolving, and only a small percentage of the potential market has been penetrated. According to the 2000 Insurance Fact Book, published by the American Council of Life Insurers, less than 10 percent of the U.S. population over age 65 has purchased private LTCI. The increasing need for this product improves the prospects for additional tax relief for LTCI purchases, further encouraging sales. Because of market growth and product evolution, risk management is crucial to long-term profitability. Perhaps one of the most significant risk management challenges LTCI companies face is the difficulty in determining, with a high degree of confidence, premium rates that management believes will be profitable. Many companies have been reluctant to enter the LTCI market. Some companies already active in the LTCI market are re-examining their strategies and commitment to LTCI. These situations stem from the uncertainty created by a number of risk factors, the most significant of which are: ■ Claim levels and morbidity costs ■ Persistency of the business ■ Investment earnings