Study finds long-term insurers achieve high growth at the expense of profitability |
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Written by U.S. Insurance News
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Sunday, 20 July 2003 |
Despite high historical and projected growth, the long-term care insurance industry and many of its leading companies are destroying value, according to a new study by Conning Research and Consulting, Inc. "We have seen a sustained period over which many of the market leaders have under-priced their individual long-term care products in an effort to rapidly grow market share," said Michael Weinstein, director of research at Conning. "Attaining this growth, however, has extracted a substantial financial toll."
NEW YORK — Despite high historical and projected growth, the long-term care insurance industry and many of its leading companies are destroying value, according to a new study by Conning Research and Consulting, Inc.
"We have seen a sustained period over which many of the market leaders have under-priced their individual long-term care products in an effort to rapidly grow market share," said Michael Weinstein, director of research at Conning. "Attaining this growth, however, has extracted a substantial financial toll for most of the leading companies by forcing large reserve additions each year to cover benefit costs from prior years and this, in turn, has created tremendous pressure on profitability."
The study, "Long-term Care Insurance — Growth, but at what cost?" identifies the trends likely to maintain long-term care insurance as one of the fastest growing segments in the life insurance industry, and the primary reasons firms have been, and will likely continue to be, challenged to attain both growth and profitability.
"There are some positive developments occurring, today, such as increasing adoption of the NAIC model pricing regulation and increasing penetration of the group segment which has more attractive economics," Weinstein said. "However, we suspect that these developments are insufficient in view of the challenges faced by companies serving the long-term care market."
Challenges concerning poor product pricing, high-cost structure relative to revenue capability and inadequate investment returns, need to be addressed immediately if firms are to stop what Conning observes as widespread value destruction. According to the study, "Net present value analysis of projected company cash flow supports our view that the long-term care market's in-force book, in aggregate, is not profitable. Absent efforts to address the challenges facing the market, newly written business should produce the same profitability."
"Long-term Care Insurance — Growth, but at what cost?" is available for sale from Conning Research & Consulting, Inc., by calling (888) 707-1177 or by visiting the company's Web site at www.conningresearch.com.
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