Low Rates Are Tormenting Insurers – and Their Customers; Long-term-care policies are among hardest-hit
“Life-insurance companies are scouring their policies to identify ways to raise rates and fees and lower the amount of interest they have to pay on savings products as low interest rates cut into their profits. The bottom line for policyholders is they have to pay up or relinquish benefits.
“The main culprit: the Federal Reserve’s seven-year-old campaign to boost the economy. Life insurers earn much of their profit by investing customers’ premiums in bonds until claims come due. They have typically favored high-quality, long-term corporate bonds to meet regulatory requirements to back their obligations with safe investments. As the Fed began driving down rates in 2008 to rescue the economy from a global meltdown, the yield on corporate bonds has tumbled. …
“Mr. McInerney said Genworth priced many older policies on the assumption the company would earn 7.5% a year on invested premiums. But new premiums are being invested today at about 4%.”
LTC Comment (from Stephen A. Moses, President, Center for Long-Term Care Reform):
There you have the bottom line of LTCI premium increases in a nutshell. The culprit is government policy; the victims are consumers who drop or don’t buy LTCI policies. What’s worse, the Fed’s artificially low interest rates have blown up an economic bubble that will hurt all consumers when it inevitably pops.