Just read a great article about Thomas McInerney the CEO of Genworth in the Richmond Times-Dispatch. It started with a great line about investors being unhappy with the company lately and it helped put things in perspective for me. Genworth, by rejecting Wall Street’s cries to drop Long Term Care insurance, is setting an amazing example for other insurance companies. By putting their customers first and trying to find a new path for Genworth Long Term Care insurance, Genworth is boldly asserting the necessity of the service they provide. The company is admitting that they misjudged Long Term Care insurance in 3 specific areas, lapse rates, length of claim, and ROI on their product. The fact that they have isolated the areas that need adjustment is a positive step forward.
The lapse rates were anticipated at 5 or 6% and yet the actual rate was 1%. The demand for the insurance was much higher than anticipated. The older policies are the biggest problem that the company is facing. As the company moves forward they will not be basing their expectations on unfounded research, but on the track record of Long Term Insurance over the last 30 or so years. McInerney has been working with lawmakers in many States, not just to hike rates, but to make the process easier on everyone. Genworth wants gradual rate adjustments that allow the companies to make their business profitable while easing the stress on the policy holders.
The length of claim was underestimated as well and while it was a difference of months the steep costs of assisted living and nursing home care made a huge dent in Genworth’s quarterly budget. Again the biggest problem was on the older policies and McInerney has said that Genworth is only hoping to break even on those policies. The state of modern medicine has made people more reliant on home care and nursing homes. More illnesses such as Alzheimer’s are treatable and these treatments often require bed rest and people are left needing help. Genworth and the other companies who have stayed in the Long Term Care insurance game know that they are providing a necessary service.
Genworth has acknowledged that the return on investment that they had anticipated is simply not there for this product. They will of course adjust their business model and try to make a profit on it, but the riches they thought lay at the end of this rainbow are not there. What is at the end of this rainbow is offering people an affordable way to get the care that they need during a very vulnerable point in their lives. Vulnerable both physically and financially, and private insurance will allow them the freedom to get the care without having to jump through the hoops that are always associated with public insurance options. The more I read about the Genworth “crisis” the more my faith is renewed in the Long Term Care industry.