According to Scott, “Insurers built provisions into their policies to increase the premium and companies are increasing the premium dramatically at this point in time. The reason they are now increasing those premiums may be that the usage is much higher than was anticipated, but it also may be that the investment earnings that they had hoped to achieve when they originally priced the product have been much lower than they expected. Interest rates have fallen dramatically from the rates of the ‘80s and early ‘90s, down to around the 4 to 5 percent range now. So they’re not making the big returns they expected on the investment money.”

Internal pressures may be to blame

Scott thinks that internal pressures may be to blame for some policy benefit denials. His experience with insurance companies lead him to say, “If you are the product manager of the long term care line at an insurance company, you don’t want to look bad. You’re not making significant amounts of money on your investments and certainly being fair and generous on the claim side isn’t going to improve your overall financial results. The money that you pay out is going be charged to your line. So, many companies have increasingly become far more restrictive than they may have otherwise been when it comes to claim payments. In many instances, they’ve been denying claims altogether.”

External factors are also part of the mix

In addition to internal pressures, Scott thinks that external factors are also part of the mix. He continued, “Another factor separate and apart from the financial results is that many of the insurance companies that originally wrote long term care insurance were mutual insurance companies. These were companies that were essentially owned by their policy holders and operated for the benefit of their policy holders. Companies such as Prudential, John Hancock, Metropolitan Life and others – some of the leading companies in the nation – have converted over the past decade to becoming stock companies that are owned by outside share holders. So, they are now competing on Wall Street for attention and have to show profits and growth.

So these companies have basically changed their mission from the time the policies that were issued – from the way it was the time the policy was issued to becoming just another for profit company that’s out to make money often at the expense of the customers. There’s a lack of nexus between the customer and the owner because the owner is now somebody different than the customer.”