Why would the New York Times article on long-term care insurance say that long-term care insurance is risky when over 95% of the long-term care insurance policies sold today are backed by companies with high financial ratings? 

“Doug Baker, a director in Fitch’s U.S. life insurance group, said long-term care insurance ‘is one of the riskiest in our universe’ because of the lingering financial burden from underestimating the number of people who would tap their policies.”

Please be aware:

• Fitch does NOT rate the quality of insurance policies.
• Fitch does NOT determine whether a consumer will benefit from owning an insurance policy.
• Fitch rates the financial strength of insurance companies and whether or not the insurance company is likely to make a profit.

The article’s narrative is that long-term care insurance is risky for consumers. It’s not. Just the opposite is true. Long-term care insurance is risky FOR INSURANCE COMPANIES. 

Not all insurance companies.

Some insurance companies. 

Particularly those who sold long-term care insurance in the 1990s and early 2000s.

The New York Times article on long-term care insurance correctly states that Fitch (and other rating agencies) are concerned about “the lingering financial burden from underestimating the number of people who would tap their policies.”

In other words, the policies the insurance companies sold in the 1990’s and early 2,000’s were underpriced. The actuaries (and the regulators) expected the claims to be about half what they actually are. 

Now, you can better understand this statement in the article:

Doug Baker, a director in Fitch’s U.S. life insurance group, said long-term care insurance “is one of the riskiest in our universe” because of the lingering financial burden from underestimating the number of people who would tap their policies.

Lingering…

He’s talking about the old, underpriced policies, and the effect those underpriced policies are having on the insurers’ bottom lines.  

No.

We know that because the companies that sell most of the new long-term care insurance policies today have very high financial ratings. 

Why would Fitch give a high financial rating to a company that sells long-term care insurance today if selling long-term care insurance today was risky?

The older, mispriced policies are risky for the insurance companies.

The newer, more accurately priced policies are not so risky for the insurance companies. 

As I mentioned in the previous article:

The average company selling long-term care insurance today has been in business for over 130 years.

The average insurance company selling traditional long-term care insurance today has been selling it for over 27 years. 

For the 10 companies selling traditional long-term care insurance today, their A.M. Best ratings for financial strength are:

• A++ (Superior)
• A++ (Superior)
• A+ (Superior)
• A+ (Superior)
• A  (Excellent)
• A  (Excellent)
• A  (Excellent)
• A  (Excellent)
• A- (Excellent)
• C++ (Marginal)