Twenty-one years ago and over $75,000, Linda and David Brooks had a plan: With retirement on the not-too-distant horizon, they’d start funneling money into their new long-term care insurance policies. In return, when age and disability finally catch up to them, they will get the help they need without going bankrupt or becoming a financial burden on their four children.
Then came the turn away.
“This letter is to let you know that we recently applied for an 112% premium rate increase on your long-term care insurance policy,” read the letter David received from Genworth Life Insurance Co. This fall. Linda received the same notice – except that Genworth said she wanted to raise her premiums by 146 per cent.
Typos? they wish.
Some kind of practical joke? There is nothing funny about it.
A company that cedes liability – or in this case, the invoice – for its failure? Now we are much warmer.
It’s unbelievable,” Linda Brooks said in an interview last week. “I can not believe it.”
Nor could the hundreds of other key people, all in their later years, who logged on Thursday for an online forum about one of the insurance industry’s most critical mistakes in modern times. Long-term care insurance, once booed as a key to peace of mind and financial security, is fast becoming a turning point of the century.
The Brooks family is, by all accounts, a responsible and wise couple.
Linda, 72, retired social worker. David, 81, worked for Motorola. They lived for 20 years in Scarborough before moving in 2015 to Florida, and they are confident that when the time comes for long-term care — which Medicare and most supplemental health plans don’t cover — their Genworth policies will foot the bill. They don’t depend on their kids for money, don’t drain their assets and hope their fixed income will qualify them for Medicaid, and absolutely no dependency beyond the coverage Genworth promised them all those years ago.
They also believed, at least initially, that their monthly premiums would still be affordable — while Genworth had the right to make occasional adjustments, any rate increase would have to be approved first by the Maine Insurance Bureau.
But increases of 112 percent and 146 percent? Or, in the case of other Maine policyholders, 178 percent? Let me come out here and suggest that this is unfair.
“It is. Office manager Eric Sioba said in an interview after a forum last week. If I am not here to help consumers in this situation as often as I can, then what am I here to do?”
At the root of all this is an industry-wide product in free fall. As Cioppa pointed out at the start of Thursday’s marathon of four hours or more, the long-term care insurance market arose about 40 years ago and was, from the start, built on a set of deeply flawed assumptions:
Insurers believed they could finance future claims over the long term by investing the premium payments at an annual rate of return of 6 percent to 8 percent. In fact, the bonds where all that cash was stored, Cioppa noted, “performed well under 4 percent.” Meaning, Genworth, like other companies who have made the same mistake, is now finding itself in a hole that will only grow deeper as more claims pour in.
Insurers also factored in the “lapse rate” – the number of customers who fail over time to renew their policies – between 4 and 5 percent, just like the long-term rate for life insurance policies. Wrong again – Less than 1 percent of long-term care policyholders let their plans lapse.
Finally, companies miscalculated their predictions about the disease — or, more frankly, thought their customers would die sooner. Alzheimer’s disease and other long-term illnesses have turned this assumption on its head.
All of which brings us to the central question that had more than 400 Genworth clients — with nearly 4,100 policies in Maine, the state’s largest long-term care provider — glued to computer screens on Thursday: Who should pay for that screw-up. Even customers who signed in in good faith or a company that made a really bad bet?
Linda Brooks, who has already spent with her husband $75,057 in Genworth policies since 1999 and will now see her premiums jump from $5,184 to $11,868 annually, was more than ready for her speech role. Her deeply researched presentation initially recorded over seven minutes, but it’s his story to meet the forum’s five-minute rule of thumb. Then, after the list of people wanting to talk to more than 200 people increased, the speaking periods were cut to just two minutes, forcing Brooks to intensify her anger.
I find myself struggling to make the difference between the financial exploitation and coercion of seniors and premium-increasing practices in Genworth and (the Maine Insurance Bureau). It seems like a very good distinction actually,” she said, referring not only to the recent rate hike but to other increases and reductions in benefits that she and her husband have already incurred in recent years.
Unlike many others who have used their allotted time just to vent, Brooks quickly listed her recommendations to clear up this mess: Ban all premium increases until solutions are found that take customer concerns into account. Recognize the “erosion of trust” not only in the insurance industry but also in the state officials who are supposed to regulate it. Factor in the savings Genworth would realize from people who reduce their benefits to save their policies. An account of money Genworth saved due to policyholders dying sooner than expected from COVID-19. Finally, allow companies like Genworth to improve their cash reserves by investing in more than just the low-yield bond market.
All good ideas. Here’s another: Shift the burden of liability for this circus away from policyholders, and onto Genworth and other companies that, from the start, have been much better at selling these plans than at costing. That reckoning might start from the top — as more than one speaker at a forum last week pointed out, Genworth’s president and CEO Thomas McInerney’s annual compensation package is north of $9 million.
“This doesn’t seem to reflect a company that struggles to say it’s solvent,” Brooks noted in her previously edited comments.
It’s hard to say where all this is headed. Genworth wants her request for a rate hike to be finished by August, although supervisor Cioppa would not go further than saying it will be resolved sometime in 2022. In all likelihood Genworth won’t get everything she wants – it’s up to Cioppa to decide what If the proposed new rates are “excessive and discriminatory” – but those sitting on the policies are still awake worried about how much they have sunk this time around.
As Brooks said after giving her two minutes at the forum, “The most we can do is educate the public on an issue that has led to dire consequences for policyholders. We hope that the powers that be will seize the opportunity to truly do some good for the ‘people’ by legislating effective barriers” to The arrogance of Genworth and other amazing insurance companies.
Late on Friday, I received an email from Daniel Bolt, Genworth’s Senior Director of Communications. Most of it was a summary of what another company official had already said at Thursday’s meeting — and all rooted in the fact that Genworth’s forecast, like the rest of the industry, “played differently than expected.”
Bolt also listed a range of options Genworth policyholders can now choose from: keep paying the premium in full, no matter what. Accept more benefit discounts for a lower (but higher) monthly bill. Or stop paying premiums now and, if the need arises, Genworth will pay claims up to but not exceeding the total premiums paid to date. (The latter is a real laugh – any document holder can achieve the same by simply putting their money into a cookie jar.)
Bolt noted, “We are focused on leveraging the points of contact we have with our policyholders to provide education about their coverage and potential coverage needs.”
If only they would educate themselves first.
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