MetLife, which currently provides long-term care insurance to 600,000 people, announced Thursday that it is discontinuing sales of long-term care insurance (LTCI), effective Dec. 30.
MetLife acknowledged that economic circumstances have affected the whole long-term care industry. The company highlighted such costs when it released its Market Survey of Long-Term Care Costs in October. In a statement, the company assured all existing policyholders that their coverage will continue without any interruptions or changes.
Karen Alred, a public relations representative for MetLife, told McKnight’s that interest rates were one of many factors leading MetLife’s decision to discontinue sales of long-term care insurance.
“MetLife has no plans to introduce a new traditional long-term care insurance product,” Alred said. “However, the possibility of one day needing long-term care services remains a significant risk for many, and MetLife will continue to explore potential solutions, including combining long-term care insurance with other products, that we believe can meet both the long-term care financing goals of the public and the business goals of MetLife.”
Declining interest rates can pose a major challenge to insurers, noted Jesse Slome, executive director of the American Association for Long-Term Care Insurance. Forty percent to 60% of the funds an insurer needs to pay claims is generated by investing the premiums, Slome explained. He adds that for every 1% decline in interest rates, an insurer needs to increase premiums 10% to 15%.
“The lower the interest rate, the higher the cost,” Slome told McKnights. “At some point you reach a point where fewer people are willing to buy. If you keep prices artificially lower than one should, you face the risk of needing future premium increases.”
Slome speculated that MetLife may re-enter the LTCI market down the road, once the economy and interest rates rebound.