Genworth’s Looming Rate Increases - A Sign of the Times?
August 7, 2007 · Print This Article
Genworth Financial has been a solid player in the Long Term Care insurance arena for many, many years now. The company is well diversified, offers decent products, is financially strong and its annual earnings are up. So, why does Genworth feel the need to raise rates on older policies and jeopardize seniors who have faithfully paid their long term care insurance premiums all these years?
Genworth Financial announced its plans to increase premiums on LTC insurance policies that were sold through 1997. The increases are anticipated to begin in late 2007 and are projected to be about 8-12% Of course, any increases will have to be filed in and approved by each state. Then the policy holders must be notified. All this could take 2-3 years.
Which policies will be affected? We’ll have to wait and see, but an educated guess would be that the policies with unlimited lifetime benefits will get the largest increase, as these policies represent
the most risk to any Long Term Care insurance carrier.
Background:
Genworth Financial offers many products, such as annuities and insurances of various kinds. Its Long Term Care insurance line went by the name of GE in the past. Genworth is such a trusted name in LTCi that AARP recently chose the company as its next provider to offer its new Long Term Care insurance products. MetLife will still handle the policies previously sold in conjunction with AARP.
So, Genworth Financial is not hurting, it’s growing. Considering it’s parent company is General Electric, there should be even less concern about it’s financial stability.
General Electric (GE) is one of the largest military contractors in the U.S.. It also builds nuclear power plants and manufactures everything from toasters to misslie propulsion systems. Plus, it owns NBC, Telemundo, Bravo, CNBC, and part of msnbc.com.
GE receives millions of dollars each year from the federal government (actually, from our tax dollars) and makes God knows how much money through it’s various ventures, so its a good company for Genworth to have as a “parent”.
Even so, Genworth Financial is planning to raise its premium rates. The long time policy holders, many of whom may be quite elderly and on fixed incomes by now, will have to come up with extra money, reduce their benefits or let go of their policy altogether…just when they’ll need long term care protection the most.
Sadly, once again, it looks as if the bottom line and loyalty to stockholders may win out over the “common folk” - in this case, the policy holder. Of course, a corporation’s prime directive is to make money for its stockholders. Still, it would be nice if large corporations and their stockholders would put our country’s vulnerable senior citizens ahead of company profit margins.
What to Watch For:
In the long run, Genworth’s rate increases may tempt more LTCi carriers to follow suit. Fortunately, many Long Term Care insurance companies have never raised their rates and do not plan to do so. Let’s hope that these companies continue in their integrity - considering their policy holders first and foremost.
Technorati Tags: Genworth Financial, premiums, policies, Long Term Care insurance, annuities, Genworth
GE is not the parent company of its spinoff Genworth. Although it is unfortunate that the largest carrier in the industry is raising rates on its older policy holders, they must consider their committment to those policy holders who need the company to be there for next 50 plus years. If the company is not making its minimun required profits, how will it meet its commitments to all policy holders.
If you consider how low the premiums are for those who have had policies that began as long as 34 years ago, the percentage of increase sounds small to me.
One of Genworth’s strongest selling points is that have never raised rates to existing policy holdetrs and with this action they will lose one of their most improtant selling points. As this article points out, Genworth with its parent company, GE, have more than enough ways to adsorb increased costs!
Corinne,
Sounds like you’re a Genworth captive agent or stock holder! OK, I’ll elaborate, if I must. First the “parent” issue, then the rate raise issue.
Technically, you are correct. GE no longer owns shares of Genworth, so it is no longer its parent - legally. However, it absolutely was Genworth’s parent company (and technically “is” since one can never really stop being a parent, right?) Genworth Financial was conceived by GE, the conception was announced in 2003 - and Genworth Financial was finally delivered from GE’s corporate loins in 2004.
GE did own Genworth completely for a time.
How do huge multi-national corporations spin off companies? They create a new company, take it public, then start trading shares. This takes awhile, but finally the smaller company unit can “dis-associate” itself from the conglomerate.
Timeline for GE and Genworth separation:
May 2004:
GE spins off Genworth Financial (formerly GE Financial) in the largest IPO of the year. Genworth debuts 145 million Class A shares at $19.50 a share, generating proceeds of $2.83 billion and is listed as the 14th largest IPO of all time. As part of the IPO plan, GE sells 30 percent of Genworth to the public with Morgan Stanley and Goldman Sachs serving as joint book-running managers.
March 2005:
GE sells a total of 80.5 million shares of Genworth Class A common stock in a secondary offering at a price to the public of $26.50 per share. GE receives net proceeds from the offering and the repurchase of approximately $2.6 billion. Concurrent with the offering, Genworth repurchases directly from GE $500 million of Genworth’s Class B Common Stock. GE’s ownership of Genworth falls to approximately 52% of Genworth’s common stock.
September 2005:
GE’s ownership drops to approximately 27 percent of Genworth’s common stock.
After more trading…
January 2006:
GE ceases to own any shares of Genworth’s common stock.
Now Corinne, let’s address rate increases. No company needs to raise rates on older policies unless they had poor actuarial data, loose underwriting and priced their products too low. While the LTCi industry irrationally chose to believe that their policy holders would die off sooner or let go of their unused policies for lack of money (bad actuarial data, they claim), GE Financial did not have loose underwriting nor super low priced products. That’s why they never needed to raise their rates. The underwriting and price factors haven’t changed, so why is Genworth raising rates on the polices that GE sold? Why is this older block of business being targeted?
Corinne, your argument that the premium was very low for policies sold 34 years ago, so therefore they should be subject to rate increases, does not take into consideration that policies sold during that time typically offered benefits for skilled nursing facilities only and for a limited amount of years. They also had restrictive wording, more gatekeepers, and usually insisted on needing help with 3 ADLs and likely didn’t even consider medical necessity a “trigger”. All of this means less risk for the LTCi company/carrier. And yes, it is a very small rate increase, especially when compared to some other LTCi company increases, but I’m wondering: IF these older “nursing home only policies” are selected for a rate increase, I must wonder why? They surely don’t pose much of a risk for Genworth. I can, however, understand rate increases on Unlimited Lifetime Benefits type of policies, as they would pose a greater risk, indeed.
Either way, I take issue with Genworth Financial’s choice. Genworth is financially stable and growing. It is strong, yet still chooses to raise rates on the people who are most likely to be on fixed incomes - our most vulnerable members of society. Here’s what happens: The older policy holders give up their policies - or at least take less benefits in order to pay less premium, and the LTCi carrier reduces their potential risk. Is that Genworth’s intent? If so, considering its financial stability and growth, I’m appalled, and I hope this trend does not continue.
You speak of LTC insurance companies raising rates in ordeer to maintain profit margins.
Have you , in reviewing companies, considered the mutual companies such as New York Life and Northwestern Mutual who have no stockholders to satisfy.?
Could it be that they will provide the best treatment of policyowners in the years to come?
Don Gepfert CLU ChFC
Profit is not the only issue behind rate adjustments. Claims experience drives actuarial refinements. How will mutual companies handle increased risk? Only time will tell…
I filed a ‘complaint’ to the NJ Dept of Insurance and attached the following message. I urge all policy holders to do the same in their state.
__________________________
I’ve been notified that Genworth is applying for an 11% increase in my Long Term Care rates.
Can you inform me as to the process they must follow for approval with NJDOBI?
An increase such as this should be closely scrutinized to insure that it is driven by their claims history and not as a way to reap income from a passive subscriber base.
If Long Term Care insurance rates are allowed to skyrocket without just cause, thousands of people will be unable to afford the rate. Policies will be canceled putting more pressure on state governments to pay for such care.
Companies like Genworth must be held to the underwriting and sales standards presented at time of purchase.
Hi Steve,
Sorry to hear about your rate increase. It is a moderate one, but no one likes paying more than they expected to pay.
Laws are different in every state. According to the testimonies given to the United States Government Accountability Office in July of 2008, each state can fully approve, partially approve or completely deny a rate increase request. Some states are more lenient than others.
Notes from the GAO testimony records:
Long Term Care insurance company officials noted that one reason for the sate-by-state variation of rate increase approvals may be due to some states having more capacity to review LTCi rate increases than other states.
For instance, Louisiana officials reported that, for at least part of the time period included in our review, the state required long term care insurance companies to file notice of rate increases, but did not have the authority to approve or deny the increases. Additionally, according to a report completed by the Lewin Group in 2002, four other states did not require companies to file notice of rate increases at all.
While the majority of states approved the full amounts requested in the rate increase cases that were reviewed, there was notable variation across states in 18 of the 20 cases in which the request was for an increase of over 15 percent.
For example, for one policy, a company requested a 50 percent increase in 46 states, including the District of Columbia. Of those 46 states, 2 states did not approve the rate increase request and 12 states approved less than the 50 percent requested, with amounts approved ranging from 15 to 45 percent. The remaining 32 states approved the full amount requested, though at least 4 of these states phased in the amount by approving smaller rate increases over 2 years.
It also seems that for smaller increases of 15% and below, almost all states approved the full amount requested.
While past rate increases do not necessarily increase the likelihood of future rate increases, they do provide consumers with information on a company’s record in having stable premiums, as well as the company’s willingness to accept lower profit margins rather than increase rates on their customers.
Dept of Insurance contact info can be found here: http://www.prepsmart.com/departments-of-insurance.html