Yesterday, Genworth Life Insurance Company (Genworth) hosted a webinar for Long Term Care (LTC) insurance brokers who have sold its products in Texas. The webinar was scheduled in response to the outcry of its brokers who, like myself, were stunned to learn there will be a 50.1% Genworth rate increase for policies we had sold to our clients. In this post I share a few of the highlights of the webinar and offer some observations.
Genworth is a prominent domestic life insurance company that has been in a noteworthy financial slide from which it is desperately trying to recover. Publicly, aside from citing the protracted low interest rate environment that has hampered its investment returns, Genworth has placed the primary blame for its current financial struggles on poor underwriting of its LTC insurance business: actual long term care claims for its LTC policies have greatly exceeded what its actuaries predicted. That is the story, at least. (I do not believe that is the whole story; but perhaps that will be the subject of a future post.)
Highlights of the Webinar
- Texans with individually-underwritten policies are getting hit with a 50.1% Genworth rate increase for most policies written since 2003.
- No rates on group policies in Texas were raised.
- The Texas Department of Insurance (TDI) approved the full Genworth rate increase request.
- Many other states did not approve the request in full. Some agreed to a phased increase.
- When asked whether Texans might be subsidizing other states, the presenters only stated that Genworth will continue to apply pressure to those other states to approve the requested increase in full, as soon as possible.
- When asked if the LTC rate increase was going to subsidize other troubled Genworth units, the presenters did not provide a straight forward answer. They said (and I paraphrase), “Well, Texas would not approve a rate increase for a block of performing business; but, of course, the profitability of one unit/block at Genworth does contribute to the success of the whole company.”
- Agents renewal commissions will be raised prorata with the rate hike for consumers.
- Agents cannot re-quote (or tinker with hypothetical policy adjustments for) in-force policies reflecting the rate increases until approximately 60 days before each individual policy anniversary.
- There was no indication of what aspects (riders, benefit terms) of the in-force policies were assigned the biggest rate increases.
- If a policyholder chooses to drop the inflation protection rider of his/her policy in order to keep premiums lower, he/she not only loses future inflation protection going forward, but the inflated policy benefits actually revert all the way back to the original amount sold in the policy.
The Scene Behind The Scene
As on most webinars, participants are able to submit questions for the Q&A portion of the presentation. In this case, the Q&A portion of the webinar was extensive – lasting at least twice as long as the presentation itself. I submitted many questions, most of which were addressed publicly for all to hear. A few were not.
One of the questions I asked that was not addressed to the whole webinar was with regard to Errors & Omissions (E&O, professional liability) coverage for agents. Because Genworth’s financial ratings (as assigned by A.M. Best and other National Statistical Ratings Organizations) have fallen into “B” territory, the sale of Genworth’s products are no longer covered by most agents’ independently owned E&O policies. While the question was not addressed to the group during the webinar, I received a follow-up email from a Genworth VP stating that Genworth had secured complimentary E&O coverage for all producers writing Genworth products, underwritten by a member of Lloyds of London. I have since asked for and received, almost immediately, a summary of the details of that coverage.
Another question I asked that was not addressed publicly pertained to the open-market comparison of the new rates to what policyholders might be able to find with a new, more stable carrier. I was told, in a private message within the webinar interface, that the existing Genworth policies (including the rate increases) will be very difficult to replace at favorable rates with products from other carriers. Curiously, at the same time I read this private explanation, there was a public indication (to all the participants of the webinar) that there might be limited instances in certain regions of the country where Genworth’s own product, bought new, might be cheaper than the old policies with the new rate increases.
- Until other states agree to the full Genworth rate increases, Texans (and other states that did approve the full request) will be subsidizing other states in the effective rehabilitation of Genworth. This is unfair, but is a fruit of the splintered, state-by-state regulatory framework in which the life insurance industry has operated from its inception.
- Individual policyholders (in Texas and across the nation) are possibly subsidizing group policyholders. While this also seems unfair, it is more palatable to me. For one, I think Genworth’s biggest group plan in Texas is comprised of public school teachers and offered through the Teacher’s Retirement System. So, at least for the present time, the teachers are safe. If anyone deserves to be subsidized, it’s our teachers.
- Agents get a whopping 50% pay raise on their renewal commissions for these policies . . . for doing absolutely nothing, which seems pretty absurd. If anyone deserves to be subsidized, it is most certainly NOT the agents. But I understand why Genworth did this and why the state approved it, which I discuss below. I believe part of the rationale is pretty simple: that’s how the original policy form was approved.
- Genworth revealed nothing to shake my belief that its unsellable, recently shuddered life insurance unit is as much to blame for Genworth’s financial troubles as the LTC business, itself. (This will perhaps be the subject of a future post.)
- It disturbs me greatly that policyholders with inflation protection for which they have paid for many years will not get to keep their to-date inflation-protection gains on their policy benefits if they choose to drop or reduce their inflation-protection riders. I have not reviewed the actual policy language of the Genworth contracts I sold to see if they articulate this onerous provision clearly. If they do not (or perhaps even if they do), it would not surprise me at all if Genworth will eventually be faced with lawsuits over this measure.
- 60 days seems like an adequate period of time to help policyholders evaluate hypothetical policy adjustments to counter-balance the effects of the massive rate hike. Even so, I think affected policyholders should be notified immediately of the looming rate increase.
- While I anticipate that it will indeed be difficult to cost-effectively replace these Genworth policies with policies from other carriers, I do think it is incumbent on every agent/broker to do the due diligence to find out, one policy at a time. In an absurd twist, it would appear that each of us will need to include quotes from Genworth’s existing products in order to make sure our clients are getting the best possible deal . . . from Genworth.
- Subsequent to the webinar, I confirmed through Genworth’s regional wholesaler that policyholders who choose to drop their inflation-protection from their policies in order to minimize the impact of the rate increase will no longer qualify for claw-back asset protection under the Texas Long Term Care Partnership program.
The Big Takeaway
The webinar for LTC broker/agents was handled respectfully and professionally . . . and carefully/deftly. The follow-up has been spectacular. And along with the rest of the community of agents/brokers who’ve sold Genworth LTC insurance policies, I am (hurray!?) getting a huge pay raise . . . for doing nothing. Which, of course, begs the most important question . . . why?
The answer is simple. Genworth is really at the mercy of LTC brokers right now. Getting consumers to swallow this huge rate hike is Genworth’s only way forward as a company. Even the TDI, which indirectly approved the massive renewal commission pay raise for Genworth brokers, knows this. Insurance regulators don’t want to clean up a nationwide Genworth mess. No one wants Genworth to fail. It would seem that Genworth and the insurance regulators across the nation are indirectly (but far from subtly) asking brokers to get on board with “selling” the huge Genworth rate increase. And they are paying us handsomely to do so.
It will be interesting, to say the least, to see how this high-stakes “bet on the brokers” unfolds over the next 12-18 months.
© Michael C. Burton, 2016 and all years.