Writing Long-Term Care in a Short-Term World

Writing Long-Term Care in a Short-Term World

By Paul E. Forte

More than 20 years ago, at an insurance industry conference, I moderated a panel with the same name as the title of this article. I had proposed the panel in view of the skepticism then prevalent about the wisdom of including private long-term care insurance (hereinafter “LTCi”) in life insurance company portfolios—especially the newly demutualized insurance companies and their investors.

The panel featured two prominent Wall Street equities research analysts, both of whom had reservations about LTCi. My purpose was to challenge them and uncover why they were so critical of a line of business injecting new life into the industry, generating a lot of interest among consumers, and eminently suited (so I thought) to insurance, which involves the art of spreading risk over large numbers of persons or events likely to affect a smaller subset. As expected, the analysts confirmed their objections to LTCi, though one acknowledged some positive signs, such as the Long Term Care Security Act of 2000, which created the Federal Long Term Care Insurance Program, and new state-imposed rate-stabilization measures. While they did not exactly term LTCi a “poison pill,” their message was clear: If an insurer persists in writing sizeable amounts of LTCi, it could see hits to its bottom line that would deter investors, leaving analysts no choice but to post a “sell” sign on its stock.1

Twenty years later, that warning is still in effect. My purpose in this article is to explore the reasons why this is so.2 I believe there is enough evidence to support the view that the fundamental posture of long-term care (LTC) insurers with respect to risk assumption has changed over the past two decades. This, I believe, is part of a larger shift in risk management philosophy adopted by life insurers during the second half of the 20th century and carried into this one, which helps to explain what is happening in the market today.

It also points to potentially more far-reaching consequences for the life insurance industry as a whole, raising questions about its future.

The LTCi Industry today

The retraction of the LTCi business is established fact. Of the 100-plus carriers writing stand-alone LTCi in 2000, fewer than a dozen are doing so today. According to a recent report by AHIP and the National Association of Insurance Commissioners (NAIC), total stand-alone LTCi policyholders fell from 7.4 million in 2012 to 6.3 million by year-end 20213—this in a country with some 120 million who are age 50 or older. LIMRA reports sales for stand-alone LTCi in 2022 of only $124 million nationally, excluding FPO increases for insurers with closed LTCi blocks. 2021 sales totaled $200 million, but that was largely an effect of the rollout of the Washington Cares Fund.4 Total new stand-alone lives were 36,872,5 fewer than the Federal Long Term Care Insurance Program (FLTCIP) brought in by itself during its 2011 Open Season.6

The landscape looks different for linked benefits, or combo products,which offer either accelerated or extended LTC benefits. LIMRA reported sales of some 560,000 policies in 2022, up sharply from 2021, although that was likely also affected by Washington Cares. Premiums were $4.3 billion for 2021, versus 2019 sales of $4.8 billion. Combo products appeal to insurers because policyholders have an incentive not to use them for LTC benefits, which would decrease their life insurance payout. This means less margin is needed for LTC morbidity, and of course the life policy must be kept in force in order to access the LTC benefits, while the insurer has the right to increase charges from the current level up to a specified guaranteed maximum.

Combo products have also been good for life insurance agents and financial advisers, because it appears the policyholder can’t lose. Whether they have been good for middle-market buyers concerned about LTC risk is less certain. Most combo products are expensive to finance on the average budget, do not offer benefits comparable to stand-alone, require the buyer in the case of life-linked products to keep life protection in force long after it is needed, and lack the care expertise of the best issuers of stand-alone policies.

What about stand-alone LTCi? Is it impossible to price it with confidence? To answer this question, we must consider the drivers of premium adequacy—lapse, mortality/morbidity, interest rates, and expenses—and then look at the larger environment in which the LTCi industry is operating.

Lapse rates are not the problem they were at the start of the market, when actuaries overestimated the number of people who would drop their policies after a few years. Since experience has shown that few persons purchasing LTCi policies drop them, insurers have abandoned the fallacy that the product would be lapse-supported, paring ultimate lapse rates to under 1%.

Correcting assumptions for mortality and morbidity has been more difficult. Evidence is still building, particularly with respect to the oldest insured cohorts. No one can say for sure whether there will be increased longevity with debility or without it. If the former is the case, more margin will need to be built into future premiums. If the latter is the case, those living longer may simply die with intense illnesses, not linger for long periods, because they will no longer able to maintain homeostasis—what Dr. James F. Fries termed a “compression of morbidity.”7 If so, morbidity may be overstated, resulting in surplus in LTC insurer portfolios.

Interest rates, which have been at historic lows, remain a concern. In 1989, when second-generation LTCi products appeared, 20-year corporate A- or BBB-rated bonds—a staple of the investment portfolios of LTC insurers—yielded about 9%. As late as 1994, 30-year U.S. Treasury bonds paid 8%. In 2008, the Federal Reserve drove short-term rates down to near zero, with the 10-year Treasury and commercial bonds hovering at record lows. This situation repeated itself during the COVID pandemic.

For insurers and other institutions with long-dated liabilities, discounting became harder and more capital was needed to back reserves, with additional pain from minimum rate guarantees on legacy insurance products close to 4%.8 It was also harder to develop new products, meet new cybersecurity requirements, compete for talent, and pay for ever more costly employee compensation packages.

In the past two years, we have seen short-term Treasury returns reach the highest level in 16 years, with 10-year Treasuries paying over 4% and 20-year corporate A and BBB bonds earning over 5%. Long-term bond yields have risen so high that economists worry that the cost of debt will hurt government finances.9 But from the standpoint of insurers, it is good news. Higher returns on bonds means respectable returns even with investment-grade paper; much higher returns are possible with below-investment-grade paper.10 Such returns improve margins, reserves, premium discounts, and much else. It is true that bonds held in insurance portfolios have lost money since 2022, because rising rates devalued the market value of those assets. But rising rates on new money should more than make up for the loss, assuming they continue.

On the whole, things look less dire than they have for much of the past 20 years. Other aspects of LTCi recommend it. Unlike most health insurance products, which are geared to reimbursing a percentage of reasonable and customary charges and so subject to rising costs, LTCi benefits are fixed, with reimbursements geared to actual documented expenses. True, inflation means higher claim utilization, but policyholders who have reduced coverage to offset premium increases are likely to exercise restraint in order to preserve benefits. And unlike health insurance, where incidence risk is likely to rise as people enter their last years, relatively fewer LTCi policyholders are likely to file claims, because many will die before they do. Those who live long enough to file claims rarely exhaust their lifetime maximum benefits. The unused benefits can be applied elsewhere in the insurer’s pool—although, as recognized, the combination of reduced benefit elections and inflation means reduced salvage.

The current standard benefit triggers—two out of six activities of daily living (ADLs) and/or cognitive impairment—are not perfect, but neither are they arbitrary. The professional nurses and claims adjudicators who use them give them fairly high marks for inter-rater reliability, which means that two independent assessors using the same tools on the same insured should reach the same conclusions about that insured’s status. Finally, expenses are not the serious problem they are for health insurance, whose invoicing requires volumes of complex medical procedures. Additionally, risk of malpractice is not as ubiquitous in LTC as it is in medicine, and so isn’t passed onto policyholders in the form of higher premiums. And LTCi is not written on a term basis, so claims handling costs can be spread over decades.

Given such facts, one might wonder why the majority of life insurance executives have concluded that LTCi in its stand-alone form is still forbidden territory. Is this due to errors that were made early on in their history and that still dog their heels? Or is there something systemic about stand-alone LTCi risk?

On the surface, it would appear that executives conflate two forms of risk that should be treated separately. There is process risk, which describes the uncertainty apparent in a random series of events. Such risk is within certain boundaries and therefore somewhat known, familiar, believed to be manageable through expertise. Then there is parameter or model risk, which is present when measuring the parameters of risk present in random events is difficult or impossible because one or more variables might change. This risk, sometimes referred to as the “black swan,” falls outside of the boundaries of experience and the expertise required to understand it, causing prudent insurers to hesitate, because little or no data exists on which to ascertain the risks involved or how to set premium for them. Attempting to do so without data can result in exposure.11 Examples of parameter risk include climate change, terrorism, cybercrime, use of drones, and now artificial intelligence. No one can say for certain what the pattern of claims for these risks will be, but it is not unlikely they will comprise multiple devastating losses and immeasurable collateral damage, because higher volumes of independent exposures may diverge from ostensibly predictable patterns. Still, not every unfamiliar risk is parameter in nature. In the 1980s, the life insurance industry insisted that testing for acquired immune deficiency syndrome (AIDS) was necessary to exclude inappropriate financial risk for life and health insurance. Yet evidence of the severity of AIDS-related claims never materialized, because those suffering from the disease simply did not survive very long.12 The industry found a workaround, introducing accelerated death benefits, whereby a portion of a policy’s benefits could be paid out with evidence of terminal illness with less than six months to live. AIDS risk was in fact process risk, but it was initially viewed as unmanageable.

Stand-alone LTCi falls well within the definition of process risk. It is random but familiar, episodic, and different for select cohorts. While there is a correlation between age and debility as a policyholder approaches age 100, the lifespan dictated by the human genome, advancing age does not necessarily mean increasing morbidity, as there is a difference between chronological age and biological age, what is now recognized as a person’s healthspan. Hence the importance of behavior, though genetics also plays a part. It helps that LTCi is geared to reimbursement of actual documented expenses (rather than simple indemnity payouts, which most insurers ceased to offer long ago).

Distinguishing among the different kinds of risk LTCi insurers face is important. Otherwise, you back away from the fundamentals of the business.

LTCi in the Context of the U.S. Life Insurance Industry of Today

If stand-alone LTCi is process risk, and therefore within the bounds of normality for insurers to assume, why the wholesale retreat? Looking at the larger context of the U.S. insurance industry today offers insight.

That the life insurance industry today is not the commanding presence it once was, is, I think, amply illustrated by the data presented in the “Life Insurance Industry Statistics” sidebar.13 Standard explanations are, inter alia, that demographics are less favorable to the purchase of protection products than they were after WWII; that life insurers do not benefit from long bull markets, because they cannot invest heavily in stocks, which are volatile; that a savings mindset has been replaced by one addicted to credit; and that the earlier industry did not have the same amount of competition.14 Other oft-cited concerns include siloed organizations inhibiting product development, networks of legacy systems, and economic and societal changes.15

Life Insurance Industry Statistics

  • There are some 740 U.S. life insurance companies, down from a high of 2,100 in 1990, accounting for $163 billion in direct written premiums, all lines. Some of this is due to mergers and acquisitions, but not all.
  • Inforce life insurance policies fell from 300 million in 2010 to 260.7 million today.
  • 102 million Americans have no life insurance at all or amounts insufficient to maintain their lifestyle for any period of time. There is an estimated $12 trillion “gap” between what should be in force and what is.
  • Growth in life insurance premium lags nominal GDP growth across the globe, making it vulnerable to inflation. Over the past 20 years, nominal GDP grew at a CAGR of 4%, but premium grew at a CAGR of just 2%.
  • Since 2003, costs as a share of revenue have increased by 23% for life insurers, compared to a 5% increase for P&C insurers.
  • Proprietary distribution networks are declining in prevalence, from 30% to 26% from 2010 to 2021.
  • The price/earnings ratio for stock life insurers ranks below most industries.*

*P/E for life insurance companies in 2022 was 11.02, well below drug manufacturers, electronic gaming, entertainment, health information services, medical instruments, scientific and technical instruments, software applications, and waste management.

It is true that the earlier life insurance industry did not have certain hurdles that insurers face today, e.g., increasingly restrictive accounting requirements and regulations such as HIPAA, Sarbanes-Oxley, and lack of exemption from filing bonds in insurer portfolios once the bonds are rated by a nationally recognized statistical ratings organization (NRSRO).16 But it also weathered many crises—the 1918–21 influenza epidemic, World Wars I and II, economic depressions, and Vietnam among them—while its purchase of bonds and investments in real estate enabled it to raise large amounts of capital for industrial development, municipal projects, and the federal government.17 It achieved this because it brought lasting value to its customers based on a solid proposition: Provided that premiums were paid, the insurer would take care of the policyholder and his family for life. Early life insurance culture was stodgy versus today’s, perhaps, but it was able to see beyond tomorrow and to plan for it. Life insurance companies built some of the most impressive home office complexes in the country, symbols of wealth and stability.18 And all this was achievedlargely with pencil and paper, without the benefit of computers, sophisticated modeling software, databases, the internet, or 24-hour news cycles.

Life insurers today retain many advantages. They can maintain the rates approved by state departments of insurance indefinitely, even if experience turns out more favorable than projected. Unlike banks, they face less risk from unrealized investment losses, namely the declines in the value of assets not yet sold. While their investment portfolios are not illiquid—they are made up largely of securities like stocks and bonds and so fungible—the actions taken in the face of insolvency require regulatory decisions, in contrast to distressed banks like Silicon Valley Bank, whose actions may be dictated by the acts of panicking consumers. Individual life insurance policyholders can create pressure, but have little leverage. There are no cash surrender values on many policies. There may be guarantees, as with the untenable floor offered under variable life some 20 years ago, and these can cause serious losses in a market downturn as they did in 2008—but a run on insurers is uncommon if not highly improbable.19 It helps that insurers are keenly aware of disintermediation risk and the minimal benefits they must offer, which requires them to develop sophisticated pricing models and investment strategies to match.20

Further, without the requirement to release large amounts of funds on demand, insurers can hold fixed-income securities like bonds to maturity. Higher-grade bonds, which constitute the greatest part of the insurer’s investment portfolio, are more sensitive to rising interest rates, because the credit risk lessens premium discounts. Lower-than-investment-grade bonds with higher returns are an option, because they allow for more substantial premium discounts, but such bonds carry sizable credit risk. LTCi insurers generally avoid such instruments, or invest in very small quantities of them compared with their larger portfolios, which consist of mostly investment grade bonds and diversified assets.

Interest rate risk, as noted above, is a serious problem. But assuming long-term risks means assuming interest rate risk. Large financial institutions making long-term agreements are supposed to be able to manage interest rate risk, even as international businesses are supposed to be able to manage foreign currency risk. It’s part of the terrain they’ve chosen to operate in, which is why most state regulators will not grant LTCi rate increases for interest rate swings or investment income.

Needless to say, insurers have the right to make a fair return for the capital they must deploy. No private entity should be compelled to enter into markets where returns are demonstrably inadequate. That is axiomatic. At the beginning of the LTCi market, large multiline insurers touted their ability to absorb risks that could not easily be managed by specialty carriers. Peter Gallinis observes that most shortfalls from LTCi blocks are now defrayed by profitable lines, although some states, like New York, prohibit the practice—a rule that does not apply to banks and other financial firms.21 This practice is widely deemed undesirable. While that is understandable, it is also obvious that over the past 50 years, we have seen progressive unwillingness to assume longer-term risk-taking, with longer-term relationships of the kind that built the industry becoming less common, despite the advertisements. The old underwriter’s culture is gone, or at least, it is not conspicuous.


It is hard not to see the tendency among life insurers to be less accepting of risk as evidence of a short-term mentality. The reluctance to accept even process risk seems in keeping with other widespread indications of short-termism, e.g., lesser quality of earnings, with short-termers more reliant on managing earnings to meet investors’ expectations; a focus on accruals and accounting methods rather than new revenues; activist investors insisting on cutbacks in research and development; and various forms of financial engineering and other non-operating methods like stockbuybacks,which often cost a corporation a lot because shares are repurchased at a premium, hurting the balance sheet and benefiting the largest shareholders only.

Some Wall Street analysts deny that short-termism exists or is a real factor in American business.22 But it is hard to ignore what is before our eyes. The average holding period for a stock in 2022 was less than 10 months.23 McKinsey’s Corporate Horizon Index of the United States compares the ability of long-term companies to deliver higher and more consistent revenue growth and higher earnings relative to other firms “with a short-term mindset.”24 The structural shifts in many industries, the flight of capital to foreign countries (which has only recently begun to change), the dread of many businesses about earnings calls—all suggest that short-termism is hardly mythic. The whole drift of the life insurance industry seems to be a shying away from the faster water of its original value proposition—the assumption of qualified risks—into the calmer, risk-free back channels already crowded with other non-insurer craft.I will return to this subject presently.

Demutualization might be suspected as the underlying cause of risk aversion, especially with regard to LTCi. The requirement to report earnings on a quarterly basis and to offer “guidance” puts the top of the house in a tight position. Any line of business in which long-dated liabilities must be matched to short-dated assets poses some risk, and doing so for policyholders who may not file a claim for 30 years is a challenge. All insurers have to grow surplus, but mutuals have the advantage of not having to post large profits, which means they can charge customers less if they choose and tolerate higher loss ratios. It is worth noting that 75% of all life insurance companies are now stock owned, up from 30% in 1950 and 48% in 1969.25 Yet it is not just the stock companies that are looking to rein in product managers and underwriters; the mutuals are doing this also. Why? Less competitive pressure from demutualized companies means mutuals don’t have to take on risks they did formerly. Some mutual insurers even own stock life insurance companies, although the numbers are small.26 Additionally, increasing links between insurers and banks, “bancassurance,” have prompted some insurers to move away from “traditional” insurance risks and to assume “financial” (and especially credit-related) exposures. Ironically, the latter are much more prone to systemic risk.27

Then there is private equity, which now controls 11% of the life insurance market even as it has moved into the pensions business. No question about intentions here: Private equity managers look to get control of assets, restructure to reduce expenses, make improvements if possible, and then sell. They are not in it for the long term. The entry of private equity into life insurance, driven by the ultra-low interest rate environment that has only begun to change recently, worries some regulators because the assets in which private equity invests are opaque, unlike the publicly traded securities in which traditional insurers invest. Opacity raises the question of whether private equity insurers are accurately capturing the actual performance of the companies in their funds because of their inability to collect data punctually,28 and whether they may be investing assets in their own funds. Such concern translates into fear that policyholders may find their retirements upended by payments less than what they were promised.29 Private equity has not appeared yet on the private LTCi scene, but it may do so soon, in view of how rapidly the sector is expanding.

Meanwhile, LTCi carriers are simply nursing along their closed blocks. They are trying to keep a lid on expenses, manage claims, patch up (rather than replace) legacy systems whose software is no longer supported, and of course file rate increases with state insurance departments. The latter don’t want insurers to become insolvent, but neither do they want to abandon elderly constituents who may be forced to drop (or drastically reduce) coverage after sinking tens of thousands of dollars into policies. Members of the NAIC Life Insurance and Annuities Committee have spoken out about this matter, as have state insurance commissioners. Industry actuaries have been unable to establish the uniform methodology for LTCi rate filings that commissioners desire, resulting in incongruence between insurer filings for rate increases on similar products.30 This has led commissioners to call for a more “scientific” approach to premium adequacy and the calculations actuaries use to support it. Policyholders, on the other hand, complain bitterly about the rising premiums they did not anticipate when they first applied for coverage, and the less-than-palatable options they have if they cannot afford to pay higher premiums. Some of these policyholders are more than 100 years old.

There is also the matter of closed blocks. What such blocks will mean for policyholders when blocks are not being refreshed by new applicants subject to higher underwriting standards or higher rates remains to be seen. If actuaries are right, no freshening will be needed, because rates will be sustainable even as the pools shrink. This is a theoretical position and may not play out in the future.

Hopeful Signs for Stand-Alone LTCi

In spite of all this, I see a few hopeful signs:

  • Actuarial assumptions have become more credible due to the increase in insured industry data in the last two decades. This means less educated guesswork. And interest rates are likely to remain higher. Thus, fewer large rate increases may be needed in the future.
  • Improved diagnostic tests for certain dementias and simple blood tests that indicate the biomarkers of Alzheimer’s are now available. In July 2023, the FDA approved Lecanemab (marketed as Leqembi), the first drug with proven Alzheimer’s symptom-reducing power.31 Vaccines that harness the immune system to rid the brain of proteins like beta amyloid or tau are also being reintroduced after 20 years without the risk of meningoencephalitus.32 Tests are now being conducted to see if Leqembi and other drugs can be administered directly into the brain via focused ultrasound, which creates tiny holes in the blood brain barrier that allow microscopic bubbles to infuse the medications, a promising alternative to intravenous application. Johnson & Johnson has invested heavily in data science and artificial intelligence to identify patterns that can analyze speech for early signs of Alzheimer’s and accelerate drug development.33 Brain implants and other devices featuring brain/computer interface promise to restore lost functionality and are less invasive.34 GLP-1 receptor agonist or weight loss drugs, such as Novo Nordisk’s Ozempic and Wegovy and Eli Lilly’s Mounjaro and Zepbound, may reduce musculoskeletal disorders brought on by obesity, leading to improved ambulation on a mass scale and less need for help with ADLs.
  • Promising scientific research is being done on the so-called Hallmarks of Aging. Noticeable at the cellular level, these hallmarks include the shortening of telomeres (DNA segments at the end of chromosomes), cell senescence (the point at which a cell stops dividing), and breakdowns in how cells process nutrients. There is also epigenesis, the phenomenon through which certain genes express themselves and others don’t. Accumulation of errors in the epigenome appears to prompt aging, raising hope that these errors might be eliminated and aging reversed or at least slowed.35
  • Automation may well offset the rising cost of care. Robotics could serve in homes, as they do in Japan, while artificial intelligence could reduce time and safety monitoring expense of diagnostics and therapeutics.

Finally, many insurers are adopting wellness initiatives, for both claimants and pre-claims blocks. These initiatives use education and timely interventions with those in claim or near claim to prevent or forestall events that could prove debilitating and jeopardize independence, such as falls resulting in serious fractures, strokes from blood serum cholesterol, inability to navigate a home environment due to hearing or vision loss, polypharmacy, and other risks that can result in higher claim incidence and/or higher claim utilization. Not enough time has elapsed to ascertain the effectiveness of various approaches now being implemented, but the focus on interventions bodes well for future experience.


Such developments should prompt a reconsideration of writing stand-alone LTCi. Here are 10 ideas for the consideration of all LTC/LTCi stakeholders—insureds, insurers, regulators, government:

  1. Realign LTCi with health care, from which it has been largely divorced. LTC is connected to the state of one’s health, as anyone who has been through the care experience knows. It is not merely an exercise in financial planning. The LTCi industry should reposition LTCi as a health insurance product that completes the life cycle risk and focus more on developments in research, health care, pharmacology, assistive technology, and advanced therapeutics, investing in these where possible.36
  2. Work to improve transparency around rate increase filings. Establish certain universally accepted benchmarks of premium adequacy so that each insurer doesn’t present a unique case to regulators in 50 states and the territories, requiring months of adjudication.
  3. Prevent the best risks from exiting the risk pool.Implementing smaller, more moderate increases, and avoiding actions that might precipitate the best risks dropping coverage should result in healthier risk pools over time as well as maintain adequate margin for administration, which gets more complicated as blocks age. Doing so would also improve customer experience and reduce litigation risk.
  4. Reintroduce LTCi stand-alone at higher prices, with bigger margins. Charge more for stand-alone LTCi. Offer some kind of dividend assuring that the policyholder gets something back if surplus occurs, rather than the policyholder who never claims losing.
  5. Redefine the nature of reserves. Write-downs in the form of charges to earnings are still a risk, but increases to reserves are not necessarily permanent losses. Insurers should educate analysts about current developments that could affect the claims curve, which would allow a release of reserves down the road.
  6. Offer a variable LTCi product, with the Daily Maximum Benefit (DMB) and the Lifetime Maximum Benefit (LMB) tied to emerging experience rather than fixed. Stipulate a “safe floor” beneath which the DMB cannot drop.37
  7. Use reinsurance and other tools. Reinsurance is an effective tool for spreading risk that should be more highly utilized than it has been to date in the LTCi market. Property and casualty insurers are now issuing catastrophe bonds to investors willing to take a percentage of the risk on storms causing excessive damage. These bonds offer very good returns, much higher than the rates of corporate and municipal bonds. Is it too far-fetched to think that the LTC insurers might issue such bonds for claims that exceed certain thresholds?
  8. Build in wellness initiatives, which give people tools to delay or avoid the worst effects of aging. Make wellness initiatives a standard part of LTCi product design and operations, integral to claims adjudication.
  9. Renew education and public awareness of the dimensions of the LTC problem and the limited options for financing it, recognizing the growing demand for transferring personal LTC financial risk to a third party.
  10. Support public-private partnerships. The LTCi industry should embrace public-private partnerships, which it has not done.38 The public program implemented by Washington state, which offers a modest LTC benefit to all state residents, those being discussed in California and New York and Arizona, and the proposed federal WISH Act, which would have established a catastrophic benefit after a one to four-year waiting period had been satisfied (an interval that individuals might cover through private insurance), can help to shift some of the risk from insurers over to the public sector. The massive amount of publicity involved will make the purpose and utility of LTCi products better understood, with residual risk more manageable for insurers.

Final Thoughts

In the past 50 years, the life insurance industry has failed to identify any new needs comparable to LTC. Aging people fear few things more than frailty and growing dependency on others. Transferring that dependency risk rather than trying to self-­finance is something for which they will pay a premium. Insurers, especially stock-owned insurers, have to ask themselves whether they are winning the risk game—whether a future of steady but shrinking profits, and a smaller and smaller number of customers, is preferable to taking on more qualified risk and differentiating themselves from other kinds of financial businesses. They have already lost significant ground with investors in public markets.39

It is well to recall the history of AIG, which until its collapse in 2005 was the world’s largest insurance company, and its only truly international enterprise. AIG began with the unconventional Cornelius Vander Starr (1892–1968) in the Far East, underwriting risks no one else would take, such as protection against piracy. Starr hired local nationals who knew the culture and could safeguard the interests of the company against fraud. AIG later grew under the iron will and determination of Maurice “Hank” Greenberg (1925–), whose underwriting expertise was legendary. At its height, AIG wrote policies all over the world on risks ranging from expatriate life insurance to default on contracts and losses from nationalizing of private assets. And it did this before globalization educated foreign officials and executives about the importance of contractual promises and commercial obligations. The collapse of AIG, and its role in the larger financial debacle of 2008, had its roots in AIG’s attempts to offset slowing growth by getting into capital markets, using its enormous balance sheet and AAA rating to guarantee credit default swaps and other deals in the money business.40 This was unfortunate, but it cannot erase AIG’s extraordinary achievements in underwriting.

I do not mean to deliver a sermon. Nor do I wish to play Cassandra. But I think a warning is in order. Millions of people advancing in age globally are coming to realize that they are increasingly responsible for their health and retirement benefits, which cannot be readily supported by public programs alone. If we continue on the path of safety, writing nothing but hygienic risks in order to ensure short-term gains for largely anonymous investors and shying away from doing something serious about risks like LTC, the greatest unfunded liability many Americans face, we will lose not only short-term opportunity but relevance. The future will come to seem more cramped, with fewer and fewer choices. All that would be left is an endgame scenario in which only accountants and facilities people remain, the former to close the books, the latter to turn out the lights.

I do not see much profit in that. 

PAUL FORTE, Ph.D., is a 40+ year veteran of the life insurance industry. He is the former CEO and Board Chairman of FedPoint, which administers the Federal Long Term Care Insurance Program, the nation’s largest private LTCi program, and other government contracts. He wishes to state that the opinions contained in this piece are his and his alone and do not reflect the views of FedPoint, its parent John Hancock Life & Health Company, the U.S. Office of Personnel Management, or any other federal government entity. He wishes to acknowledge the editorial and graphics assistance of Jon Seder and to thank Nick Latrenta, Dave Martin, Roger Loomis, Mike Young, and Jamie Forte for reading various drafts and furnishing helpful comments.


  1. Such threats were not hypothetical. The year before, one of the analysts had made a call to sell Conseco’s stock short at $39 per share. The insurer had been one of the top performers in the S&P 500 for years. Soon after, its earnings plunged and its co-founder and chief executive officer stepped down.
  2. This article is based on a talk given at the CLTC Summit in Chicago, September 12, 2023. I would like to thank Celeste Cobb and Elieen Tell for the invitation to speak.
  3. NAIC, Long Term Care Insurance Experience Reports, 2006-2021.
  4. Many of these policyholders bought private LTCi coverage to avoid being enrolled in the mandatory Washington Cares Fund. They are expected to drop coverage.
  5. Milliman Long Term Care Insurance Survey, 2003.
  6. The FLTCIP “Open Season” was a limited period in which abbreviated applications were accepted. This event was not announced in advance to avoid anti-selection.
  7. “Aging, Natural Death, and the Compression of Morbidity,” New England Journal of Medicine (1980), 303:130-135.
  8. Anne B. Walsh, “The Life Insurance Industry’s Investment Conundrums,” Guggenheim, February 22, 2022, p.2.
  9. This is a serious concern, as the U.S. has some 40% of the world’s governmental debt, with the current U.S. sovereign debt projected at over $30 trillion. Rising interest rates means that new debt has to be financed at ever higher costs.
  10. Below-investment-grade investments comprise only a small portion of insurers’ fixed income portfolios (under 6%), and only 4% of their total portfolios. But this could change as yields for risk-free bonds like Treasuries come down.
  11. Gary Venter and Rajesh Sahasrabuddhe, “A Note on Parameter Risk,” Casualty Actuarial Society, Vol. 9, Issue 1.
  12. Daniel M. Fox, “AIDS and the American Health Polity: The History and Prospects of a Crisis of Authority,” Milbank Quarterly, 2005, Dec; 83(4)
  13. Sources: LIMRA, McKinsey Global Insurance Report for 2023, American Council of Life Insurers (ACLI), Statista. There is an abundance of data indicating the shrinkage of the life insurance industry across a number
    of metrics.
  14. McKinsey estimates private capital-backed platforms at roughly $292 billion in general account reserves. These platforms now make up 9% of industry stock, a significant share of the private insurance market.
  15. Deloitte, “2024 Global Insurance Outlook,” January 2024.
  16. Anne B. Walsh. p.4. Walsh notes this framework, which used to provide “with a clear roadmap of the capital required to back the specific mix of assets in a portfolio” has been under attack on several fronts, including the NAIC. The result of such oversight is increased asset risk, which can increase capital costs, and discouragement from pursuing differentiated investments, driving insurers towards indexed investments with lower yields.
  17. This industry was memorialized in Billy Wilder’s Double Indemnity, the 1946 film classic about insurance fraud, with Edward G. Robinson as the ethical claims manager, Fred McMurray as the conniving agent, and Barbara Stanwyck as the seductive socialite who plans her husband’s death with the help of the enamored agent. The evil presented in the film is not systemic to the industry, but the result of two unprincipled people conspiring to pursue their own idea of the good life, whatever the cost to others.
  18. For a popular account of the mutual life insurance industry in its salad days, including arcane methods of accounting and investing, see Andrew Tobias, The Invisible Bankers: Everything the Insurance Industry Never Wanted You to Know (Simon & Schuster, 1982).
  19. A sense of caution is of course warranted. A number of financial crises have occurred since the beginning of the second generation LTCi market, some having a direct, some an indirect effect on life insurance carriers, although discretionary judgment has played a role. Among the large insurers that have had to declare bankruptcy are Executive Life in 1991, Reliance Insurance in 2001, Conseco in 2002, Equitable Life in 2006, Standard Life of Indiana in 2012, American Medical in 2016, and Penn Treaty in 2017.
  20. I am indebted to Roger Loomis for this observation.
  21. NOLHGA Journal, April 2021. I am indebted for this observation to
    Nick Latrenta.
  22. This is the view of James Mackintosh of The Wall Street Journal. While acknowledging the criticism of such notables as John Maynard Keynes, Peter Drucker, and BlackRock, Mackintosh insists that believers in short-termism have it wrong because the evidence isn’t there: At the time of his writing R&D continued at a brisk pace; business investment had not fallen faster than it did in countries less reliant on stock exchanges; and amounts of cash held by corporate managers remained higher than short termism would suggests, as cash is required for buybacks and dividends. Mackintosh concluded that it wasn’t short-termism that was at fault; rather shareholders were “ignoring low-probability, high impact possibilities.” The fault was not in R&D, but in capital spending. See “In the Long Run, Fear of Short-Termism Is Mostly Bunk,” WSJ, May 10, 2018.
  23. Source: eToro.com. This amount of time is down from more than 5 years in the mid-1970s.
  24. Tim Koller, James Manyika, and Sree Ramaswamy, “The Case against corporate short termism,” McKinsey Global Institute, August 4, 2017.
  25. www.acli.com.
  26. www.acli.com. When such ownership occurs, the stock company is listed as a mutual.
  27. Faisal Baluch, Stanley Mutenga, and Chris Parsons, “Insurance, Systemic Risk, and the Financial Crisis”. Geneva Papers on Risk and Insurance, Issues and Practice, 06 January 2011, 126-163.
  28. See Jeff Sommer, “The Hidden Risks in Public Pension Funds,” New York Times, August 6, 2023. Sommer cites various pieces of evidence, including research by Michael Markov, a mathematician who heads MPI, the financial technology company, and the man who exposed Bernard Madoff’s Ponzi scheme. According to Markov, the risks being carried by public pensions are underreported by private equity, whose returns exhibit low volatility because they are based on infrequent appraisals of private companies. Sommer writes:” In addition to their inherent staleness, private equity results are reported by pensions with an additional lag of three months, artificially smoothing pension returns.” Could the same underreporting be taking place in the life insurance business controlled by private equity investors?
  29. See Russ Banham, “Living with Private Equity Owned Life Insurance,” Health & Benefits, June 2023.
  30. New York State Department of Financial Services, “Long Term Care Insurance: Looking Back and Thinking Ahead,” June 7, 2023, p 19.
  31. Jointly developed by Biogen and Japan’s Eisai, Lecanemab targets a type of protein in the brain associated with a marker called beta-amyloid. This approach goes beyond the older cholinesterase inhibitors which boost levels of acetycholine, such as Donepezil (marketed as Aricept).
  32. Julie Steenhuysen, “Researchers return to Alzheimer’s vaccines, buoyed by recent drug success,” Reuters, November 20, 2023.
  33. “J&J Enlists Thousands of Data Scientists in Health Bet,” WSJ, December 1, 2023. Ultimately this strategy is aimed at actualizing “precision medicine, whereby treatments are personalized to match genetic or other variations in an individual’s disease.”
  34. They are also attracting venture capital. Examples of companies in this market include Elon Musk’s Neuralink, Saluda Technologies, Cognito Therapeutics, and New York-based Synchron.
  35. See a summary of these developments in “Extending human life fuels new treatments,” WSJ, 08/28/23. Carlos Lopez Otin, a Spanish biochemist, coauthored the Hallmarks paper.
  36. See my article, “Realigning LTCi: Private Long Term Care Insurance and the Health Care Continuum” in Contingencies, Sep/Oct 2021, p. 16-27.
  37. For a discussion of this concept, see Paul E. Forte and Roger Loomis, “The Case for Variable LTCi,” in Contingencies, Jan/Feb 2018, p. 33-35.
  38. The insurance industry’s reluctance to offer support for most proposals for public-funded LTC is longstanding. It is not unusual with respect to private sector interests. In the 1930s, the insurance industry opposed safety net programs like Social Security; in the 1960s there was opposition to Medicare, Medicaid, and other programs it is hard to imagine our living without today. The industry did not want competition from the public sector, even though there was demonstrable need for a solution of some kind and the industry did not wish to take on more than a small percentage of the risk itself. These same objections have held back the LTCi industry for the past 20 years. The trades need to help insurers rethink their position.
  39. McKinsey notes that in the U.S. “life insurers’ share of market capitalization relative to other financial services peers has decreased over the past 35 years—from 40% in 1985 to 17% in 2005 to only 9% in 2020” (Global Insurance Report, 2023, p. 6).
  40. See Roddy Boyd, Fatal Risk: a Cautionary Tale of AIG’s Corporate Suicide (John Wiley and Sons, Inc., 2011).
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