Thrivent doubles down on long-term care insurance at turbulent time for industry

There's a boom in baby boomers turning 65, as an estimated 8,000 to 10,000 pass that milestone every day in a flood that is projected to continue for the next two decades. And that makes for a bull market in products and services geared to the elderly, including a constellation of long-term housing, medical care and social services.

But paying for those services is increasingly complicated. Medicaid is the largest funder of long-term care, picking up the cost for those with savings under $3,000. It used to be easy for the elderly to give their money to family members and qualify for coverage, but Medicaid now looks back over the previous five years of asset history when determining eligibility. To encourage consumers to cover a part of the cost by purchasing long-term care (LTC) insurance, several states, including Minnesota, set up "partnership" programs that shelter assets up to the level of insurance coverage.

But LTC insurance is an industry in turmoil.

Over the past decade sales of new stand-alone policies have fallen 75 percent, and 90 percent of companies that were selling LTC insurance have exited the market, according to a recent report on Forbes.com.

The largest player in the industry, Genworth Financial, is under pressure from its shareholders. It absorbed more than $1 billion in charges in 2014 for increased reserves and write-downs primarily for its legacy LTC business and just this past quarter reported LTC revenue fell 50 percent to $10 million.

So when Thrivent Financial recently announced it was acquiring Richfield-based Newman Long Term Care, it seemed out of character for the normally conservative nonprofit financial services company. Founder Beth Newman started her LTC insurance business 25 years ago, and today it is among the Upper Midwest's top brokers, working with individual clients through more than 5,000 financial advisers.

A primary driver of the acquisition, according to Knut Olson, Thrivent senior vice president in charge of sales, was to bring LTC expertise in-house. "Everybody in the Upper Midwest needs access to good advice on long-term care," he explained. Over the past two years Thrivent enlarged its market beyond its historic Lutheran base to include all Christian denominations and began working with Newman to distribute its own long LTC insurance product.

Though Thrivent's larger size will provide scale and capital, Olson cautioned that he is "not looking to grow [LTC insurance policies] by leaps and bounds" but rather "to meet members' needs." LTC insurance represents less than 10 percent of Thrivent's overall business mix and is expected to remain in single digits into the future, he added.

The industry's troubles have multiple sources. The current historic low interest rate environment has hammered returns for insurance companies dependent on fixed income investments. In addition, LTC insurance only got a foothold in the insurance market in the 1980s and so is a relatively new product. Some early policies were mispriced, Newman explained. Insurers overestimated how many consumers would let their policies lapse and as a result were left with larger potential liabilities than they'd anticipated. Health care cost inflation and increasing longevity added to insurers' woes.

When re-pricing policies to correct for past miscalculations, insurers continued to offer high-end coverage including extended nursing home care and 5 percent inflation protection. As a result, consumers experienced "sticker shock" and backed away from the market, Newman said. But the experience of actual Genworth policyholders showed that they often chose less expensive assisted living or home care over nursing homes, Newman said. As a result, consumers were only using about two-thirds of the benefit level they had purchased.

(Gov. Mark Dayton recently signed legislation lowering the required inflation protection coverage from 3 percent to 1 percent as a way to bring down costs.)

The solution, Newman believes, is offering consumers policies with more modest benefits that they can afford and covering the risk that is most likely to occur.

Despite the current industry woes, Newman says she remains "committed to solving this for Middle America. … People need solutions to manage the financial risks," she added. "It's a discussion that has to happen."