Low Rates Lead to More Mutual of Omaha LTCI Changes

By Allison Bell

August 3, 2012

Mutual of Omaha is changing long-term care insurance (LTCI) underwriting and agent commission rules July 30, the company says in a copyrighted bulletin sent to LTCI agents.

Mutual of Omaha, Omaha, Neb., says it will stop taking applications from employers for new multi-life LTCI programs. Any applications for new multi-life programs must have been signed no later than Wednesday, and the completed applications must arrive at the company's home office no later than Aug. 8, Randy Mousel, a vice president at the company, says in the bulletin.

The company will add new employees to existing multi-life LTCI groups only if the home office is already administering the process, Mousel says.

Mutual of Omaha also is cutting first-year gross commissions on new LTCI policy sales by up to 15% in many states, Mousel says. The company plans to distribute new LTCI compensation charts Aug. 8.

The company is eliminate the lifetime benefit option and all limited-pay options, except for the Flex to Age 85 option, Mousel says.

"As the long-term care insurance market continues to evolve, Mutual of Omaha remains a key player in the industry," Mousel says. "We will remain a strong, stable, and secure solution for your business."

But Mutual of Omaha believes its product offerings must adapt to remain sustainable, Mousel says.

"Just as as the market continues to mature and evolve, so does our approach," Mousel says. "In the current low interest rate environment, changes are necessary to maintain a long-term care viable product line."

Several LTCI brokers have posted copies of the bulletin on their websites.

Mutual of Omaha will change long-term care insurance (LTCI) underwriting and agent commission rules July 30, the company says in a copyrighted bulletin sent to LTCI agents.

Mutual of Omaha, Richmond, Va. (NYSE:GNW), a major LTCI provider, says it will cut first-year gross commissions on new LTCI policy sales by 15% in most states and by 10% in two.

Mutual of Omaha also is tightening underwriting requirements, the company says. Mutual of Omaha says, for example, that any applicants with a history of schizophrenia will be considered uninsurable and that those who have received Social Security Disability Insurance benefits within the previous 5 years will be considered uninsurable.

Mutual of Omaha hopes to increase commissions in about 9 to 12 months, but future adjustments in the commission schedule are subject to change at Mutual of Omaha's discretion, the company says.

"The need for Long Term Care Insurance has never been stronger, and Mutual of Omaha is committed to solving for this need," the company says.

Mutual of Omaha will apply the current compensation rate to applications signed and dated on or before July 29, the company says.

Mutual of Omaha has been selling LTCI coverage since 1987.

Several LTCI brokers have posted copies of the bulletin on their websites.

Mutual of Omaha told Connecticut earlier this year that it planned to increase rates on several LTCI plans sold in that state by an average of about 33%.

Other LTCI insurers have responded to the recent drop in interest earnings on bond investment portfolios, new data on LTCI claims experience, and bond and securities analyst skepticism about LTCI products by dropping or narrowing LTCI product lines.

• A unit of Prudential Financial Inc., Newark, N.J. (NYSE:PRU), said earlier this year that it would discontinue sales of new individual LTCI policies and then dropped sales of new group LTCI products.
• American General, a unit of American International Group Inc., New York (NYSE:AIG), has discontinued what apparently was a small LTCI programs.
• Genworth Financial Inc., Richmond, Va. (NYSE:GNW), has said that it wants to stay in the LTCI market, but it has announced significant changes to producer compensation levels and product prices,and the company says it plans to increase prices on many older policies by about 50% over 5 years.
• Transamerica Long Term Care, Hurst, Texas, a unit of AEGON N.V., The Hague, Netherlands (NYSE:AEG), recently notified producers that it was increasing the cost of new coverage and adjusting product features.

Richard McKenney, the chif financial officer of Unum Group Corp., Chattanooga, Tenn. (NYSE:UNM), a company that discontinued LTCI sales at the end of 2011, said during his company's second-quarter earnings call earlier this week that the low interest rate environment continues to hurt the company's closed block of LTCI business and could force the company to add to the reserves backing its own LTCI policies.

The Federal Reserve Board has been doing what it can to keep interest rates low to help banks, corporate borrowers and home buyers.

Low rates hurt the performance of insurance products which commit insurers to paying streams of benefits over long periods of time, such as LTCI policies and long-term disability policies, by reducing the amount of interest insurers can earn on policy reserves invested in government bonds, highly rated corporate bonds, and other instruments viewed by regulators and rating agencies as being especially safe.