What happens if an LTC insurer
goes out of business?
…and how common does this happen?
Each state has a guaranty fund. Here is the national website: http://www.nolhga.com/ It describes the entire insolvency process. Basically, the guaranty association cooperates with the commissioner and the receiver in determining whether the company can be rehabilitated or if the failed company should be liquidated and its policies transferred to financially sound insurance companies. Once the liquidation is ordered, the guaranty association provides coverage to the company’s policyholders who are state residents up to each state’s limit. There is a great FAQ section on the national site.
This is an extremely rare situation with LTCI. Conseco Senior Health Insurance Company and Penn Treaty are the only ones not taken over by another carrier to my knowledge. Conseco is in an independent trust managed by the state of Pennsylvania. Penn Treaty’s home page addresses the issue in case they are ordered into receivership.
There is also a link to the coverage limits for LTCI and Med supp from the Penn Treaty site. Most states have at least $300K for LTCI. These issues happened due to liberal underwriting, high commissions, low premium. That formula simply doesn’t work for the LTCI market and it sure doesn’t work in a bad economy. Companies can’t get away with that fatal combination anymore thanks to the NAIC Rate Stabilization that was passed back in 2000. It has taken a decade for states to adopt it but it has some teeth in it. However, NAIC is working on additional rate stabilization regulation. That section starts on p. 144 of my new book. You can get it here: