Genworth Bets Heavy on Brokers to Save the Day

May 11, 2016

  1. MichaelBurton
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    MichaelBurton Super Genius

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    This is something I recently posted on my blog. I would love to have input from other agents. Thanks.

    Genworth Bets Heavy on LTC Brokers to Save the Day

    Yesterday, Genworth (GNW) hosted a webinar for Long Term Care (LTC) 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 a 50.1% 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.

    Background

    GNW 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, GNW 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 that is the subject for another post.)

    Highlights of the Webinar

    - Texans with individually-underwritten policies will be paying 50.1% 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 requested rate increase.

    - Many other states did not approve the full increase. Some agreed to a phased increase.

    - When asked whether Texans might be subsidizing other states, the presenters only stated that GNW 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 GNW 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 GNW 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.

    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 GNW’s financial ratings (as assigned by A.M. Best and other National Statistical Ratings Organizations) have fallen into “B” territory, the sale of GNW’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 GNW VP stating that GNW had secured complimentary E&O coverage for all producers writing GNW 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 GNW 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 GNW’s own product, bought new, might be cheaper than the old policies with the new rate increases.

    Observations/Comments

    1. Until other states agree to the full rate increases, Texans (and other states that did approve the full request) will be subsidizing other states in the effective rehabilitation of GNW. 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.

    2. 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 GNW’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.

    3. 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.

    4. GNW revealed nothing to shake my belief that its unsellable, recently shuddered life insurance unit is as much to blame for its financial troubles and this rate increase as the LTC business, itself.

    5. 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. I have not reviewed the actual policy language of the GNW 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 GNW will eventually be faced with a lawsuits over this measure.

    6. At the time, I did not ask (but wish I had) whether a policyholder’s cancellation of inflation protection on a policy would disqualify that policy from participation in the Texas LTC partnership program. I assume it will. I have sent a follow-up question on this matter. If you would like to be notified of the answer to that question, please indicate so in the comments section below this post.

    7. 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.

    8. While I anticipate that it will indeed be difficult to cost-effectively replace these GNW 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 GNW’s existing products in order to make sure our clients are getting the best possible deal . . . from GNW.

    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 GNW 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. GNW is really at the mercy of LTC brokers right now. Getting consumers to swallow this huge rate hike is GNW’s only way forward as a company. Even the TDI, which indirectly approved the massive renewal commission pay raise for GNW brokers, knows this. Insurance regulators don’t want to clean up a nationwide GNW mess. No one wants Genworth to fail. It would seem that GNW and the insurance regulators across the nation are indirectly (but far from subtly) asking brokers to get on board with “selling” the huge GNW 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.
     
    Last edited: May 15, 2016
  2. Mattschmidt
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    Mattschmidt Guru

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    I think Genworth has burnt the bridge to many brokers with all the changes to its insurance portfolio.

    I know I wont offer them to clients any time soon
     
  3. dgoldenz
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    dgoldenz Moderator Moderator

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    This is the total opposite of what I have always been told.
     
    dgoldenz, May 12, 2016
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  4. Robert Barney
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    Robert Barney Guru

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    Yes, but what is the guarantee in the contract?

    If it is not set out in the contract, any benefit a company may have offered can be taken away.

    And if a product has a non-guaranteed price, and the price can be increased, you can pretty much count on the price being increased (at some point).
     
  5. MichaelBurton
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    MichaelBurton Super Genius

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    Will you try to move existing clients to other carriers?

    ----------

    I think this was the biggest shock for everyone on the call.
     
  6. scagnt83
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    scagnt83 Worldwide Expert of Everything

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    The inflation feature is specific to the carrier and to the policy line as well. In my experience, what was said is not true for the carriers that I sell.

    But I have never trusted Genworth as a carrier and have never sold their products. Way too many better quality options out there in all product lines (except for one or two states were Genworth was just the only real option for ltci)
     
    scagnt83, May 13, 2016
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  7. pfg1
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    pfg1 Guru

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    50% is huge. I agree, that's gonna be a hard pill to swallow for everyone involved. My bet is most brokers move away from them. Good info, keep us posted!
     
    pfg1, May 13, 2016
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  8. scagnt83
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    scagnt83 Worldwide Expert of Everything

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    You have to keep it all in perspective. Obviously it is an issue when people budget a certain amount. But if a policy was 50% cheaper than the competition (like many early Genworth policies were in certain situations), and after 5 years they raise rates 50%, is it really a big deal when compared to the rest of the market?? Not really. Those people have paid half as much as others for the past 5 years. Many people who have had rate increases with GW LTCI have paid substantially less than they would have with other carriers... and on a cumulative basis will still pay less even with large rate increases.

    Of course that logic does nothing to appease angry consumers who were given the impression that rates would be more stable than that.

    Basically Genworth bought a bunch of business to boost share prices. It bit them in the ass and now they have horrible press because of it.

    That is a big reason I never sold them. When one carrier is 40% less than the others... well... that is a HUGE red flag that the product is extremely underpriced.
     
    scagnt83, May 13, 2016
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  9. pfg1
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    pfg1 Guru

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    Oh I don't disagree... but the folks that purchase(d) on price as the main point, probably will complain alot. They care about price. They also probably won't be able to see both sides of it most likely.
    Probably the best chance of selling that increase is going at it like you mentioned... they got a good deal over the past "x" yrs, now they are just balancing out.

    So who besides Genworth is "good" in this market these days?
     
    pfg1, May 13, 2016
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  10. scagnt83
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    scagnt83 Worldwide Expert of Everything

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    Dont get me wrong, it was a very effed up way for Genworth to treat customers. It was essentially bait and switch, get them at a real low premium and then raise it in line with all the other competition once they are locked in.

    And LTCI is one of those products that gets exponentially more expensive the older you get... and exponentially harder to qualify for the older you get. So most of the current customers will not find a better rate and even if they could, many would not qualify for a new policy.

    GW was literally 30%-40% cheaper at one time here in SC... JH was significantly cheaper as well years ago... it should be no surprise to agents that they are the ones with the largest rate increases... its just common sense... GW did not have some magic potion that let them operate any cheaper than the competition, or that made their claims any different.


    Mass is the cream of the crop in the LTCI market these days. Hands down. They have never had a rate increase and the policy benefits are very strong. Price is competitive now that all the others have been forced to jack up premiums.
     
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