Here's Why Consumers Accept Hikes in Long-Term Care Insurance Rates
What You Need to Know
Consumers tend to do what they think peers will do.
Financial knowledge and risk aversion affect consumer choices.
Researchers measured the incidence of phantom long-term care insurance.
Consumers may be more willing to accept bad news and stick with their financial strategy if they understand their options and believe that they are in control of the decision-making process tied to long-term care.
Researchers with the National Association of Insurance Commissioners, a regulatory group, have published data supporting that view in a presentation on a new study they conducted for the NAIC.
Brenda Rourke, a communication research scientist at the NAIC, led a team that looked at how consumers might respond to premium rate increase letters from long-term care insurance issuers. The team surveyed 1,118 consumers ages 55 and older and also completed phone interviews with nine survey participants.
About 28% of the survey participants said they would be willing to pay more to hold their LTCI benefits steady, 25% said they would probably accept the reduced benefit offer and 16% said they would cash in their policies.
The survey team then showed the participants a hypothetical LTCI rate increase letter that described reduced benefit options, or RBO options, and looked at how the participants responded to the letter.
Survey participants “were more likely to accept the rate increase if they received a prior rate increase, thought the letter was clear and easy to read, thought the RBO options were clear, said they had enough information and were in control of their choice, [and] had confidence and belief in their knowledge and skills,” the researchers wrote in a slidedeck summarizing their findings.
“Those who felt the letter was unclear and hard to read were less likely to pay the higher premium,” the researchers said.
What it means: The NAIC team’s findings may apply in a wide range of financial decision-making contexts.
It could be that clients are also more likely to hang on to a portfolio allocation after an equity market downturn or another strategy with disappointing early results if they feel they understand what’s going on and what their options are.
The backdrop: Hundreds of U.S. insurers offered long-term care insurance, a product that can help policyholders pay for nursing home care, home care and other forms of long-term care, in the 1980s, 1990s and early 2000s.
