LTC:Growing longevity and lacklustre gilts force insurer into 60% rate hike
A massive shortfall in AXA Sun Life's spending predictions for long-term care (LTC) means that premiums for its pre-funded LTC insurance will have to soar by an average of 60%.
The insurer has written to policyholders informing them that unless they are willing to sustain considerable price hikes they will have to see their benefit levels slashed. The increases, which will affect 11,500 customers, have been put down to people living longer and the insurer experiencing a higher number of claims than expected.
AXA has already amended 3,000 policies and confirmed that around 55% of customers have chosen to reduce their benefits while just 20% have upped their contributions to keep the same level of cover in place.
"This review took place after many policies had been in place for 10 or 12 years, and in the interim the risk factors that premiums are set on have changed. The kind of changes we are seeing are in areas such as the duration of claims, since people are living longer but often in poor health, and we're simply receiving more claims than we expected," said Peter Webb, press relations manager at AXA Sun Life.
Webb also revealed that investment conditions had played a part in pushing premiums up. "We invested in government gilts, which are a lot less volatile than other investments such as equities or the stock market - and now gilts are worth half what they were, which has also had an effect," he acknowledged.
In addition to simply giving the choice of paying more or losing benefits, AXA is offering policyholders alternative options such as pooling benefit into a fixed time period, in which a person can receive full monthly benefits based on how much they have so far paid in.
Commenting on the developments, Mike Douglas, chief operating officer at Partnership Assurance, confirmed that an aging population is pushing premiums ever upward.
"There is no doubt that we are now seeing longer claims, but there are other factors besides this. Regulation in care homes has driven standards up - but of course higher standards means higher costs that have to be passed onto the customer," he said.
"Despite these rises, it is important to remember that the actual cost of paying for a care home is horrendous - so LTC insurance still represents a good deal for the customer."
