Prudential Financial Inc. (PRU) will stop selling long-term care insurance through employer-sponsored benefit programs in most of the U.S., further paring its sales of a product that has proven to be a thorn in the sides of insurers amid the ultralow-interest-rate environment.
Prudential said Wednesday it would discontinue sales of new policies on Aug. 1 in all but five states, though it said the terms of the policies it had sold previously wouldn't change and could continue to be renewed by policyholders indefinitely. The company can raise rates on those policyholders subject to regulatory approval.
Prudential said "the continued low interest rate environment" was behind the decision, along with the company's "desire to achieve appropriate returns, enhance its long-term risk profile" and grow profitably.
The Newark, N.J., insurer's decision comes four months after it shut down sales of long-term care coverage to individuals. Some other prominent insurers, including MetLife Inc. (MET) and Unum Group (UNM), also have curtailed sales.
Several decades ago, long-term care insurance was viewed as a promising vehicle for growth for insurers, but the product has proven incredibly difficult to price correctly because of rising health-care costs, unpredictable claims patterns and, more recently, the low interest rates that have reduced the amount of money insurers can earn on the invested premiums.
Interest rates play a key role in the profitability of the product, since insurers aim to make money on the premiums paid in the years before policyholders file claims.
Policyholders are living longer and generating more in claims than initially projected, industry participants said. As a result, many insurers repeatedly have sought approval from state insurance departments for price increases to offset costs they didn't anticipate.
Prudential will continue to sell the products in Indiana, Iowa, Kansas, Louisiana and South Dakota for a time as required by state law.
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