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Thread: Policyholders in Limbo After Rare Failure of Insurer

  1. #1
    Senior Member Level 1 marindependent's Avatar
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    Aug 2016
    Marin County California

    Default Policyholders in Limbo After Rare Failure of Insurer

    Policyholders in Limbo After Rare Failure of Insurer

    From the New York Times -APRIL 1, 2017

    Something unusual happened last month: A good-size American insurer, Penn Treaty of Allentown, Pa., was ordered to liquidate and wind down its affairs. Its demise will orphan tens of thousands of policyholders — people who bought its long-term-care insurance to shield their families from crushing nursing home costs.

    Big insurance companies rarely fail in the United States. Most of the time, an ailing insurer will quietly find a buyer, and vanish under its rescuer’s wing. Policyholders may not know what happened, or care, as long as their claims are paid.

    The dearth of visible insurance failures makes it seem the industry’s squadrons of actuaries and regulators will always get things right, measuring complex risks accurately and charging premiums that will cover all future claims.

    But the failure of Penn Treaty shows that was not really true. It’s quite possible for a regulated insurer to miscalculate its book of business, operate for years without correcting the mistake, and ultimately take policyholders into the very realm of loss and uncertainty that insurance is specifically designed to avoid.
    Now, some fear Penn Treaty’s failure is a signal of more trouble to come in the long-term-care sector.

    “Liquidation is rare, but it does happen in bunches sometimes,” said Robert Hunter, director of insurance for the Consumer Federation of America. The organization has been warning about problems with long-term-care insurance since the early 1990s. In essence, companies underestimated the true cost of coverage and are struggling now to make good on all their promises.

    “There is definitely talk in the street that it’s still a high-risk situation for quite a few companies,” he said. “It’s not a healthy situation.”

    Michelle Leonard, a Penn Treaty policyholder in Venus, Fla., said she was shocked to learn of the liquidation.

    “It’s time for me to go to a facility to live out my days,” she said, explaining that she had already selected a group home, submitted an application and been accepted (but had not yet sold her house). “They may not take me now. I may not have enough assets to go in.”

    Each state has a so-called guarantee fund to rescue policyholders in insurance failures. The funds pay people’s claims, up to a predetermined limit that varies by state. The limit is $300,000 in Florida.

    “But how long does that take?” Ms. Leonard wondered. She said that she had not yet heard from the guarantee fund, but added that she had received mailings instructing her to keep on paying her monthly premium in full, even if it rises, or else her coverage would be canceled.

    “Oh, hey! We’re going down the toilet but keep paying your premium,” she said, mocking the letters. “It’s very upsetting.”

    Other Penn Treaty customers agreed. “That’s why we have C.P.A.s and actuaries and insurance professionals — to run the business properly,” said Charley Sproule, a policyholder in Harrisburg, Pa. “In my opinion, the actuaries and executives and the board should be held legally liable for this, but they won’t. They’ll get off scot-free.”

    In Pennsylvania, the guarantee limit is also $300,000. Mr. Spoule said the cash value of his policy was close to double that — $573,000. So is the cash value of a separate policy held by his wife, Mary Lou.

    Mr. Sproule said that his mother lived to be 100 and spent her final years in a nursing home. The care was expensive enough to wipe out all of her assets in just three years, including the value of her house. After that, she had to turn to Medicaid, the government health program for the poor.

    “That’s why we bought insurance, so that all of our assets wouldn’t be gobbled up by nursing-home costs,” Mr. Sproule said.

    In liquidation, the policies will be canceled, and the guarantee fund will take care of $300,000 worth of claims. “We end up suffering about a 48 percent loss,” Mr. Sproule said. It took the couple 18 years to build up their policies’ value to $573,000 apiece. Mr. Sproule said he was sure it was too late to go out and buy coverage to replace what they had lost.
    Read the rest of the article here:

  2. Last edited by marindependent; 07-17-2017 at 10:27 AM.
    Scott W Johnson
    Independent Insurance in California
    Whole Vs Term
    415-294-5454 CA LIC 0K10734

  3. #2
    Senior Member Level 1 DavidBlock's Avatar
    Join Date
    Oct 2010
    Asheville, NC


    Penn Treaty has been in receivership for years and within the past few years just stopped paying commissions. To learn of an insurers demise without another purchasing the assets is upsetting and unusual ... most of the time our industry takes care of itself. Florida's $300,000 cap is high compared to other states so this couple is actually "lucky" in terms of where they chose to reside. Does this mean not to purchase coverage? NO! It means to carefully select the carrier with whom you do business and even then, there are no guarantees. The broker and client should review the Comdex, AM Best, and other rating agencies before buying and not to make decisions based solely on cost.
    Last edited by DavidBlock; 07-19-2017 at 06:31 AM.
    David M. Block, CLTC
    Insurance Specialties, Inc.
    PO Box 1809
    Candler, NC 28715-1809
    800.358.8844 toll free
    828-667-1119 local
    828-667-2229 local fax

  4. #3
    Super Moderator
    Level 10
    xrac's Avatar
    Join Date
    Sep 2009


    Just shows that the strength of the companies we do business with is paramount. We all must do due diligence. The only thing that is certain is death and taxes.

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