People not holding enough health insurance for long-term care

A survey by market intelligence company ABI research has found that only 4 per cent of the adult population in the UK have got around to planning properly for finding their long-term care needs, which is especially worrying as around 20 per cent of men and 30 per cent of women are expected to need long-term care at some point in their lives.

The research also showed that about two thirds of adults have not even thought about the costs involved, although 94 per cent of respondents predicted that paying for care home fees would set them back more than GBP10,000 per year.

The Quarterly Consumer Survey by ABI, which covered the last three months of 2010, found that people did realise that the cost of long-term care in retirement will be high, despite few actually putting a plan in place to deal with them.

A fifth of people said they thought they would either not have to move into a care home, and 8 per cent said they believed the state would pay the necessary costs.

A further 17 per cent claimed they had thought about care costs, with 11 per cent depending on the sale of their house, and 2 per cent hoping friends and family would fund their care.

Sebelius defends CLASS Act, admits changes to be made

Health and Human Services Secretary Kathleen Sebelius defended the CLASS Act, the Affordable Care Act's long-term care insurance program, on Monday in remarks at a Kaiser Family Foundation event.

The Community Living Assistance Services and Support program, or CLASS Act, has been one of the targets in the Republicans' efforts to repeal healthcare reform. The CLASS program is an opt-out employment benefit that will help finance long-term care for workers who become disabled.

Sebelius refuted reports that the program is paid for by tax dollars, and asserted it would be paid for through premiums. She also emphasized that the program must go through some regulatory changes to ensure fiscal solvency. Changes include providing a range of payments rather than a single $50 daily payment indexed to inflation; and getting rid of loopholes that let beneficiaries receive payments even if they only sporadically pay premiums. Sebelius noted that the program strives to keep disabled people out of nursing homes and provides better options.

The National Council on Aging applauded her defense of the program. "Most seniors in need now have no choice but to spend down into poverty and be placed in a nursing home if they should need help," NCOA President and CEO Jim Firman said in a statement.

OPM to launch long-term care insurance open season

Federal employees, retirees and their relatives, including same-sex domestic partners, will be able to apply for the government's long-term care insurance option this spring.

In a Federal Register notice issued on Friday, the Office of Personnel Management announced that open season for the Federal Long-Term Care Insurance Program will run from April 4 through May 27. Same-sex domestic partners of federal workers for the first time will be able to enroll in the program, which helps pay for the cost of care when participants need help with daily activities, or have a severe cognitive illness.

OPM in June 2010 issued a final regulation broadening the definition of relatives qualified to participate in the long-term care insurance program to include the same-sex domestic partners of federal employees, U.S. Postal Service workers and retirees. Prior to the new rule, which took effect on July 1, 2010, only spouses, parents and adult children were eligible for coverage.

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RELATED STORIES

• Domestic partner benefits get another boost  10/27/10
• OPM extends federal leave without pay to same-sex couples  09/13/10

The expansion of coverage follows aJune 2009 presidential memorandumasking that government do as much as it can legally to put same-sex domestic partners on equal footing with heterosexual married couples.

According to OPM, active federal employees, their spouses and same-sex domestic partners who currently are not enrolled can apply under abbreviated underwriting rules and will have to provide only limited health information. Retirees and other qualified relatives will undergo a longer review of medical and health history in the application process.

Coverage will begin on the first day of the month after an application is approved, and premiums will be based on the enrollee's age and option selected, according to the notice.

Aviva Plc, RSA Insurance are long term winner says Jefferies

Jefferies have commented this morning that future momentum at Aviva has justified the raising of their target share price on the insurer to £4.98.

"Yesterday's investor day reassured over the capital position and provided clear evidence that management is listening. Disposals would be welcome and are now more likely in our view. We reiterate our Buy recommendation and raise our price target to £4.98," says James Shuck at Jefferies.

Shuck goes on to say that Aviva knows where it is going.

"It may take time to get there but strong and improving earnings momentum lights the way. This company is likely to look very different in 1-2 years, with a lower risk profile and a much sharper focus.

Meanwhile RSA Insurance Group (LON:RSA) had its 'buy' rating maintained at Jefferies after yesterday's trading update.

Management also gave slightly improved guidance for 2011, with estimates likely to move upwards. We remain some 15% ahead of consensus in that year.

"RSA can continue to post above average growth and resilient 20% returns for a modest 1.5x NAV and we reiterate our Buy recommendation," says Shuck.

FDIC Bank-Fee Change May Drive Near-Zero Short-Term Interest Rates Lower

A planned change in deposit insurance fees for U.S. banks may lower already near-zero short-term interest rates, according to strategists at Barclays Plc, Bank of America Merrill Lynch and the Royal Bank of Canada.

The Federal Deposit Insurance Corp. proposed broadening the base for deposit insurance fees to banks' liabilities, rather than domestic deposits. The plan is designed to fund depositor protection while shifting the burden to larger lenders whose reliance on riskier funding may pose greater threats to the financial system.

Increased FDIC fees may cut into banks' interest income and drive money market rates lower, the strategists said. The volume weighted average for overnight fed funds, the so-called effective rate, may slide by as much as 0.1 percentage point if the FDIC change is implemented, according to Wrightson ICAP LLC, a Jersey City, New Jersey research unit of ICAP Plc.

"The FDIC's actions would have the same effect as a cut in the interest rate the Federal Reserve pays banks on excess reserves," said Joseph Abate, money-market strategist at Barclays in New York. "This will drive repurchase agreement and Treasury bill rates lower."

Rate Catalysts

Even lower short-term interest rates will potentially make it even harder for the $2.8 trillion money-market fund industry to retain customer assets. The FDIC changes will add to catalysts for lower money-market rates, chiefly the Fed siphoning of about $1 trillion in Treasuries from the market through its debt purchases by June, according to New-York based Brian Smedley, a strategist at Bank of America Merrill Lynch, a unit of Bank of America Corp.

"The Fed will likely achieve lower short-term rates even without lowering the 25 basis points it currently pays on banks' excess reserve balances," said Smedley, a former senior trader at the Federal Reserve Bank of New York. With short-term interest rates likely to decline this year, "it will make money- market mutual fund managers lives more difficult and could lead to further consolidation of the industry."

Deborah Cunningham, chief investment officer in Pittsburgh for taxable money markets at Federated Investors Inc., which manages more than $336 billion in money-market investments, said a fall in overnight rates would at most be only about five basis points and wouldn't be sufficient to speed any consolidation of the money-fund industry.

Consolidation Happened

"There will be pressure on short-term rates depending upon how this plays out, but a 10 basis points fall is pretty draconian and we don't expect that," Cunningham said in a telephone interview. "Most of the consolidation of the industry has happened, is happening and will continue to happen, but this wouldn't push it any faster. This isn't like a nail in the coffin or anything that really pushes people over the edge."

FDIC-member banks pay quarterly assessments to the insurance fund, which fell into deficit as bank closings soared in the wake of the 2008 credit crisis. The Nov. 9 FDIC proposal, a response to the Dodd-Frank financial-regulation law, is in a 45- day comment period. If adopted, it would be implemented April 1.

Record-low interest rates during the past two years have made it difficult for the money market fund industry, which saw assets fall by $491 billion, or 15 percent, in 2010, according to the Investment Company Institute. Fund yields average 0.07 percent for the biggest 100 taxable funds, according to Crane Data, down from 1.16 percent two years ago.

Excess Reserves

Banks' excess reserves held with the Fed above required amounts total about $991 billion, compared with $2.2 billion at the start of 2007. The Fed began paying interest on these reserves in October 2008 to keep the benchmark U.S. overnight interest rate traded in the market close to the target set by policy makers. The Fed's deposit rate is 0.25 percent.

The central bank's official target for overnight funds has been held in a range of zero to 0.25 percent since December 2008.

"Now that all banks' assets, including short-term liquid assets, are included in the FDIC's assessment base, it means that every bank faces its own interest rate on excess reserves," said Lou Crandall, chief economist at Wrightson ICAP. "For a large number of custodial banks, at the margin, the benefit to them to keeping an extra dollar of reserves at the Fed will be about 15 basis points or some number in the mid teens rather than the 25 basis points the Fed is now actually paying. That will lower overall the structure of overnight rates."

Overnight Lending

Overnight Treasury general collateral repurchase rates, which typically move in the same direction as the fed funds rate, may fall this year to as low as "single digits" from about 0.22 percent at present, according to Bank of America, as the Fed's quantitative easing drains securities from the marketplace.

The Fed in November began buying $600 billion of Treasuries in a second round of debt purchases, expanding its stimulus measures in an attempt to reduce 9.8 percent unemployment and avoid deflation. The Fed also plans to reinvest $250 billion to $300 billion of proceeds from mortgage-backed debt and agency securities into Treasuries in the same time period.

Fewer securities available for borrowing and lending in the repurchase markets typically causes rates to fall as investors are willing to take lower interest rates on loans in order to get needed securities.

Another $200 billion in Treasury bills will be removed from the market by late February, as the Treasury's Supplementary Financing Program is forecast to expire as the government reaches the federal debt limit and Republicans won't likely allow an increase, according to Barclays and Bank of America. Through the program the Treasury sells bills at the Fed's behest.

The FDIC fee assessment change "should have a pronounced effect on the fed funds effective rate," Michael Cloherty, head of U.S. rates strategy for fixed income and currencies at Royal Bank of Canada in New York, wrote in an e-mail. "The banks subject to the new insurance fees should only be willing to borrow fed funds at rates more than 10 basis points below where they are currently borrowing."

Mulryan to Replace Cain on Califonia State Fund Board

Gov. Arnold Schwarzengger has appointed Larry Mulryan chairman of the California State Compensation Insurance Fund board. Mulryan replaces Jeanne Cain, whose term expired. The governor also appointed Scott Reid to the board.

Mulryan was interim president and CEO of State Fund in 2007, and also was the former executive director of the California Insurance Guarantee Association.

Reid was previously cabinet secretary for the Governor. He also previously served as undersecretary of the State and Consumer Services Agency. Prior to that, he was chief deputy director for the Department of Consumer Affairs from 2007 to 2009. Reid served as chief deputy cabinet secretary for the Office of Governor Schwarzenegger in 2006 and deputy secretary for policy and planning at SCSA from 2005 to 2006. From 2004 to 2005, he was the director of the Office of the Insurance Advisor and, from 1998 to 2003, was chief of staff to Fred Aguiar at the San Bernardino County Board of Supervisors and the California State Assembly.

Insurance Vital to Alabama Coast Long-Term Plan, Says Commission

Coastal Alabama should seize the BP Gulf oil disaster as an opportunity for "resiliency planning" that will not only help the region recover from the oil damage but also put it in a position to better recover from any future disasters, whether natural or manmade, according to a sweeping report from a special commission.

The recently released report from the Alabama Coastal Recovery Commission, entitled "A Roadmap to Resilience," makes a case that risk management initiatives and private insurance markets are vital to this resiliency planning.

"The insurance industry forces a rubber-meets-the road discussion about resiliency planning because it establishes a dollar amount for perceived vulnerability. Despite the volatility of the debate over what's fair in regards to coastal insurance affordability, the bottom line is that somebody is going to pay the bill for the degree of risk the industry is willing to take," the report says.

The report contains numerous risk management and insurance recommendations including that the state strengthen its building code; find ways to attract new property insurers; encourage the sale of multi-year policies; require that insurers offering multi-peril policies show the separate premiums charged for wind and non-wind portions of policies; and that the state enact tax-free funds to help homeowners save for the cost of insurance deductibles and mitigation measures.

Its insurance and risk management recommendations can "help stabilize the cost of insurance and even lower insurance premiums," according to the commission.

"This will help workers live closer to their jobs and save for their children's education. It will help the coastal economy thrive. And it will help limit the number of people who are without property insurance or who are under-insured, reducing uninsured losses so that individuals and communities can recover more quickly from storms," the report says.

Beyond Claims

The plan calls for improving the claims process for people and businesses affected by the BP oil disaster and making sure any monies collected from BP or the government are spent where they will do the most good.

But it also goes beyond addressing immediate claims and financial needs to recommending broad efforts to restore South Alabama's beaches and the barrier islands; boost the state's seafood and tourism industries; and improve education, public safety and public health so that the recovery is sustainable.

The commission, launched by Gov. Bob Riley and hundreds of community leaders, collected testimony and research for 90 days to come up with its blueprint for South Alabama's future.

According to the commission, the BP oil spill is more than a temporary threat to Gulf coastlines; it is a catastrophe that may take decades to measure. "Its impacts transcend emergency response issues and have lasting implications for our coastal economy, ecology and social institutions," the report says.

According to the commission, the solution is for South Alabama to build regional capacity for long-term resilience.

"We must position ourselves to respond not only to future oil spills but also to other forces beyond our control, including everything from hurricanes to sudden shifts in the economic environment. We must assure a future for our coast that strengthens its appeal to visitors and investors from around the world and protects its environmental assets for generations to come," the commission states.

The far-reaching report calls for the creation of a Coastal Environmental Management Council to develop a comprehensive coastal resiliency plan. It wants this council to also work toward assuring that the water throughout coastal Alabama is fishable, swimmable and drinkable.

The report recommends the creation of a world-class marine and coastal institution on the level of the Scripps Institution of an Oceanography in California or Woods Hole Oceanographic Institution in Massachusetts focusing on the Gulf.

Insurance, Risk Management

The report emphasizes the roles of risk management, mitigation and insurance – and cooperation between the private and public sectors-- in helping the region achieve sustainable recovery.

"Achieving an acceptable balance of risks and costs for insuring coastal property is only possible if the responsibility is shared among property owners, government and the insurance industry," the report says.

The insurance industry must work with individuals and government to form a "three-pronged approach" so that homeowners strengthen their homes and states adopt tougher construction standards, according to the commission.

The report describes the insurance market on the coast since Hurricanes Ivan and Katrina as "unsustainable," one where demand for affordable, comprehensive insurance has far exceeded the supply. It is a market consisting of small regional insurance companies and one with little competition. The biggest problem is the lack of availability of wind coverage, which is forcing homeowners to obtain coverage though the insurer of last resort, the Alabama Insurance Underwriting Association, or from high-priced surplus lines insurers. The number of homeowners with wind pool policies under the AIUA has grown since Ivan, from about 3,500 policies to 18,865 as of Oct. 31. Many homeowners are simply going without coverage, according to the report.

Alabama should refrain from subsidizing the rates charged by the AIUA pool, according to the commission, citing problems with the Florida insurance market and the federal flood insurance program where governments have subsidized rates.

"If the overriding policy goal is to foster a competitive private market and give consumers more choice, subsidizing policies with taxpayer dollars should not be considered a viable, long-term option," the report says.

The report continues:

"In a purely market-driven environment, families and businesses pick up the total tab. To offset some of the burden on citizens and the regional economy, governments may reduce insurance providers' risk through subsidies. Or there might be combinations of public, private and non-profit approaches that mitigate risks and achieve levels of insurance affordability, making living and doing business on the coast easier for more folks.

"Definitions of acceptable affordability cover a wide range, however. And almost no one faced with high insurance premiums and high deductibles is going to be excited about paying the price. But the price is going to be paid one way or another."

Recommendations

So what should be done? How should costs and responsibilities be shared? The commission's insurance subcommittee, headed by former Alabama Insurance Commissioner Walter Bell, who is now an executive with Swiss Re, offered numerous recommendations in the areas of insurance and risk management. These include:

Mitigation Recommendations

1. Establish a trust fund to provide incentives and financing for homeowners to take mitigation measures.
2. 
   Commission a study of what hurricane models suggest that mandated mitigation discounts should be for homeowners in Alabama.
3. 
   Require consumers, Realtors and builders to identify to potential home buyers all the wind-mitigation features on a home.
4. 
   Evaluate whether to require admitted carriers to obtain proof of wind and flood coverage from consumers located in zones A and V.
5. 
   Develop a nonprofit entity to utilize FEMA's Hazard Mitigation Grant Program (HMGP).
6. Strengthen local inspection programs for mitigation measures by developing sources of funding to increase the operating budgets of local building-code departments.
7. 
   Encourage accurate mitigation inspections by requiring they be conducted by trained and licensed professionals.
8. 
   Eliminate sales tax on materials used to retrofit homes against the effects of storms.
9. 
   Educate consumers and other stakeholders about the potential insurance cost savings and return-on-investment that can come from fortifying and retrofitting their homes.

Building Standards Recommendations

1. Develop a strong statewide building code, or at minimum a strong, uniform code for local jurisdictions in Alabama's coastal counties to adopt.
2. Develop and implement a uniform process for localities to review construction plans and to inspect homes and buildings.
3. Work with stakeholders in the construction, sale, appraisal, and financing of homes and buildings to develop and implement stronger codes and a uniform review process.
4. Strengthen inspections and enforcement at the local level by developing sources of funding to increase the operating budgets of local building code departments.
5. Strengthen and develop programs to train and license local building-code officials to increase effectiveness of code enforcement throughout the coastal region.
6. Require insurance carriers to recognize industry-established Building Code Effectiveness Grading Standards (BCEGS) ratings and provide related discounts.
7. Develop and implement higher standards for freeboard levels for flooding, setbacks from water, and floodproof requirements.
8. Adopt and implement more restrictive local land-use policies that recognize risks associated with structures in flood-prone areas.
9. Encourage code uniformity by establishing that changes to local building standards will be adopted uniformly by all of the jurisdictions in Baldwin and Mobile counties.
10. Publicize information about stronger building standards with consumers and other stakeholders.
11. Develop entities and resources needed to gather data on the quality of construction of homes and buildings in the coastal region.
12. Develop ongoing involvement and dialogue among stakeholders through a new Alabama Insurance Institute.

Transparency and Education Recommendations

1. Increase transparency by making both insurers' rate filings and their aggregate historical data public information.
2. Require that insurers offering multi-peril policies show the separate premiums charged for wind and non-wind portions of policies on their declaration pages.
3. Require insurance companies provide consumers with a uniform disclosure form, or check list, showing what is included and not included in a residential policy.
4. Establish a new Alabama Insurance Institute by governor's executive decree to develop research, encourage dialogue and coordinate public education campaigns.

Market and Alternative Products Recommendations

1. Conduct a study on the concept of "recoupment," which would allow insurers participating in the wind pool to recoup potential assessments.
2. Conduct a study of premium tax revenues.
3. Conduct a study on the possibility of utilizing a captive insurance company to provide homeowners with short-term relief from the cost of insurance.
4. Encourage insurers to offer multi-year homeowners insurance policies to protect consumers against annual spikes in the cost of insurance.
5. Invite insurance companies to Alabama for an annual symposium to attract new carriers to the market.

Other Regulatory and Legislative Recommendations

1. Require licensing of contractors and subcontractors.
2. Enact an insurance fraud bill to protect consumers from unscrupulous agents and insurers and from consumers who defraud the insurance system.
3. Enact a reasonable statute of limitation for reporting property claims.
4. Enact and promote at the state level tax-free funds for individuals to help homeowners save for the cost of insurance deductibles and mitigation measures.
5. Encourage Alabama lawmakers in Washington, D.C., to reform the National Flood Insurance Program.
6. Encourage Alabama lawmakers in Washington, D.C., and Montgomery to find a resolution to wind and flood claim settlements and increase transparency.
7. Encourage Alabama lawmakers in Washington, D.C., to support and pursue a tax-deferred catastrophe reserve for insurance companies.