Posted at ProducersWeb http://tinyurl.com/6yjmsy

The Conseco trust: What it means to policyholders and producers

By Frank N. Darras -Shernoff Bidart Darras and Ecehverria, LLP
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A dilemma is brewing in Pennsylvania that is about to develop into a full-blown tragedy for 144,000 unsuspecting Conseco long term care policyholders. Without any notice or warning to these faithful, premium-paying senior citizens, Conseco has proposed creating a new Senior Health Insurance trust to uncouple a hemorrhaging block of business it purchased from American Travelers and Transport Life in the mid-1990s.

It's questionable if producers across the country have been notified of this action by Conseco. Regardless, knowing about this dangerous attempt to sever the losing arm of the company's policies affects all producers selling the long term care product.

It is important to recognize that Conseco originally wanted to be the 800-pound gorilla and own the long term care space, having spent nearly $1.7 billion in acquisitions. Well, they gambled and won the market share they wanted, but faced three major hurdles. Unfortunately for seniors, the policies were oversold, under-priced, poorly underwritten and had too many bells and whistles.

Seniors jumped on the long term care bandwagon, having believed the slick advertising touting independent living in their golden years. Premiums rolled in, seniors held on to their policies and, as they got older, many needed the benefits they so richly paid for. This resulted in claim counts mounting, with Conseco contributing more than $915 million throughout the past 10 years to shore up their long term care business.

Wall Street wasn't pleased: stock prices began to fall and investment income tanked, but Conseco couldn't change the purchased blocks' generous policy language, the economy or interest rates. Since policy lapse rates were at an all-time low, Conseco got tough on claims.

Multi-state conduct investigations ensued, penalties and million-dollar fines were assessed, restitution was ordered and claims, previously denied, were ordered re-opened for new investigation.

Conseco refused to accept responsibility and pointed the finger at increasing life expectancy, increasing cost of care and too many seniors filing claims. Instead of accountability, the company sought repeated rate increases. Many states provided increases, but the company wore out its welcome and the Departments of Insurance around the country began pushing back. State by state, requests for rate increases were denied, reduced or pared down.

Conseco management began "seeking new strategic alternatives." Top management said, "this has become a real burden for management and shareholders."

In August, Conseco announced it was creating a new Senior Health Insurance trust to house 144,000 former American Travelers and Transport Life long term care insureds. No notice, warning or advisement was sent to these policyholders, according to the Pennsylvania Department of Insurance.

But why would the Pennsylvania Department of Insurance allow this, after all the violations it had uncovered, charged and fined Conseco for? This is a matter of record (see www.savemyltc.com).

The trust must be stopped!

The argument to stop this runaway train from uncoupling and letting the long term care policyholder crash has been given by the Pennsylvania Department of Insurance, in their own words, here.

Conseco wanted to be the industry leader in long term care -- now it's time for the company to honor what it sold. Spinning off an eleventh hour trust at Mach speed, without notice to the very policyholders that will be affected, is just wrong.

Senior citizens who purchased long term care insurance deserve the benefit of their bargain. They have paid dearly for these policies, suffered one premium rate increase after another and have hung on to these policies, hoping for the independent living they were promised.

Conseco can't just unhook this train of seniors. It is wrong on every level and the trust should be stopped. When Conseco chose to enter this market, it was a billion-dollar buyer; they shouldn't be allowed to walk away from your grandparents and mine, now.