History Repeats Itself: Comparing the Evolution of Long-Term Care & Disability Income

The long-term care (LTC) insurance market is entering a period of transformation. Carriers are continuing to reevaluate their positions, transactions involving legacy blocks are becoming more common, and stakeholders are looking for ways to manage risk while preserving value.

While these challenges may feel unique to LTC, there is a compelling historical parallel that offers important perspective: the evolution of the disability income (DI) insurance market.

At Davies, our Life & Health team has experienced the full lifecycle of the DI market for several decades and have supported clients in every step along the way. We’ve worked through the periods of growth and optimism, sustained pressure, restructuring, consolidation, and market re-entrance.

Highlighted below are some of the similarities we’ve observed that can provide historical context for organizations navigating the next phase of the LTC market.

Parallel #1: Optimistic Initial Assumptions

Both DI and LTC products were introduced during periods when insurers had limited data to develop the assumptions used to price and manage them. Over time, many of those assumptions proved to be overly optimistic.

Policyholder behavior, claim experience, and economic conditions evolved in ways that were difficult to anticipate. This challenge was amplified by features that made these products very attractive to consumers, such as guarantees and policy flexibility. While long-term commitments like these added significant value for policyholders, they also created complexity for insurers attempting to manage that risk.

Parallel #2: Prolonged Product Nature

The long-duration nature of both products further increased their risk exposure.

Interest rate environments have played a particularly impactful role, affecting profitability and reserve adequacy across both markets.

As these pressures accumulated, the DI market experienced cycles of repricing, restructuring and consolidation.

Today, the LTC market is following a similar path, with carrier exits, block transactions, reinsurance activity, and organizational restructuring.

Parallel #3: Gradual Carrier & Market Transformation

One of the most valuable lessons from the DI market is that prolonged stress doesn’t typically result in immediate transformation. Instead, change unfolds over time and creates a series of strategic responses that ultimately reshape the market.

In DI over the years, carriers have reassessed their risk appetite, leading some to reduce exposure or exit certain segments altogether. This retrenchment was followed by increased M&A activity, block transfers, and operational transitions as organizations sought more efficient ways to manage legacy liabilities.

Many of those same leading indicators are now visible in LTC. Carriers are reevaluating capital allocation strategies, reinsurance is playing a larger role in risk management, and transactions involving legacy blocks continue to attract attention.

Since late 2023, the LTC market has seen several significant reinsurance and block transactions involving billions of dollars of reserves.

Considering DI’s history, these developments suggest recent LTC M&A activity reflects a broader effort by organizations to optimize capital, manage risk, and position themselves for the future.

Pattern Recognition: Applying DI Lessons to Today’s LTC Landscape

Lessons learned from the DI market provide a practical roadmap for organizations managing inforce LTC blocks and considering LTC transactions.

Operational Readiness: Acquiring or assuming responsibility for a complex insurance block requires more than actuarial analysis. Administrative systems, claims operations, data quality, and service models all influence the ability to achieve the intended value of a transaction. Equally important is maintaining policyholder continuity and navigating regulatory requirements. Without careful consideration, operational factors can create obstacles that undermine an otherwise well-structured transaction.

Due Diligence: Successful DI transactions depended on a deep understanding of assumptions, claim trends, policyholder behavior, and emerging experience. Looking beyond headline metrics often revealed important risks or opportunities that directly influenced transaction outcomes.

Clear Governance: Accountability, decision-making frameworks, and oversight structures can help organizations navigate operational changes while maintaining consistency for regulators and policyholders, especially during transitions or for closed blocks.

Dual Market Experience

Familiarity with both the DI and LTC markets is invaluable, as the structural similarities between these long-duration products provide insights that may not be apparent when viewed purely through an LTC-lens.

Organizations that have managed similar challenges in other product lines are often better equipped to recognize emerging trends and distinguish temporary fluctuations from more meaningful shifts.

There’s also value in bringing together expertise across disciplines. Actuarial insight remains essential, but operational knowledge is equally important when managing complex blocks of business.

Looking Ahead

While every market has its own unique characteristics, the parallels between today’s LTC market and the earlier evolution of the DI market are difficult to ignore. The DI industry ultimately emerged from a period of retrenchment with stronger operational foundations, deeper experience, more disciplined risk management practices, and a new generation of sustainable, profitable products. We believe the LTC market is continuing on a similar journey at a critical time.

As demographic trends continue to increase the demand for LTC solutions, carriers are already exploring new approaches, particularly through hybrid product designs. Based on lessons of the DI market, the organizations that successfully navigate this transition will likely be those that combine risk management, operational excellence, and a long-term view of the market.

While the path forward is still unfolding, the evolution of the LTC market presents both challenges and opportunities. Davies looks forward to seeing how the market continues to develop and to supporting organizations as they navigate that journey.

For additional information regarding our DI & LTC block transition experience and services, contact Cailyn Canty.