State regulators are talking about just what kind of pain long-term care insurance (LTCI) companies should feel when they increase premiums on in-force policies.
The Senior Issues Task Force at the National Association of Insurance Commissioners (NAIC) has been looking at the allocation of rate increase pain in a draft LTCI rate increase model bulletin.
Regulators could send bulletins based on the model to LTCI carriers in their states. The bulletins would set guidelines for handling rate increases for older LTCI policies.
The task force began asking for comments on the draft in June.
California Health Advocates and United Policyholders, two consumer groups, blasted LTCI carriers' rate increases.
"We are appalled by the number and the amount of the rate increases that the industry has sought and imposed on consumers, many of whom are of advanced age and disproportionately impacted by those increases," the groups said.
Past NAIC LTCI pricing reforms have failed to prevent large rate increases, according to the groups.
In some cases, when regulators review LTCI increase requests, they try to come up with a rate that would leave the company with a claims-to-premiums ratio of about 60 percent.
The consumer groups said that if, at the time an LTCI policy was issued, the issuers were counting on a 60 percent loss ratio over the life of the policy, "the lifetime loss ratio for increases should be at least 85 percent for individual coverage and 90 percent for group coverage," the consumer groups said. "Insurers should be required to share the pain of these rate increases with their insureds. Penalties should be severe enough to discourage any future pricing errors."
The North Carolina Department of Insurance also talked about loss ratio minimums in their comments on the model.
The 60 percent factor "should be replaced with the greatest of 60 percent or the lifetime loss ratio based on the original pricing assumptions," the department said. "Companies may have used assumptions that generated lifetime loss ratios of 70 percent or higher. It does not seem fair to consumers to use something less than the original lifetime loss ratio in evaluating a rate revision request."
Mark Alberts, an actuarial consultant, said LTCI policyholders, like traditional life policyholders, should not be subject to interest rate risk.
"The company should not have the opportunity to raise rates for interest rate charges it chose not to reflect at the time the business was issued," Alberts said.
Claude Thau, an LTCI specialist based in Kansas, suggested the carriers could keep the ability to raise rates while addressing concerns about interest rate change pain by having carriers tell consumers more about investment income assumptions.
"With the help of a qualified financial advisor, many prospects can at least partly understand the additional risk they face if they purchase from an insurer assuming a higher investment yield," Thau said.