An Actuary CertifiesBut Then What?

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Las Vegas

“I wonder if long term care insurance rate stabilization will work? Will we be able to have stable long term care premiums for life, or will companies come in and be able to justify rate increases later on?”

Those questions got some serious attention here at the 3rd annual LTC Insurance Conference sponsored by Society of Actuaries.

During a panel on regulatory issues, Marsha Seeley, senior staff counsel in the California Department of Insurance but voicing her own views, raised the matter.

Currently, 15 states have adopted rate stabilization provisions recommended by National Association of Insurance Commissioners Long-Term Care Insurance Model Act and Regulation. More states are poised to follow. But Seeley voiced uncertainty about the likely effectiveness of the stabilization effort.

At the conference, this was a huge topic of conversation in sessions and in hallways. The stabilization provisions regarding “actuarial certification” of LTC rate filings drew particular attention. The goals of certification are: to move insurers toward providing adequate LTC premiums for the life of their LTC policies; and to minimize the likelihood of subsequent rate increases. The question people are asking: Will that happen?

Many voiced hope–and belief–that it will. But some had doubts. The following comments are representative of the mixed viewpoints.

First, an overview. Under the regulations for new LTC insurance filings, pricing by initial loss ratios is “out,” said David Benz, leader of LTC at Thrivent Financial for Lutherans, Appleton, Wis.

Now, the focus is on having actuaries certify the filed rates. Certification says the actuary anticipates the premiums filed are expected to be adequate, even under “moderately adverse conditions,” for the life of the contract, Benz said.

The actuary makes this certification after considering underwriting and claims processes and experience, sensitivity tests, morbidity, lapse rates, the interest rate environment and other critical pricing factors, say experts.

If the state regulator does not approve a particular rate, but OKs a lower one, the actuary does not have to certify the lower rate, Thomas Foley, a regulator in the Florida department, told National Underwriter.

Certification applies only for the rates the actuary believes will be stable over the long haul, he says. NAIC developed these provisions to give the actuary some backing as they seek to build LTC rates that remain stable for the long term, Foley says.

What happens if a filing is approved as certified but the company later suffers such poor experience on the business that it finds it must go back for a rate increase? “We should expect some pushback from the regulators,” said Dennis OBrien, vice president and actuary with New York Life Insurance Company in the Austin, Texas, office.

Making filings with actuarial certifications is a voluntary process, several experts pointed out. Hence, some companies are already using the approach, even in states that have not yet adopted the rate stabilization provisions.