“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.
The California department, which is just now getting under way with rate stabilization, currently has 60 certified filings, notes Seeley. But tooling up to review them all is an “overwhelming process,” she says. For instance, department staff has to assess the meaning of words–like “moderately adverse,” “similar,” “sufficient,” and “new forms”–in new context, she said.
Also, the filings are varied, so the department cant treat them all the same. “Its hard to put any system into it.”
Carroll Fisher, Oklahoma insurance commissioner, took a much more positive view. Rate stabilization will “stop the companies that have a beat-the-market (pricing) mentality,” he contended. These are companies that “run it (the product) out, once the company has reaped the benefits in the early years.”
On certified filings, he said, if the experience deteriorates in future years, “the commissioner should find out the companys plans to correct it. The commissioner can also penalize the company and effectively put the company out of the state.”
That does require insurance commissioners to get involved with companies on rate issues, he conceded, but he said thats all to the good.
He said he likes the provisions because they recognize that “it is important that LTC rates dont change and that the LTC contract will meet its promises” for the future.
Right now, Fisher noted, the Oklahoma department is reviewing a traditional LTC filing (not certified) for an 88% LTC rate increase. A hike that high is “terrible for the consumer,” he declared.
Some other observations:
What happens if the companys return on equity starts to fall on a product that debuted under actuarial certification pricing? The response will vary depending on whether the company writes only LTC insurance or LTC plus other lines, predicted OBrien. Also, the public relations impact of filing for a rate increase will impact the outcome, he said.
If the actuary certifies a rate that is a lot higher than the competition, that rate could threaten to put the company out of business, cautioned Allen J. Schmitz, a consulting actuary at Milliman USA in Milwaukee, Wis.
The actuary should document the conversations and work done to come up with the certified rate, suggested Peggy L. Hauser, senior vice president, actuarial services at the Long Term Care Group, Elm Grove, Wis.
It is important that the companies and the regulators say, up front, what they mean by “moderately adverse” conditions, said OBrien.
Even with the new provisions, some companies will price below adequate levels, cautioned Hauser. “I think the media needs to educate consumers that its not the best thing to do to shop for the LTC company offering the lowest possible rates.”
Reproduced from National Underwriter Edition, February 17, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.