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April 13, 2005 at 08:00 PM
Work continues to update regulation
by Jim Connolly
Long term care insurance continues to have growing pains, and diverse opinions are being voiced over how to bring the product to full maturity.
A forum for these voices is being offered as regulators seek to update the Long Term Care model act and regulation developed by the National Association of Insurance Commissioners, Kansas City, Mo.
As reported earlier, two commissionersJorge Gomez of Wisconsin and Kevin McCarty of Floridacaused a stir during the spring NAIC meeting when they raised the issue of whether the product should continue to be sold at all (see NU, March 21). Their remarks followed a presentation on post-claims underwriting by Paul Roller, an attorney who has represented a plaintiff in such a case.
National Underwriter spoke to both commissioners, who expanded on their comments at the meeting.
The ongoing discussion, according to Gomez, will prompt regulators to take a closer look at contestability issues.
He says the presentation by Roller speaks to the need for better underwriting and for better pricing. Poor underwriting and poor pricing are factors that can lead to post-claims underwriting, he says.
Gomez says his reaction at the meeting was in response to “an unnecessarily hostile reaction” to Rollers remarks.
He notes that there are still rate increases but that the large increases of 20-70% are generally from older blocks of business written prior to 2000.
However, he adds, people should not be induced to buy insurance that appears affordable and then have to look at a 50% hike. This is particularly important for the elderly on a fixed income, Gomez adds.
“Good underwriting and pricing mechanisms are fundamental tenets for products,” he says, and thorough underwriting provides better data for actuaries. Better underwriting is important, even if it results in fewer people buying the product simply because the price is right, Gomez adds.
Previous assumptions such as return on investments, medical inflation and interest rates have been misjudged, he says. “I really do suspect that they may have sold more insurance than is warranted” and assumed “more risk than should have been undertaken,” says Gomez. “It is better to have cleaner underwriting upfront.”
The need for better underwriting becomes more important, particularly with medical inflation and an aging population, Gomez says. “Regulators are responsible for making sure the product will be around in the future.”
In cases of post-claims underwriting, he adds, an external review process could be created and as the current version of the model is reviewed, the exclusion of mental health also may be examined.
Floridas McCarty expresses concerns about “the suitability and viability of the product.”
He recalls hearings in Florida last year in which Conseco Inc., Carmel, Ind., requested increases in excess of 200%. The average age of policyholders in Florida is over 80 and they are not in a good position to bargain with an insurer, McCarty says.
Carriers may have concerns about the misstatement of an individuals health as noted during the discussion on post-claims underwriting and the length of contestability periods. But consumers were led to believe that LTCI would be a stable product and, instead, they got large rate increases, McCarty notes.
Since rate stability requirements have been put in place, sales are down, he adds. Both the number of policies and the number of carriers in Florida have dropped because LTCI has had “a much higher price and is not seen as a good buy,” McCarty says.
