Q. Several carriers I represent will be pursuing rate increases in the states where I do business. What I can say to my clients when they receive a premium rate increase to lessen the negative impact?
A. As agents, we all cringe when contemplating receiving a call like this: “Hello, this is John Insured. Do you remember the long term care insurance policy you sold me six years ago, back when I was healthy? Well guess what — I just got notice from the insurer that the premium is going to go up by 25%. How could you have misled me into believing the premium would stay the same? I thought I could trust you.”
What do you say now? How you respond to this angry client could go a long way toward determining whether you and the insurer become defendants in a lawsuit. To provide advice on this sensitive subject, I turned to Stephen Serfass, an attorney with the law firm of Drinker Biddle & Reath LLP.
He suggested four ways to respond, cautioning that every client is different and you need to take into account the particular needs and situation presented by the client facing a premium rate increase:
1. Review prior conversations in which you told the client about the possibility of future increases.
2. Make sure the client understands that regulators approved the increase.
3. Discuss the fact that there are ways to change benefits to minimize the effect of the increases.
4. Discuss the likely premium that the client would be required to pay if the same coverage was purchased today (which probably would be more than the increased premium).
First, remind clients that you alerted them to the possibility of later premium increases at the time they purchased the policy and at each of your annual meetings since that time. (This is one of many situations where having documentation of your conversation with clients will be very valuable.) If the client seems confused and expresses a belief that premiums could never go up, you ideally will be able to point to specific conversations where this possibility was mentioned and when you directed the client’s attention to the relevant language in the policy. If you did not have such conversations with clients, you can at least remind them you advised them to read the policy and then point out the relevant policy language. In any event, it is important for you to sympathize with your client without apologizing. This scenario emphasizes the need to address uncomfortable topics like prospective rate increases when an LTCI policy is purchased and at delivery, as well as the need to document all such conversations, preferably with the insured signing the piece of paper documenting the conversation.
Second, remind clients that the rate increases were approved by a state regulator after submission by the carrier of actuarial data documenting the need. (Obviously, you need to be sure this is true before telling the client. In most states LTCI premium increases are subject to regulator approval.) This fact, coupled with an explanation that if the premium is not increased the insurer might not be able to afford to pay the promised benefits, can help demonstrate to the client that the rate increase is not an arbitrary decision implemented by the insurer simply to drive up profits.
Third, alert clients to options provided by the insurer to reduce the impact of the premium increase. Insurance companies implementing premium rate increases typically offer insureds the option of changing or eliminating inflation protection, reducing the length of the benefit period, or increasing the elimination period. Although reducing the potential benefits under the policy will never make clients happy, knowing that they are not without options to avoid the full impact of a rate increase will ease by degree many clients’ frustrations.
Fourth, run a comparison to identify the premium for clients to receive a new policy providing the same benefit as the in-force policy. In most instances, this comparison will demonstrate that even taking into account the premium increase, clients will still be paying less for the coverage than buying a new policy.
Conversations about rate increases are never easy. But it is certainly better if you address the possibility when the policy is issued and, when a rate increase is implemented, if you cover the points outlined above in a respectful, reasonable manner. Finally, there is also great value in being an empathetic and compassionate listener. Treat your clients like you would like to be treated and you are much less likely to be the subject of a legal dispute.