John Hancock Life Insurance Company is telling distributors it plans to raise rates for in-force long term care insurance policies 40%.
Hancock, Boston, also is suspending sales of group long term care insurance (LTC) policies as it undertakes a review of claims in that market, says Marianne Harrison, president of John Hancock Long Term Care, a division of Manulife Financial Corp., Toronto (NYSE:MFC).
Hancock plans to file for rate increases in all states this month and possibly even this week, Harrison says.
She is disclosing the rate increase and group policy suspension in a telephone conference with the company’s LTC insurance distributors today.
Hancock announced the moves after its recent claims study showed unfavorable claims patterns, Harrison said in an interview.
Hancock’s claims studies, conducted every few years, examine LTC morbidity and termination claim trends based on actual experience. The last time Hancock undertook a thorough LTC claims review was in 2006, the company says.
This year’s study encompassed both open and closed claims, looking at all LTC claims Hancock received from 1990 to 2010.
As the LTC block continued to mature, Hancock’s latest study found it had twice the number of claims it found in its 2006 study. For older policy holders–ages 80 and up–the block had 4 times as many.
The severity and duration of claims in 2010
also were much higher than in 2006, Harrison says, while claims terminations were lower than expected.
Mortality improvements observed throughout the LTC and life insurance industry have led to more people reaching the age where claims are more likely to occur, Hancock says.
“Put simply, more people used the insurance than anticipated, reinforcing the value of the product to policyholders, but creating a pricing issue,” Hancock says.
The proposed 40% rate increase is subject to state acceptance, although not all states require approval of LTC premium increases by their regulators.
To accommodate policy holders who could not afford the increase, Hancock will be
offering them a range of options, involving reducing benefits to keep premiums close to their current level, Harrison says.
For example, insureds who purchased 5% compound or 5% simple inflation coverage will be offered reduced inflation coverage such as 4% compound or simple increases.
The company offered similar options to federal employees in 2009 when it raised rates by 25% on its group policies sold by its subsidiary, Long Term Care Partners L.L.C. The Federal policies would not be affected by the new rate increases.
“We are trying to do whatever we can to find landing spots to offer an array of options,” Harrison says. In addition to cutting back on inflation protection, policy owners can reduce the benefit qualification period or reduce their daily or monthly benefit amounts, she says.
LTC producers have complained for years about past increases by carriers and argued that the increases have contributed to recent declines in sales of LTC policies.
Although individual LTC insurance sales rose 13% in the first half of this year, sales have been dropping for most of the previous 7 years, LIMRA reported in a recent study.
“Yes, we are aware that this would hurt sales,” Harrison says of Hancock’s latest increase. “The economic environment hasn’t helped, either.”
Before Hancock raised LTC rates for federal program enrollees, it imposed an earlier increase in 2008. That increase averaged 14%.
She says the company is temporarily suspending sales of its group products, known as Care Choice, Corporate Choice and Corporate Solutions.
“We want to reevaluate pricing and design,” Harrison says. “We will make a decision later on whether to come back into that environment.
Harrison estimates 80% of Hancock’s in-force LTC policies would be affected by the increases. The company now has about 1.5 million policies in force
Hancock has more than 1.2 million LTC insurance customers–700,000 individual, 350,000 group, and 224,000 under the federal program. Of all these policies, 47,000 have received benefits. Hancock says it has paid more than $3 billion in LTC claims, and now pays more than $1.5 million in claims per day.