Insurers may be leaving the private long-term care insurance (LTCI) market partly because of states’ efforts to regulate LTCI premium changes.
Analysts in the New York office of Fitch Ratings have given that assessment in a commentary on the news that Prudential Financial Inc., Newark, N.J. (NYSE:PRU), is ending sales of individual LTCI coverage.
Prudential is keeping its group LTCI business.
Many LTCI insurers were over-optimistic when they originally priced older policies, and unusually low interest rates are keeping them from correcting pricing errors with investment earnings, the analysts say.
“That has caused insurers to raise prices on the policies in order to fill the gap,” the analysts say. “But rate stabilization regulation put in place by a number of states has made it clear to insurers that a solution for underpricing via premium increases will not be easy to develop.”
Regulators want to protect LTCI policyholders from unexpected price increases, the analysts say.
Efforts to achieve that goal “effectively limit the ability of insurers to re-price LTC policies,” the analysts say.
Mispricing could continue to hurt LTCI earnings, especially if regulations continue to limit price changes, but one positive factor is that the total block of in-force individual LTCI business is relatively small and accounts for less than 2% of industry reserves and premiums, the analysts say.