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Explaining LTCi Rate Hikes to Clients

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Several leading insurers have given out long-term care insurance rate hikes recently. This has raised concern among consumers, consumer groups, and the media. Each party seems to “feed” on the other, causing a “snowball effect” of undeserved negative fallout for the LTCi industry.

I often get calls from clients who’ve just received rate hike letters. The client is invariably unhappy and often either scared or angry. I’ve had one or two irate clients, which is disconcerting, but I’ve learned that even these clients are “more bark than bite.” All are calling because they seek information and advice.

Regardless of how my clients feel when they call, they normally hang up better informed and satisfied. I admit that when I started getting rate increase phone calls I was often unnerved by them and not overly confident in my responses. Now, however, I am accustomed to them. Although these calls are time consuming, they are great for client goodwill and persistency. They are constructive not only for your business, but also for the entire LTCi industry.

The majority of clients have “convenient” memories and have forgotten that they own Guaranteed Renewable contracts. When dealing with rate hike calls, always start by reviewing what a guaranteed renewable contract means. I spend a lot of time describing how LTCi is regulated and why rate hikes are not arbitrary or easily imposed. Not only does the public object to rate hikes, but they are also not taken lightly by the insurance company or the approving department of insurance.

My next step is to describe the unique nature of LTCi policies: They have extraordinarily high persistency –around 95% industry-wide, which is higher than any other type of insurance sold, and higher than actuaries anticipated. They have incredibly long tails, meaning that an LTCi policy sold to a 55-year old might stay on the books 30 or more years before it is collected from.

Because of these unique qualities, when an LTCi policy is issued, the carrier must post very large amounts of reserve funds. The majority of LTCi’s profitability is derived from interest earned on posted reserve funds. When interest rates plummeted unexpectedly in recent years and stayed down for so long, and when policies experienced higher than predicted persistency rates, prior actuarial assumptions became incorrect. Rate hikes are a means to adjust for these inaccurate assumptions.

I also inject that it’s a good thing LTCi carriers do this. They act in a responsible way. I would rather have LTCi carriers give rate hikes in order to be able to honor their obligations to policyholders, than behave like the federal government and make financial commitments that it cannot meet in the future.

Nearly all of the policies I’ve placed have built-in automatic compound inflation. During our rate hike conversation, I offer to do a policy review for my client.

Included in my policy review are 1) their LTCi Schedule page, 2) in many cases, a Stratecision “fantasy” illustration showing what a comparable policy would cost today if they still had their original buying age and health, 3) a print out of their current daily or monthly benefits (most clients don’t realize how high their policy values have become), and 4) an illustration of comparable LTCi based on their current age and policy values. I especially love illustrating item 4 because the cost is shockingly high! This review really helps put rate hikes in context for my clients.

The four items above are scanned and emailed to my client. I haven’t had to snail mail a policy review in a long while. I ask clients to call me for review.

I estimate that about three-quarters of my clients accept their rate hike, once they have, and understand, the information I send.

Not all are able to tolerate their rate hike, of course. I mention to clients that we can always pare back their policy to get the premiums back in the range they were before the rate hike. With rate hike letters, the carrier gives policyholders options they may elect to lower their premiums.

In most cases, the carrier gives the options they want the policyholder to choose, not necessarily options that are in the client’s best interest. For example, carriers offer non-forfeiture, which stinks, in my opinion. This is the ability to stop paying premiums but “own” a certain amount of paid-up LTCi. It is not in the client’s best interest because it results in a paltry, inadequate amount of coverage, which I demonstrate with simple arithmetic. Other inferior options I’ve seen offered are freezing or removing daily (or monthly) benefit growth.

In my opinion, the best ways to lower LTCi premiums are by whittling down the original daily (or monthly) benefit or shortening the length of the benefit period. Extending the elimination period rarely results in meaningful savings and therefore, is penny-wise but pound-foolish at claim time.

Clients will need your help understanding their options and possibly getting quotes for shorter benefit periods or lower daily/monthly benefits. Do not shy away from rate hike calls; they can be quite rewarding. Many clients are surprised that I answer their call personally, and that I remember them, even though I may have last seen them many years ago. They often thank me for my advice and my accountability. In addition to giving me personal satisfaction, assisting clients who’ve been rate-hiked serves the greater good of the LTCi industry by helping to improve LTCi’s reputation.


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