As many long-term care (LTC) insurance blocks of business mature, new business management challenges are beginning to appear.
One such emerging risk relates to the reinstatement process, which is the process by which a lapsed policy is reactivated and put back in the same position as it was before the lapse occurred.
A recent increase in reinstatement-related disputes, including litigation, media exposure and department of insurance complaints, indicates the need for insurers to strengthen their risk management controls over this process.
The National Association of Insurance Commissioners’ Model LTC Regulation provides insureds with robust protection against unintended lapses of their LTC policies in the event of cognitive or functional impairment; nevertheless, disputes relating to the regulatory protected process are on the rise.
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For instance, the NAIC Model provides insureds with a five-month period after lapse to request reinstatement, but the model’s language does not specify when the five-month period should begin. The state of Washington suspended one insurer’s license to sell LTC policies for six months in 2011 because it interpreted the five-month time frame as beginning on the date the (unpaid) premium was initially due, not the date on which the lapse transaction occurred, which was 65 days later.
Similarly, disputes have arisen regarding the regulatory requirement for insureds to prove that cognitive or functional impairment began before the grace period expired. If insureds did not have formal cognitive testing performed and documented in their medical records before the lapse date, or the cognitive testing that was performed does not indicate the presence of a severe cognitive impairment as required for benefit eligibility under the insured’s LTC policy, reinstatement is not required by regulation.