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Regulation and Compliance > State Regulation

State Farm files for LTCI rate hikes

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State Farm Automobile Insurance Company is seeking significant increases in premium rates for some long-term care insurance (LTCI) policies sold in Connecticut and Pennsylvania years ago.

In Connecticut, State Farm is asking for an increase with a maximum of 40 percent and an average of 38 percent on 48 policies sold from 2000 to 2002.

State Farm is no longer selling the policies in Connecticut, the company said in a rate filing posted on the Connecticut Department of Insurance website.

State Farm sold 44,726 policies in that series throughout the United States, and the company is asking for similar rate increases for all of the policies. The Connecticut policyholders have been paying an average of about $1,200 per year each in premiums.

Similarly, in Pennsylvania, State Farm is asking for an increase with a maximum of 40 percent an an average of 37 percent on 1,357 policies sold from 1998 to 2001. The policyholders have been paying an average of about $1,800 per year each in premiums for their policies, which are part of the same national block of business described in the Connecticut application.

In the filings, the company said it is asking for the rate increases mainly because policy lapse rates have been lower than expected, policyholder mortality has been lower than expected, and claims likely will be higher than expected.

To have a good chance of bringing the overall loss ratio on the block of business to the legal minimum of 65 percent, the company would have had to start out charging rates that were 198 percent higher than the actual rates when it sold the Connecticut policies and about 160 percent higher than the actual rates when it sold the Pennsylvania policies, the company said.

If State Farm were going to increase premiums enough today to give it a good chance to get the loss ratio down to 65 percent, it would have to increase the rates on the Connecticut business by an average of 601 percent, and on the Pennsylvania business by an average of 414 percent for one block and by 504 percent for the other block, the company said. 

In Connecticut, for example, “although a rate increase larger than 38 percent can be justified at this time, State Farm is not currently seeking a higher increase,” the company said. “We will continue to monitor emerging experience and consider further increases in the future.”

The company made a similar statement about the Pennsylvania rate increase.

State Farm said in a statement about the rate increase that the company believes that LTCI coverage is an important, necessary protection for its customers.

“Although it has challenges, we frequently review and refine our business model with the intention of continuing to offer this coverage,” the company said. “The entire industry has been challenged by significant spikes in care costs and the volume of consumers beginning to use their benefits.”

Although the challenges need to be managed, “State Farm intends to continue to offer long-term care insurance as long as the marketplace and the regulatory environment allow,” the company said. “We also believe it is important that long-term care insurance business fundamentals are sound and rate adequacy is maintained.”

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