The Financial Accounting Standards Board (FASB) has just given executives in the disability insurance and long-term care insurance (LTCI) markets who thought they were safe from the kinds of paper mountains crushing health insurance executives some summer reading material.
The gist of Insurance Contracts (Topic 834) is that anyone accounting for long-term disability (LTD) or LTCI policies ought to use the “building block” approach.
I think that means that the insurer must recognize all changes in estimates other the effects of discount rates in net income immediately.
I think what that means is that disability insurance blocks and LTCI blocks will have a lot more ups and downs.
I think what insurers and officials need to do is to prepare folks psychologically for the change in approach and make sure that everyone understands that everyone is simply doing a better job of disclosing the ups and downs they were going through all along, not necessarily going to hell in a handbasket any more quickly they were before the new proposed rules take effect (if they take effect).