Analysts have told the Virginia Bureau of Insurance that they see no easy answers to the rate increase problems plaguing the private long-term care insurance (LTCI) market.
The analysts — John MacBain and Shawn Parks of Actuarial Resources Corp. of Georgia, and employees of the state Bureau of Insurance — say regulators must try to balance the interests of policyholders and the issuers’ duty to protect company solvency.
The bureau commissioned the report in response to a State Corporation Commission order requiring it to study the LTCI rate increases made since 2009.
The commission is asking for public comments on the report and for comments about whether it should change state LTCI rules.
The commission noted that 259,159 state residents have LTCI coverage, and that the commission has received about 340 written LTCI complaints in the past two years. Roughly 10 percent of the state’s life and health complaints have been about LTCI coverage.
The Actuarial Resources actuaries looked at rate stability mechanisms used in California, Florida, North Carolina and Wisconsin, and they also looked at a report from the National Association of Insurance Commissioners.
The actuaries discuss the pros and cons of each mechanism.
California, for example, has required a 70 percent loss ratio for any LTCI rate increases filed since Jan. 1, 2010. Before, the state previously required a 60 percent loss ratio for initial policy premiums and rate increases.
The higher minimum loss ratio may block some increases, but, from the perspective of the issuers, “companies originally priced the policies based on one set of standards, and those standards were changed at a later date,” the actuaries write.
Wisconsin forbids carriers from increasing LTCI rates during the first three year policy years. That rule “allows time for adequate experience to develop,” but it “may result in a larger increase than if rate increases were allowed annually,” the actuaries write.
The outside actuaries also tried to estimate how much various factors have contributed to the increases.
Virginia has not let insurers use the drop in interest rates as a reason to increase rates. But, if rates turn out to be 4 percent, and the company assumed it could earn 6 percent on its investments, it would have had to charge 45-year-old purchasers about 33 percent more at the time of purchase to make up for the difference, and it would have had to charge 55-year-old purchasers about 24 percent more, the actuaries say.
The actuaries found that lower-than-expected lapse rates have been responsible for about 40 percent of the increase total; lower-than-expected mortality, 25 percent; and higher-than-expected use of care, 34 percent.