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LTCI lawyers: Regulatory delays contribute to market woes

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Colorado Springs, Colo. — Insurers made mistakes when they originally priced long-term care insurance (LTCI) coverage, but state regulators may be making the situation worse with unpredictable efforts to block and delay increase applications, according to lawyers who represent insurers in regulatory proceedings.

Patrick Reeder, government relations director at Genworth Financial Services Inc. (NYSE:GNW), and Reid Ashinoff, a partner at Dentons U.S. L.L.P., talked about the LTCI regulatory environment Monday here during a breakout session at the Intercompany Long-Term Care Insurance (ILTCI) Conference.

See also: Actuaries feel for way forward at LTCI event

Reeder said he advises clients about the need to try to maintain a good relationship with insurance regulators. In the LTCI market, even if an insurer stops selling LTCI policies and simply keeps a closed block of policies, “we have to live together for 40 years,” he said.

But, even though many states are at least informally using models developed by the National Association of Insurance Commissioners (NAIC), only a few have formally adopted the latest models, many that are using the models have made changes, and many important terms are still undefined, the speakers said.

At one point, Reeder put up a slide that referred to the “typical timetable for state action.”

“That’s a joke, right?” Reeder asked. “There is no typical time table. It can be two months to infinity.”

Reeder urged insurance company staffers and advisors in the audience to keep close watch on the regulatory developments.

“If you are not very, very engaged in that process, you are making a big mistake,” Reeder said.

Staying engaged may be a way to help shape filing requirements, to make them more livable, and to know what requirements are coming, Reeder said.

The speakers said some states back away from agreements to use NAIC guidelines or other guidelines worked out with insurers, or adopt new rules through informal “desk drawer” procedures that are not subject to a public comment process.

When regulators keep changing the rules in an unfair way, “how many years will you continue to your team on that field?” Ashinoff asked.

The speakers said they can understand the regulators’ frustration with the rate increases, and they acknowledged that insurers come in with “bad facts.” But the speakers said insurers need to take the situation head on and do a better job of telling their story.

Ashinoff questioned whether the impact on policyholders is as severe as regulators and others have suggested.

Most of the people who bought the coverage had, and still have, solid finances, and the compound inflation protection they purchased often increased the value of their benefits far more than long-term care (LTC) costs actually rose, Ashinoff said.

Many insurers are offering “landing spot” options to help decrease the impact of increases on consumers on tight budgets, such as letting them hold premiums steady by reducing the benefits level, and experience has shown that the “shock lapse rate,” or percentage of consumers dropping policies due to the increases, has been low, Ashinoff said.

When insurers wrote the policies, actuaries made the best projections they could with the information they had, which proved to be faulty, and no court has found any liability in connection with the actuaries’ pricing work in the past 20 years, Ashinoff said.

Also at the ILTCI Conference:

  • Jeff Condit, senior vice president for finance at Unum’s closed block operations, said at a chief financial officer panel discussion that Unum still has 1 million LTCI policyholders, gets $600 million in annual premium revenue from those policyholders and is paying benefits on 8,000 active claims. Unum had a large group LTCI business before it got out of the LTCI market, and the average age of the policyholders is in the late 40s. Dean Miller of LTCG, another speaker on the panel, said LTCG is providing services for 1.5 million LTCI policies and 47,000 active claims. Loretta Jacobs of Bankers Life said her company has 350,000 LTCI insureds and 17,000 active claims. They said they are seeing a disturbing trend: LTC providers getting insureds’ coverage information, then submitting bills intentionally designed to use up an insured’s daily benefit. That can drive up overall costs and exhaust the benefits of insureds with a benefits limit, the panelists said.

  • Mark Kelly, a retired Navy captain who has flown four missions aboard the Space Shuttle, is the twin brother of another astronaut, and is the husband of Gabrielle Giffords, talked during a keynote speech about his experiences in the navy, at NASA and as Giffords’ primary caregiver. He said that he did not know whether he and Giffords had had coverage under the Federal Long-Term Care Insurance Program, but that her care is being covered by the federal employees’ workers’ compensation program, which offers virtually unlimited benefits to federal workers’ injured on the job.

See also: LTCI sales drop, but premiums hold steady