A Minnesota insurance regulator is trying to help colleagues around the country improve the way they talk about the painful, controversial process of reviewing requests for long-term care insurance rate increases.
The regulator, Fred Andersen, is the chief life actuary at the Minnesota Department of Commerce. Before he joined the Minnesota department, in 2014, he spent 16 years inside New York state’s notoriously tough insurance regulation operation. He is now a member of the Long-Term Care Pricing Subgroup at the National Association of Insurance Commissioners.
He has prepared a list of questions to guide regulators’ LTCI rate review discussions.
The subgroup is using the list to prepare for a conference call meeting set to take place Wednesday.
The subgroup is continuing efforts to resolve the difference between the LTCI rate increase accepters and the LTCI rate increase resisters.
LTCI issuers, and the state regulators who support them, say that the LTCI issuers have a desperate need to increase rates on old blocks of in-force LTCI business, by 50 percent or more, to keep LTCI units stable. The insurers and regulators on that side say interest rates and investment earnings have been lower than issuers could have expected when they wrote the business, and that policyholders turn out to use the benefits much more than insurers had expected.
The resisters argue that big increases cause hardship for consumers who were responsible enough to insure themselves against long-term care risk, have been paying policy premiums for many years, and may now be retirees with little budget flexibility. The resisters say many issuers knew they were underpricing the coverage when they sold the policies, and that big, giant insurers should be the ones to bear the brunt of interest rate and claim cost surprises, not the policyholders.
States that have gone their own way on LTCI rate reviews include LTCI market giants such as California, Florida and New York.
Because of the state-to-state variations in LTCI rate review processes, some LTCI issuers now treat their success at getting LTCI rate hike requests approved almost as if it were the performance of a hot new insurance product. Genworth Financial Inc., for example, publishes detailed LTCI rate hike request status data every quarter.
The Interstate Insurance Production Regulation Commission, a Washington-based group for state insurance regulatory agencies, tries to cut insurers’ compliance headaches by moving states toward adopting the same requirements for products. Only 33 of the 43 Interstate Insurance Compact member states have adopted the IIPRC standards for LTCI rate change filings, and even some of the states that have adopted the IIPRC standards take their own approach to handling requests for big LTCI rate increases.
Long-term care insurance agents and brokers are in the middle. If you have sold LTCI coverage, you want insurers to treat your customers well, partly because that’s the right thing to do, and partly because you want your customers to have confidence in the insurance products you sell them today. If you bought LTCI coverage yourself, you may have a personal stake in LTCI premium stability.
At the same time, you may see that premiums for other health-related products have increased steadily (or rapidly) over the years; that the impact of having access to private LTCI benefits on quality of life can be enormous; and that the solvency of some LTCI issuers appears to be a major concern.
Andersen hopes to encourage productive conversations between the accepters and resisters, by getting them to describe the principles behind their LTCI rate review strategies.
Here’s a look at some of the questions Andersen wants regulators to consider.
Some insurers say consultants have found grim evidence of extra morbidity risk hidden inside blocks of LTCI business. (Image: Thinkstock)
1. New morbidity studies
“Morbidity” is the word actuaries use when they talk about how often people insured by a health-related insurance policy develop the covered health problems.
In recent years, actuarial consulting firms and groups such as the Schaumburg, Illinois-based Society of Actuaries have published new, detailed LTCI insured morbidity data.
Some insurers have added cash to their LTCI reserves because of the morbidity studies. Some have pointed to the studies when applying for LTCI premium increases. Some regulators have wondered about the possibility that the studies might exaggerate LTCI morbidity risk problems.
Andersen asks regulators to describe the kinds of evidence an insurer should have to provide to justify a rate increase based on a consultant’s new LTCI morbidity study.
Even an insurer that got out of the LTCI busines years ago might have a small old block of LTCI business on its books. (Image: Thinkstock)
2. Shrinking blocks
Even many insurers that got out of the long-term care insurance business when Bill Clinton was president have small blocks of LTCI business on their books. Small, older LTCI blocks are different from big, relatively new blocks.
An insurer might have shrunken LTCI blocks either because it left the LTCI market, or because it has gone through several different generations of LTCI policies, and it has put holders of the old, discontinued policies in separate blocks of business for accounting purposes.