Long-Term Care Insurer Pain May Hit More Companies

Some state insurance regulators want to increase the number of insurers that help protect consumers against long-term care insurance (LTCI) issuer failures.

The National Association of Insurance Commissioners has given a team of regulators permission to try to revise the NAIC’s Life and Health Insurance Guaranty Association Model Act.

(Related: Consumer Rep Seeks Standard LTCI Issuer Insolvency Notice)

The team hopes to pull at least some health maintenance organizations into the guaranty associations that protect health insurers against insolvencies. The team may also try to merge the guaranty association accounts for health insurers with the accounts for issuers of life insurance and annuities.

Both proposed changes could expand the list of companies that get guaranty association assessment bills when LTCI issuers fail.

Members of the NAIC’s executive committee approved the model law revision effort Monday, at the NAIC’s summer meeting in Philadelphia.

The Receivership Model Law Working Group, part of the NAIC’s Financial Condition Committee, is in charge of the revision project. Jane Koenigsman is the NAIC staff contact for the project.

The working group put a description of the project in a summer meeting document packet. 

Guaranty association basics

Most states use guaranty associations, or mandatory groups for insurers, to protect consumers against the effects of insurer failures. 

Few guaranty associations require member insurers to pay large insurer failure protection premiums on a regular basis. Instead, an association waits for a member issuer to fail, then sends the surviving member issuers assessment bills. Revenue from the assessment bills is supposed to cover the insolvency-related costs.

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Many states put limits on the benefits a guaranty association will cover, and the amounts a solvent member insurer must spend on assessments, in an effort to keep the failure of one insurer from causing other insurers to fail.

Regulators want agents, brokers and consumers to help monitor and manage insurer failure risk. To keep producers and consumers vigilant, guaranty associations tend to keep a low profile. Insurance regulators and guaranty association managers discourage insurers and producers from telling consumers much about the associations.

Long-term care insurance and the guaranty associations

Some issuers of LTCI have been facing financial problems in recent years because of the effects of inaccurate assumptions about policyholder behavior, low portfolio investment returns, and restrictions on LTCI rate increases.

Many insurance agents and brokers think of LTCI as a complement to life insurance policies and annuities, but states classify LTCI products as health insurance products. Health insurance guaranty associations have protected LTCI policyholders against issuer insolvencies.

This year, many health insurers are paying assessments in connection with the failure of Penn Treaty Network America, a pioneer in the LTCI market, and the failure of American Network Insurance Company, Penn Treaty’s sister company.