A team of actuaries at Milliman has uncovered a possible weakness in long-term care insurance (LTCI) companies’ rate increase strategies.
Many companies assume, when they analyze what increases will do to reserve requirements, that the policyholders who keep their policies after a big premium increase will be about as healthy as the policyholders who drop their coverage.
Allen Schmitz and colleagues have reported that finding in a summary of results from a survey of 23 LTCI issuers and reinsurers.
The actuaries found that:
- 70% of the issuers said they include assumptions about future increases when testing LTCI reserves.
- Just 27% account for “anti-selection” — the likelihood that the people who keep paying for coverage will be sicker than the people who drop their coverage.
- Only about 14% of the issuers assume that any anti-selection effect will be permanent.
Many LTCI providers now include a variety of benefits reduction options when notifying policyholders about premium increases.
Issuers of many different types of benefits have found that higher-risk insureds are more likely to keep their coverage when rates go up.