What You Need to Know
- The NAIC posted a draft of the LTCI Multistate Rate Review Framework a year ago.
- The framework drafting group included representatives from Connecticut, Minnesota, Nebraska, Texas, Virginia and Washington.
- The ACLI says many insurance department staff members in states testing the voluntary program continued to go their own way.
Insurance regulators in some states are using a new, voluntary strategy for speeding up reviews of insurers’ requests for long-term care insurance premium increases.
Members of the National Association of Insurance Commissioners voted earlier this month to adopt the Long-Term Care Insurance Multistate Actuarial Review Framework.
States that use the framework get help from a team of experienced LTCI actuaries with analyzing rate increase applications. The review team gives each participating state an analysis of the increase application and a set of recommendations, based on the LTCI rate review strategies established by regulators in Minnesota and Texas.
LTCI issuers will still have to file rate increase applications in the participating states, and state insurance regulators will be able to decide whether to accept the review team’s recommendations, according to officials with the Long-Term Care Insurance Multistate Rate Review Subgroup, the body that created the framework.
Although an insurer will still have to seek approvals from each state, the new approach may speed up the process of the application reviews and increase the consistency of the final results, rate review subgroup officials say in the framework introduction.
What It Means
If some LTCI issuers have been waiting until the framework was out to ask for premium increases, and many states move to the framework approach, the birth of the framework could lead to a flurry of new LTCI rate increases.
The framework could also lead to new, more visible battles over LTCI rate increase principles, with the framework states emphasizing the need to keep LTCI issuers solvent, and consumer groups and regulators in other states talking more about whether policyholders with policies from big, multiline, stable insurers should bear the brunt of insurers’ bad policy design and pricing decisions.
For insurance, financial and retirement advisors, the framework could also increase the number of clients asking them what they should do when policy premiums will be increasing by 100% or more.
Insurers once saw selling long-term care insurance as a way to make money by providing a critical service: helping Americans pay for nursing home care, home care and other forms of care in old age, or when they suffer catastrophic, severely disabling illnesses or injuries before the normal retirement.
LTCI issuers invested the premium payments in high-grade bonds and similar instruments, and they assumed that earnings on the bonds would help cover much of the cost of paying the benefits.
Interest rates fell sharply and stayed down.
Policyholders proved to be more likely to keep policies and use the benefits than the issuers had expected.
Some issuers have failed, and most of the issuers have received permission from state insurance regulators to impose large rate hikes.
Some insurers include statistics on state LTCI increase approvals as a performance measure in their quarterly and annual earnings reports.
Insurers have argued that setting premiums high enough to keep blocks of LTCI business solvent is critical.
LTCI is regulated as a health insurance product, and an LTCI issuer typically belongs to a state health insurance guaranty association, or a life and health guaranty health association. If an LTCI issuer fails, the surviving association members are supposed to make good on the benefits obligations by paying assessments to the association.
When guaranty associations take over an LTCI issuer, they themselves can raise the LTCI premiums, and program rules may limit benefit protection to as little as $100,000 in some states.