Rules adopted by 41
states have held down rate increases on newer policies, but some advisers
remain skeptical of traditional LTC insurance
Sep 13, 2018 @
2:50 pm
By Greg
Iacurci
States have taken steps to limit the
drastic rate increases plaguing the long-term-care insurance market, leading
some experts to suggest that these insurance policies are worth a second look
for financial advisers and consumers.
More than three dozen states have
adopted rules that seem to have held down the size and frequency of the
increases in annual premiums that insurers have sought to impose on many
policyholders.
Rate increases are one of the big
reasons advisers and consumers have shied away from purchasing traditional LTC
policies, which cover nursing home, assisted living and home health care
expenses for older Americans. Rate increases can stick buyers with a higher
bill or cause them to lapse their policy if premiums become unaffordable.
Rules issued by the National
Association of Insurance Commissioners in 2000, which have been adopted in 41
states, require insurers to price newer policies more conservatively to avoid a
surprise increase down the road. The standards, which only apply to individual
LTC policies sold in a state after it has adopted the rules, appear to have
fostered some stabilization among newer policies.
The average cumulative rate increase
since 2001 on policies covered by the rules is nearly half that for uncovered
policies — 31% on policies covered by the rules versus 55% on policies that
aren't covered, according to national data aggregated by the LTC Shop, an
insurance agency specializing in long-term-care insurance. The median increase
has also dropped significantly — to 20% from 46%. (The NAIC doesn't track this
data.)
Despite the reduction, the
possibiilty of rate increases continues to make some advisers wary of the
product. Others are optimistic about the growing health of the marketplace.
"Newer policies will be much
more stable than older policies from a rate perspective," said Scott
Olson, an independent insurance agent. "They're working very well,"
he said, referring to the state rules.
Many of the rate increases insurers have imposedare on policies sold
in the 1990s, when the LTC industry was relatively nascent, according to
experts.
The rate adjustments have been
necessary for insurers to overcome adverse effects from policy mispricing, an
overestimation of lapse rates and a decade of rock-bottom interest rates.
A study conducted by Milliman, a consulting firm, found
that more than 90% of insurers with long-term-care businesses have sought to
increase client premiums. Of those, half imposed an average rate increase of
40% or more.
The chance of seeing a hike in policy
premiums has contributed to a severe decline in the market for traditional LTC insurance. The
industry sold fewer than 70,000 policies last year, a tenth of number it sold
roughly 20 years ago, according to the American Association for Long-Term Care
Insurance.
Scores of insurers have exited the business. There used to be more than 100
firms writing new LTC business, but that number has dwindled to roughly a
dozen.
The NAIC rules adopted by states try
to stave off premium increases partly by going after insurers' profit margins
if they seek a rate increase.
Under old rules, insurers were
required to meet a "minimum loss ratio requirement" of 60%, meaning
that 60% of the premiums policyholders pay had to go toward the payment of
claims. The insurer could use the remainder for profit, overhead and
distribution costs, for example. In the event of a rate increase, the ratio
stayed the same.
The NAIC rules reduced the ratio to
58%, but increased that ratio to 85% if an insurer raises raise rates on a
policy — meaning the insurer could pocket much less money.
"This creates a strong
disincentive for companies to underprice their products initially simply to
gain market share," Mary Beth Senkewicz, formerly deputy insurance
commissioner for the Florida Office of Insurance Regulation, said in testimony
on the NAIC's behalf before the U.S. Senate in 2009.
Florida, which adopted the NAIC rules
in 2003, "experienced a decline in rate increases," Ms. Senkewicz
said in her testimony. According to LTC Shop data, 91% of the rate increases
experienced in Florida have been on policies that were sold before the state
rules were implemented.
One other effect of the NAIC rules:
New LTC policies must include all prior rate increases in their pricing, and
provide a 10% pricing "cushion." That means new policies will be more
expensive than older policies but less susceptible to a rate increase, experts
said.
'CLIMATE CHANGE'
Jesse Slome, executive director of
the American
Association for Long-Term Care Insurance, said that new
policies priced today have "almost zero chance of having a rate
increase," but added that that hasn't done much to sway public opinion
about the products.
"This is like climate
change," Mr. Slome said. "Ninety-nine percent of scientists have said
it's impacted by man, and still [a large portion] of the population doesn't
believe it."
Thomas Henske, a partner at Lenox
Advisors Inc., said rate stabilization doesn't factor much into his
decision-making around traditional LTC insurance because the possibility of
premiums going up even a little bit could still pose a liability from a client
relationship standpoint.
"If the premium goes up 1%,
they're not happy," he said.
Genworth
Financial Inc., the largest LTC insurer by number of
policyholders covered, said it is currently working with regulators to improve
further on existing re-rating rules.
The company is seeking changes
"similar to the way home, auto and health insurance policies are
rated," said spokeswoman Julie Westermann. The intent is to foster
"smaller, more frequent changes — whether increases or decreases — as
needed in order to reduce the likelihood of a policyholder experiencing a
significant rate increase after several years of level premiums," she
said.
http://www.investmentnews.com/article/20180913/FREE/180919958/states-try-to-beat-back-rate-increases-on-long-term-care-policies?NLID=daily&NL_issueDate=20180913&utm_source=Daily-20180913&utm_medium=email&utm_campaign=investmentnews&utm_visit=696981&itx[email]=e06b4e645e2af5a8cdf41fd61c641308af802c6a87fcccd9edb043e1408493a3%40investmentnews
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