NAIC regulators looking at new ways to help manage LTC rate increases

 

Every once in a while the National Association of Insurance Commissioners gets together to modify the Long-term care model regulation related to rate stability of LTC premiums.  On August 19th, the NAIC will meet in Louisville to discuss the issue again.

The reasons for in-force LTC increases are well known - poor morbidity (underwriting), higher policyholder persistency than expected, and the very low interest rate environment.  Although policyholders are not happy about the premium increases they receive, when they compare those increases to the cost of current policies they often realize they made  a great choice.

Currently  rate stability regulations affect initial actuarial certification of a product filing - with the insurance carrier saying this product is responsibily priced and premiums should be stable. If premium increases are necessary in the future, than policies would be subject to a higher minimum loss ratio requirement.

The new proposed regulations would build upon these regulations.  Here are some key proposed changes:

1. Requiring products to have annual actuarial certification regarding pricing instead of when the product is initially offered.
2. A new minimum margin be incorporated into pricing to encourage more conservative (i.e. higher first year) pricing.
3. New consumer disclosure requirements to discuss how plan changes to mitigate rate increases may affect Partnership programs.
4. Expansion of contingent benefit (where consumers get the premiums they paid to use as benefits) upon lapse by requiring that consumers who have held policies for more than 20 years will get this benefit automatically.

If the NAIC adopts the model regulation changes, then states will have to implement the changes as well.

LTC Insurance, which is guaranteed renewable using issue age pricing, is very different than health insurance which has pricing increases built in based on age changes.  An insurer's LTC book of business will have very low loss ratios in early years because people typically don't submit a claim until they are much older.  For regulators, it gives the appearence that the block of policies is very profitable for the carrier for many years even though there will be heavy claim costs at the tail end of the policyholders life.

The downside to increased regulation, of course, may be higher initial premiums.  Is is worth the trade-off to have more consumer protections?  What do you think?