Genworth's long-term care plan will not fix 'product problem' – former regulator

➤ The way long-term care insurance is offered needs to be reviewed, according to a former state regulator who focused on the troubled business line.

➤ However, Genworth Financial's plan to sell a new product in states only if regulators allow for annual re-rating does not seem likely to fix the problem.

During his decadelong tenure, Maine Bureau of Insurance Superintendent Eric Cioppa served a stint as president of the National Association of Insurance Commissioners and two-year term as the state insurance commissioner representative on the Financial Stability Oversight Council.

S&P Global Market Intelligence caught up with Cioppa just before he retired to discuss the industry's biggest challenges and how it and regulation may evolve.

The following conversation was edited for clarity.

S&P Global Market Intelligence: What were some of the biggest challenges you faced during the course of your career?

Eric Cioppa: Well, long-term care is right up there. Health insurance is up there as well.

Do you feel confident the regulatory community is on the right track when it comes to LTC?

I do. We created the Long-Term Care [Insurance] Task Force at the NAIC and the associated workstreams. I think one of the most important workstreams is dealing with the actuarial work — uncovering the magnitude of the problem that's out there.

My personal opinion is that the current product, offering a term premium over decades, sometimes just does not seem to work. I think there probably needs to be a fundamental review. Having said that, there is a significant need for LTC insurance and there is no private market coverage other than insurance companies or self-funding. That's it. So the need is there, but the product is in need of review.

Genworth is planning to launch a revamped product that it will only sell in states that allow for annual re-rating. Do you think that is on the right path?

No, I don't. I think that if their product needs rate increases every year, that can be akin to age rating. If they still can't get it right so they want to increase rates every year, instead of waiting several years and increasing rates, that means they cannot price a product right. If they want to sell a 40-year-old a product that they may use when they are 70 or 80 years old, and then are increasing rates every year, that sounds like age rating to me.

That's not solving the product problem. It just allows the insurer to raise rates every year so they do not find themselves in a position where they are asking for a 100% rate increase at some point, but we still get there over time. If they need those sorts of rate increases for the design of the product they are selling, I go back to my original statement. They want to sell this to younger people who are not going to use the product for a couple of decades.

I'm not in favor of the Genworth approach.

Recently, some Democratic members of the U.S. Senate highlighted private equity influence in the insurance space as an area of focus. Do you think the NAIC can modernize and adjust its regulations for new market realities that have emerged?

Absolutely, I do. The NAIC is reacting appropriately. It is not just private equity. You have to modernize and you have to stay abreast of what is going on in the marketplace. I think we've proven that … we have an effective solvency oversight regime, and I am very confident that we will meet the challenges.

As far as [the Federal Insurance Office] is concerned, they have a role, but we're the regulators … we are the boots on the ground and I think we have demonstrated that we know what we're doing.

How do you see the issues surrounding the industry's lack of diversity and the potential disparate impact of insurance practices evolving?

I cannot say enough about [South Carolina Insurance Commissioner Ray] Farmer raising the profile of this issue. With big data and the use of modeling in the industry, it is incumbent upon us as regulators to be able to analyze models to look for disparate impact or proxy discrimination issues.

The NAIC is putting together resources that states can use and this is an issue that will be a priority for the foreseeable future.