NAIC long-term care pilot beset by insurer criticism, regulator hesitancy

A pilot program designed to test a multi-state approach to long-term care insurance rates is not yet yielding the results insurers want, as they seek faster, larger and more consistent increases to keep the troubled business line viable.

Although the National Association of Insurance Commissioners' efforts are bringing heightened awareness to the issues facing LTC insurance, some state regulators appear unwilling to give the beleaguered LTC industry all the rate hikes they ask for.

'Mixed' experience with new pilot

New Mexico Superintendent of Insurance Russell Toal in an interview said his department has been "battling" with LTC insurers over the past few years about the magnitude of their price increases. Toal believes in the value of what the NAIC is doing, but looks at the group's multistate review concept as a "tool" in his review "toolbox," not a complete solution to the problem.

"States must have the right to make their own decisions," Toal said, adding that he feels there are several other states, both large and small, that would agree with his line of thinking around LTC rate increases.

It has been more than two years since the NAIC formed its executive-level Long-Term Care Insurance Task Force to help coordinate efforts to have state regulators move toward a more uniform approach to handling rate increase requests for the troubled business line. That task force has conducted a pilot program for LTC multi-state actuarial reviews, but some industry members have since complained about its effectiveness, particularly if there were states that chose to ignore recommendations the review team produced.

The industry's overall experience with the pilot program has been "mixed" and "varies by company," according to Jan Graeber who serves as the American Council of Life Insurers' senior health actuary.

While the process has "changed the conversation" and generally helped spread awareness about the industry's challenges, there are still states that are hindering efforts to move toward uniformity, Graeber said in an email.

"States, even some who have been vocally supportive of this effort, were not willing to forego their own review methodologies, making companies feel that the process simply added another layer of review," Graeber said. "It seems more efficient to just file with the individual states."

Mutual of Omaha Insurance Co. is among the LTC insurers that participated in the NAIC multi-state actuarial review program. Joshua Weber, who serves as product director and actuary for the company's LTC insurance line, said that his recent experience showed that few states have "bought into" the plan thus far.

"However, it does seem the NAIC is starting to make headway, and as more states buy into the idea, it will make the rate increase process more uniform state to state for insurance companies and consumers," Weber said in an email.

Genworth Financial Inc. also participated in the pilot program. CEO Tom McInerney in an interview said that there seems to be agreement among state regulators that rate increases are necessary, but there are roughly 10 to 15 states that are "behind" in terms of granting them.

"I think it's hard for me to see those states that are behind ultimately catching up," McInerney said. "I think they'll continue to be behind and there will continue to be significant cross subsidies, which is not right."

Incremental progress

Virginia Insurance Commissioner Scott White, who also serves as the chair of the NAIC LTC task force sees things a bit differently. White in an interview stressed that the group is still in the "early stages" of the multi-state actuarial review process and that there are no active pilot reviews at the moment.

The NAIC's Executive Committee and Plenary adopted the framework for the MSA in April, but it is not expected to be operational until at least September.

"I think we're in agreement with the industry that participation, both by the industry and by the states is going to determine whether the MSA process is successful," White said. "From my involvement with the members, the states, I think there's widespread support and engagement."

It is difficult to get all state regulators on the same page and even harder to get some to actually approve rate increases, Delaware Insurance Commissioner Trinidad Navarro said in an interview.

"But at the end of the day, these rate increases don't benefit the companies, they benefit the consumers," Navarro said, though he admitted this is not a popular sentiment among some regulators.

Navarro said a solvent insurance company that knows how to process claims and deal with reduced benefit options is a much better option for everyone than an insolvent company in the guaranteed association.

Genworth's rate hikes

Genworth is the largest underwriter of individual LTC insurance, accounting for roughly 22% of the total U.S. lives insured in the business line. S&P Global Market Intelligence analyzed LTC filings for Genworth's Choice II policy, which is the company's largest block of individual LTC.

Genworth saw the first rate increase for the Choice II policy series in 2013. Since then, Delaware, Wisconsin and Missouri have granted the largest cumulative increases for LTC rate requests for the block. Vermont, Montana and New Jersey approved some of the lowest cumulative total rate increases.

The large total cumulative rate increase does not necessarily reflect the full picture of what Genworth and its policyholders are experiencing.

For example, New Mexico ranks among the states with the highest cumulative increases, but has historically approved some of the lowest increases. It rejected Genworth's initial rate increase in 2015. Genworth requested additional large increases in 2018 and 2019, but New Mexico only granted a 6% increase in each of the following years. Genworth again requested a large increase in 2020. New Mexico's regulator granted a hike of 153.2%, but the approval stipulated the increase be spread out over three years, with a roughly 36.3% increase per year.

In January 2022, Genworth began litigation with two states that it says have "refused to approve" actuarially justified rate increases, according to its most recent Form 10-Q.

Genworth is not the only insurer experiencing conflict with regulators over approving the full amount of actuarially justified rate increases. Prudential Financial Inc. has had one of its rate increase requests rejected, while CNA Financial Corp. has dealt with at least one regulator who did not wish to grant the full amount it requested.