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US insurance regulators open to change in LTC insurance pricing model


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US insurance regulators open to change in LTC insurance pricing model

Insurance regulators are skeptical that the level premium model is the right one to use for long-term care.

The National Association of Insurance Commissioners' Long-Term Care Executive Task Force may give more consideration to moving away from that approach, under which consumers pay the same premium over the life of the policy, according to the panel's chair, Virginia Insurance Commissioner Scott White.

"There may be more discussion on moving away from the level premium approach to maybe even an annual re-rating, which allows for adjustments to occur earlier in the process," White said during a special event at the NAIC's fall meeting in Austin, Texas. White added that this could make the ultimate premium increases "more manageable" for consumers.

Insurers writing LTC policies have been hit hard by a series of unforeseen events, including policyholders living longer, fewer policies being allowed to lapse than expected and interest rates remaining low.

In an interview with S&P Global Market Intelligence, Eric Cioppa, superintendent of the Maine Bureau of Insurance and president of the NAIC, said every long-term care contract he has ever seen has used language that would allow insurers to increase rates, but consumers were told when they purchased such products years ago that they would have level premiums.

Cioppa said the industry has not shown that it can "get it right" with that model, and he thinks regulators need to question whether that is the right business model for long-term care.

"I don't think you're seeing efforts to ban it," Cioppa said. "I just think you're seeing a lot of skepticism around if they can make this model work and whether there is a different model they need to develop."

Cioppa said he has heard some companies ask regulators to allow them to file rate increases every couple of years.

"That makes sense until you start thinking about it," Cioppa said. "That means you still didn't get it right."

Rate stabilization introduced in the early 2000s brought with it a requirement for more conservative underwriting, but Cioppa noted that it did not really work, as there have been significant rate increases since then.

Frustration over inconsistencies

Several regulators who lead one of the six workstreams within the Executive Long-Term Care Task Force also conveyed a sense of urgency around solving the issue of rising premium rates and frustration with inconsistencies with treatment toward rate increase requests across states.

Colorado Insurance Commissioner Michael Conway said long-term care is the one issue that he believes faces the risk of federal preemption if regulators are unable to solve it at the state level.

"From a very basic standpoint, if we screw this up and we don't take care of grandma and grandpa, the federal government is going to step in," Conway said.

The workstream Conway leads deals with rate reviews and has the goal of producing a standard rate review process to increase uniformity and also to address "perceived" cross-state subsidization in long-term care insurance. Conway said the group is considering "some sort of interstate compact model" through the Interstate Insurance Product Regulation Commission, or some "other vehicle."

Fred Andersen, chief life actuary for the Minnesota Department of Commerce, has been leading a group of actuaries under the task force's reserve valuation workstream. Andersen said his initial study of the rate review practices of various insurance departments showed that "every single method seemed reasonable ... in a vacuum."

Andersen said it was good to get involvement on the commissioner level because there has to be "some give and take," which would have been unlikely at the staff level given that many of those same staff would have developed various of the "reasonable methods."

Conway said he thinks all states have moved toward having an expectation that once an insurer is given a rate increase, it will not come back for some time unless its experience has deteriorated in some way that the company "couldn't have seen coming."

He also expressed frustration over some rate filings that he sees that have a "lack of logic" as to why the filer is requesting a rate increase in Colorado while other states with "really big blocks of business" have not granted one.

"What frustrates me even more is if a company hasn't even filed in those states that have big blocks of business," Conway said.

Discussion over issues with long-term care and the effort to create greater uniformity between state processes will continue during the Long-Term Care Executive Task Force's next meeting on the afternoon of Dec. 9.