Representativesof several leading long-term care insurers defended their pursuit ofsubstantial rate increases during a public hearing held by a regulator that hastaken issue with some of those requests.
"Wecan't change any of the terms [of the in-force long-term care policies and] wehave to pay the claims if you have a claim," Thomas McInerney, presidentand CEO of Genworth FinancialInc., testified in one of several panels put together by the MaineBureau of Insurance. "The only way that the insurance industry — or anycompany — can manage the coverage is to raise premiums if on the whole seriesof policies they're all unprofitable. So that's what we're doing."
ranked as the largest long-term care insurer in Maine based on 2015 premiumsearned.
McInerneysaid that the costs of long-term care represent a "big, complexissue" for state governments and the insurance industry alike, and helauded Maine Insurance Superintendent Eric Cioppa for taking a "leadershipposition."
TheMay 9 Maine hearing, much like a similar event in March by the Pennsylvania InsuranceDepartment, featured an explanation of the root causes of the rate increases,as well as testimony from consumers who have been adversely impacted byprevious hikes.
Cioppaopened the event by stating that the challenges around the long-term carebusiness are "every bit as problematic as health care." He said thatvirtually "every assumption" made by insurance companies at the timeof issuance of the in-force business around interest rates, morbidity andmortality "they pretty much got wrong." As a result, he said,"consumers are now faced with ever-increasing rates." The situationis particularly challenging for Cioppa and his peers to navigate as they seekto balance consumer protection with carriers' solvency. It is particularly acutein Maine, according to statistics provided during the hearing that show thestate has the oldest population in the nation by median age.
McInerneyconceded that "there is no question it's been difficult" forpolicyholders, a message he has received firsthand as he said he personallytook "a lot" of the approximately 200,000 calls in which Genworth hadengaged with consumers in an attempt to work out their options. Genworth andother carriers generally offer alternatives to higher rates in the form of reducedbenefits and certain other options.
"It'sclear that consumers are not happy with the insurance industry. They'recertainly not happy with Genworth," McInerney said. "But … we haveborne substantial losses."
MattMonaghan, general counsel for closed block operations at Portland, Maine-basedUnum Life Insurance Co. ofAmerica also acknowledged the challenges rate increases can createfor consumers, and said that the Unum Group company believes that policyholders shouldnot be forced to surrender their coverage as a result of a rate hike.
"Ourgoal in seeking long-term care rate increases has been to mitigate financialand enterprise risk … not to generate profits, not to recoup any of the lossesthat we have experienced," Monaghan said, adding that Unum Life, which nolonger markets the sale of new long-term care policies, offers "reasonablealternatives" to customers facing rate increases.
Thecompany is seeking, by way of the rate increases, to move the long-term careblock "to a point of self-sustainability on a go-forward," hesaid. "We want to make sure that our long-term care reserves plus premiums… are sufficient to pay all claims and expenses."
Vice President David Plumb cautioned during the hearing that"additional rate increases may be needed in the future," dependingupon the extent to which the actual experience of the policy forms deviatesfrom expectations.
"Iwish we had a magic solution for this," said Tim Kneeland, president ofTransamerica Long Term Care. The industry continues to look for "creativesolutions to make this business sustainable," he added.
Plumbsuggested several actions that could be taken on a nationwide basis to help themarket for private long-term care insurance "grow again," including a"more coherent and uniform approach" to rate increases and Medicaidreform. McInerney has long pushed for the ability for carriers to regularlyre-rate long-term care business, and he stated his case for that approach againduring the hearing.
Mixed outcome for Maine ratefilings
Regulators'receptivity to those requests variesby state. The Maine bureau said it received 36 long-term care rate filings fromJanuary 2015 through April 2016. Of those, the bureau said that it approved 15filings for 14 companies and disapproved seven filings for four companies. Itobtained reductions in the amounts of rate increases originally requested by atleast four companies.
"Wedo scrutinize them," Maine Life and Health Actuary Marti Hooper saidduring the hearing. "Unfortunately, we aren't always about to reduce them."
Hoopersaid that the regulator reviews individual filings for compliance with Maineregulations, performs a detailed review of the accompanying actuarialmemorandum and contracts with an outside actuarial firm for an independentreview. Among other things, the regulator seeks to ensure filings comply withMaine Rule 420, which pertains to policies issued prior to Oct. 1, 2004. Therule includes requirements around a minimum expected loss ratio and, as Hooperexplained it, "puts the onus on carriers to take some responsibility forthe rate increase" by ensuring that it does not attempt to recoup pastlosses.
Areview of Maine long-term care rate filings obtained by S&P Global MarketIntelligence's RateFilings.com reveals that Oliver Wyman Actuarial ConsultingInc., in its capacity as the independent actuary engaged by the bureau,recommended disapproval of the originally filed rates in several recentinstances.
FollowingOliver Wyman's preliminary review of a request by John Hancock, a unit, toraise rates by 10% on average on certain in-force policies last sold in Mainein 2003, the firm said it did "not believe the proposed increase isjustified at this time." The recommendation cited, among other things, alack of justification provided by the company that a previous rate increase onthe same book of business was inadequate.
Inanother recent example, Oliver Wyman's analysis of a 12% average rate increaseproposed by Universal AmericanCorp.'s AmericanProgressive Life and Health Insurance Co. of New York on formsissued in Maine between 2001 and 2003 concluded that the filed rates were"unreasonable … in relation to the benefits provided" as it found thecarrier's morbidity assumption to be inadequately justified. The actuaryinstead proposed a 3.5% rate increase, which the company accepted and isscheduled to implement on the small book of business on June 19.
"Anyone… who bought a long-term care insurance policy before 2005 — and probablybefore 2008 — even with the premium increases that you've received to date andeven with the ones you receive in the future, you still have an awesome dealbecause we're all losing millions and, in our case, billions," McInerneysaid. He explained that the company is seeking to avoid future losses with therate increases it files.
Cioppaclosed the hearing by saying that his job is to try to come up with solutionsto a business line that he characterized as "incredibly important."It is an effort that "screams out" for cooperation from allstakeholders, he said, given the "incredibly complex" nature of theproblem.