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Vermont in talks to allow long-term care rate increases for 1st time in years

A state regulator that has rejected long-term care premium increase requests for years is now shifting its stance on rate hikes.

In an interview with S&P Global Market Intelligence, Mike Pieciak, commissioner of the Vermont Department of Financial Regulation, said his office is in talks with a number of companies to approve moderate rate increase requests. Any increase would be the first in the state since at least 2014.

"We have to solve this crisis," Pieciak said. "Obviously we have to look out for the Vermonter and make sure they're not being negatively impacted, but I don't think that we can just sit on the sideline and not try to do our part in solving the solution for these blocks that are open."

Life insurers have expended a substantial amount of effort in recent years trying to increase rates on long-term care business written years ago. Those blocks have become heavy loss makers and prompted headline-grabbing reserve charges across the industry, due to policyholders significantly outliving original actuarial estimates.

One reason why Vermont has refrained from issuing rate increases for a number of years is because of a loosely defined "affordability component" in a state statute that requires insurance rates be "adequate, not excessive, not discriminatory and ... affordable," Pieciak said.

That affordability component has essentially translated to a policy of consistent rejections of rate increase requests. But shortly after Pieciak became commissioner, his team started to do their own analysis and think "long and hard" about the best way to move beyond past practices.

Although Vermont accounts for only a small portion of the long-term care premiums collected each year on a nationwide basis, Pieciak said the new approach has come out what he sees as "an obligation" to have Vermont contribute to solving insurer solvency issues. Over the past two years, Pieciak has been "developing internal guides" and communicating with companies to discuss rate increases that would limit financial burdens on Vermonters.

"There's not a magic number, but affordability to me seems to be hovering around that 10% level," Pieciak said. "If you have a 10% rate increase, that seems to be something that would be, although not desired, that would be something more reasonable or affordable than high-end double digits."

Pieciak said his team has also discussed alternatives, such as spreading rate increases out over several years and finding "landing spots" so consumers could have options to mitigate rate increases with benefit reductions.

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With 3,326 policies in force, Genworth Financial Inc. remains the biggest long-term care insurer in Vermont despite having stopped writing business in the state four years ago. During a third-quarter 2014 earnings call, Genworth executives said they were suspending business in Massachusetts, New Hampshire and Vermont because they were not able to reach an agreement on 2012 blocks of business. By June 2018, Hawaii and Montana had been added to that list.

Tom White, senior vice president for investor relations at Unum Group, said the general trend in terms of working with state regulators to get long-term care rate increases has been "a positive one."

"We have had more success in getting rate increases," White said. "Our sense is that the overall tone of these discussions is better and that state regulators understand the stress on our business."

When asked if he thinks there are companies that previously stopped writing business in Vermont that might look into it now, Pieciak said it is a possibility. He also said that they have been more engaged on the topic than in the past.

"We've definitely been in active conversations with ... a dozen or so companies," Pieciak said. "I wouldn’t be surprised if [in] early [2019] we hadn't had some approved, but again I don't want to prejudge our analysis."