I appreciate the concerns that many consumers and agents have regarding future rate increases on the long-term care insurance policies that we are selling today. Much of this has been fueled by anecdotal press coverage that focuses on policies that were offered prior to very stringent rate stabilization laws and regulations imposed on insurance companies in 2003. Individuall long-term care insurance policies sold since 2003 in California have been subject to very strict actuarial oversight by the Department of Insurance. In effect, this scrutiny requires insurers to price their LTCi policies responsibly and provides for serious penalties if an insurance carrier?s future rate increases (if any) exceed certain parameters.
Let me reiterate what you should always advise your clients; that all long-term care insurance is guaranteed renewable. This means that as long as the insured pays their premiums in a timely manner the insurance company cannot cancel their contract for coverage. It does, however, allow for insurance companies to increase premiums for groups of policyholders or series of policies if they believe that the rates they are charging are inadequate. The fact that an insurance company has not raised premiums in the past is totally irrelevant and always has been.
Rate stabilization is a regulatory process that requires the long-term care insurance companies to subject their pricing on specific policies sold, to independent actuarial review. In order for the California Department of Insurance to accept pricing on a specific policy the independent consulting actuary and the home office actuary must sign an actuarial memorandum that states that they believe that the premiums being charged are sufficient under moderately adverse conditions.
This sign-off is a serious matter. Actuaries, both consulting and home office, take this responsibility to heart because not to do so would be a terrible ethical lapse and could cost them their careers. I?ve known home office actuaries to withdraw existing long-term care insurance products from the marketplace due to what they perceive as pricing issues over strong objections from other company management. In many regards, the home office actuary rules the roost!
Now despite the best efforts of the Department of Insurance, independent consulting and home office actuaries, there is always a possibility that there will be unforeseen claims or other issues that might cause the need for a request for rate increase on a specific block of business. In this event, the Department of Insurance would require another independent consulting actuary to work with the insurance company on a new rate filing. The nature and size of the rate increase would dictate the California Department of Insurance?s action both from a rate increase perspective as well as penalties, if any, imposed on the insurance company. I can tell you that in my discussions with home office actuaries that the current regulations have created an environment where the companies play their assumptions very conservatively. Also, many of the overly aggressive pricing practices of earlier years are a thing of the past. Rate increases don?t make anyone happy and this includes the insurance companies.
Allow me to put long-term care insurance rate increases into the context of other forms of insurance. Both auto and homeowners insurance can be non-renewed each policy anniversary at the discretion of the company. We also know that the premiums on these forms of coverage increase on a regular basis. Medical insurance premiums also have a tendency to increase annually. Term life insurance policies generally have level premiums but at some point, in most cases prior to death, the policy terms out or the renewal premiums become prohibitive. Non-can disability insurance benefits go away after a time as well.
Finally, let me just mention that the in-force premium increases that we have seen from insurance companies still in the market have been very moderate. Additionally, when we compare the premiums on an in-force policy that has experienced even multiple increases to a new policy we find that the latter, issued at the insured?s attained age, is significantly more expensive than staying the course despite the increase. In the end, most policyholders stick with their existing policy.
So while I do understand consumer angst over this issue the fact remains that long-term care insurance premium pricing is heavily regulated and when taken in the context of other coverages that most people purchase it may be subject to a greater level of regulatory oversight than most insurance products.
Coming Soon! Details on our exciting April 29, 2008 continuing education and sales training meeting featuring Prudential Long-Term Care; watch our website or contact your BJFIM/Paradigm Marketing Representative for all of the details.