A new proposal would require Long Term Care Insurance companies to have a loss ratio of 100% before they are permitted to raise rates.
The Senior Issues Task Force, which is part of the National Association of Insurance Commissioners (NAIC), released the original proposal of regulatory changes in November. According to their website, their mission is to develop regulatory standards and revise NAIC models on insurance issues that affect older Americans.
After the original proposal was released, however, the change in question was made. Some members of the Health Actuarial Task Force, another part of the NAIC whose mission is to “identify, investigate and develop solutions to actuarial problems in the health insurance industry”, decided to change the drafted minimum loss ratio. The group changed the requirement to a 100% loss rate, up from an 85% minimum loss ratio detailed in the original proposal, ensuring providers spent all premiums on claims before further increasing premiums.
Disagreement from Trade Groups
Two insurance industry trade groups have joined forces to fight the new proposal. The American Council of Life Insurers (ACLI) and America’s Health Insurance Plans (AHIP) wrote a letter to the chair of the Senior Issues Task Force, explaining their reasons for disagreeing with the change. The groups argue that there is “little, if any, demonstration that the proposal [is] justified” and believe “the proposal is based on faulty assumptions”.
The two trade groups express their concern in the letter that the new proposal “would be punitive to companies that are committed to remaining in the LTC market to meet important and growing consumer needs.” This situation is similar to what Genworth CEO and President Tom McInerney recently spoke about at an annual Long Term Care Insurance conference.
Long Term Care Insurance Market
Acknowledging the impossibility of accurately predicting interest rates, lapse rates, morbidity, and mortality, McInerney thinks that regulators need to avoid punishing insurance providers when they get predictions wrong. Rather, he explained, they should work with carriers to help adjust rates as quickly as possible to reflect the real risk. McInerney has a point. Punishing insurance providers isn’t going to do anything except shake the already unstable market that Long Term Care Insurance providers exist within, potentially causing more to exit altogether.