LTC Flashcards
Long Term Care
2 Main Governing Regulations for rate increases
- Loss Ratios
- Rate Stability (58%/85% test)
Applicable regulation depends on When and Where the policy is issued.
Long Term Care
Loss Ratios for rate increases
Explain Loss Ratios regulation and the Additional requirements in 2013
- Applicable for policies issued before rate stability regulation
- Min loss ratio 60% in most jurisdictions
- Additional requirements (late 2013 and only adopted by a few jurisdictions)
* All AV and PV of reserves need to use
max valuation interest rate
* Three-year guarantee period or phase-in of RI
* Policyholder notification of RI
* Expand eligibility of contingent nonforfeiture benefits
* Demonstrate compliance with the new dual loss ratio test (58%/85% test)
Long Term Care
Rate Stability for rate increases (a)
Explain rate stability regulation
- During initial filing of a new product, a qualified actuary must certify that initial premium rates will remain stable under moderately adverse conditions
- The rate increases request needs to show experience more than moderately adverse
- Needs to pass the 58%/85% test
- A qualified actuary must certify that the new rates will remain stable under moderately adverse conditions with no anticipated future increases
Purpose - Minimize the frequency and magnitude of rate increases.
Long Term Care
Rate Stability for rate increases (b)
Explain 58%/85% Test
AV(Incurred Claims) + PV(Future Claims) >=
58% * (AV(Initial Premiums) + PV(Future Initial Premiums)) +
85% * (AV(Prior Increases) + PV(Future Increases))
Purpose - Limit how much of the additional premium in rate increases can go toward expenses and profits. Insurers are motivated to price each policy form more conservatively and minimize future rate increases.
Long Term Care
Rate Stability for rate increases (c)
2014 Regulation Update (58%/85% Test)
- Few jurisdictions have adopted this section
- Uses greater of 58% and original pricing loss ratio in the 58%/85% test
- Historical incurred claims are capped at the original pricing expected level
Long Term Care
Contingent Nonforfeiture
Explain and List under what conditions this is available
Policyholder lapses due to a rate increase can change his policy to nonforfeiture paid up policy with benefit equals to sum of premiums paid.
Available if:
* Policy is issued during eligibility window
* Cumulative rate increase exceeds certain threshold
* Policy lapses within 120 days of increased premium due date
Many jurisdictions require this. Many insurers do offer this benefit as attractive to policyholders.
Long Term Care
Interstate Compact
Requirements for LTC rate increases to be filed through Compact
Interstate Compact streamline original pricing and rate increases filings which allows single filing to be approved in all jurisdictions.
Requirements to file rate increases through Compact:
1. Policy form originally filed through Compact
2. Rate increases request 15% or less
3. Certification - rates remain stable under moderately adverse experience after rate increases
Long Term Care
Rate Increase Justification Methods
List Three Approches
- “If Knew” Premium Approach (restate the historical experience using the proposed rates since inception)
- Prospective present value Approach (Texas Method)
- Blended “If Knew” and “Make-up” Approach (Minnesota Approach)
Long Term Care
Factors for insurers to consider in LTC Rate Increase Strategy
1. Where to file
2. Structure of requested increase
* Magnitude of request and how to implement it
3. Justification for requested increase
4. Policyholder Impact
* Single increase is easier to communicate, but difficult for policyholders
* Phase-in consumer friendly but large cumulative increases needed to have same financial impact for the insurer.
5. Other considerations
* RI limited by jurisdiction
* Pooling of similar forms can reduce workload and increase credibility
Long Term Care
Policyholder Options after RI
1. Reduced Benefit Option
* Cut benefits to partially or fully offset rate increases
2. Contingent Benefit Upon Lapse
* Cut benefits and policyholder stop paying premiums
3. Cash buyout option
* Insurers buyout the policy, no more benefits and premiums
Long Term Care
Assumptions affected by Rate Increases
- Shock Lapse
- Reduced Benefit Option
- Adverse Selection
Long Term Care
Components of a rate increase filing
1. Cover Letter
2. Actuarial Memorandum
*Description of affected forms, benefits, assumptions, prior rate increases
* Justification
* Actuarial Certification
* Applicable ASOPS (18, 23, 41, 25, 56)
3. Objections and Responses (SERFF)
4. Approval and Implementation
* Department of Insurance provides final decision
* Prenotification to policyholders of rate increases (45-60 days prenote)
Long Term Care
Regulator response / decision to LTC rate increases filing
- Approved as requested
- Proposed reduced, phased-in
- Disapproved entirely
Reasons for disapproval:
* Experience doesn’t justify request
* Too few policyholders in-force
* Not enough time since last rate increase
* Exceeds political cap
* No agreement reached between insurer and department on the amount
Long Term Care
Assumptions for Rate Increases
- Morbidity
- Mortality (If lower than expected, people survive longer to use benefits)
- Voluntary Lapses (LTC is lapse supported, thus more lapses are better because less people will use benefits)
- Interest Rates
