Mechanics And Basics Of Long Term Care Rate Increase

Question 1

Assumption changes had drive the need for a LTC rate increase

Answer 1

1. Morbidity
   
   1. 1 varies based on issue age, duration, gender, marital status, BP, EP, covered benefits, level of reimbursement, UW, claims adjudication practices
   2. 2 the claim costs at younger ages have decreased and those at older ages increased. This may result in the need for a rate increase
2. Persistency
   
   2. 1 persistency is crucial to reserves
   3. 2 higher persistency results in higher claims over the life of the product
   4. 3 LTC insurance lapsing at a much lower rate than originally anticipated
3. Interest
   
   3. 1 if interest rates decline, the contract reserves earn less than originally expected

Question 2

3 misconceptions about LTC

Answer 2

1. These products are mutually renewable
   
   1. 1 LTC is guaranteed renewable and priced on an issue age basis
   2. 2 the premium are level unless a rate increase is pursued
   3. 3 loss ratios very low in early durations and high in later durations
   4. 4 For LTC it may be many years before a miss in the morbidity, persistency, or interest assumption unfolds in the experience
2. Using historical LR to determine performance is appropriate
   
   2. 1 in early policy years a portion of premium are set aside to pre-fund expected future claims
   3. 2 consider change in contract reserves in the numerator of the LR
3. Companies can wait and see how experience unfolds
   
   3. 1 as time passes without a rate increase, the future premium to which the rate increase would be applied shrinks