Pricing LTC Flashcards
Pricing LTC
What makes LTC a Unique Group Product?
More like individual product than group product
- Issue age-rated
- Typically optional EE-pay-all coverage
- Broad set of eligible insureds
Pricing LTC
Special Issues in GLTC that Don’t Occur in Individual LTC
- Decreased ability to predict risk characteristics of block of business
- Experience rating
- PH reporting
- Handling reserves when group changes carriers
Pricing LTC
Recent Modifications to Regulations
- Adding more consumer protections
- Producer training requirements increased
- Consumers given more flexibility to reduce coverage when new providers/offers appear
- Claim handling regulations were strengthened
Pricing LTC
NAIC LTC Model Act covers:
- Definition of LTC insurance
- Renewability
- Policy exclusions
- Unintentional lapses
- Minimum benefit standards
- Disclosures and Reporting
- Advertising
- Requires offering of compound interest
- Requires offering of non-forfeiture benefits
- Other consumer protections
Pricing LTC
Major Changes in 2000 & 2014 LTC Model Regulation
- 2000
- Disclosure of rating practices
- Actuarial cert. that rates are adequate in moderately adverse experience
- Eliminates MLR req.
- Reimbursement of unnecessary rate increases
- 2014
- Rate stability provisions
Pricing LTC
NAIC: Actuarial Certification at Initial Rate Filing
- Initial prem. is sufficient under moderately adverse experience
- Considered policy design, UW, claim adjudication
- Premium rate schedule isn’t less than existing products
- Reserve requirements are sufficient
Pricing LTC
Premium Rate Schedule Increases (Formula)
AV(Past Claims) + PV(Future Claims must be ≥ to sum of:
- AV(Initial Prem) * 58%
- PV(Future Initial Prem) * 58%
- AV(Prior Rate Increases) * 85%
- PV(Future Premiums in Excess of Initial Prem) * 85%
Pricing LTC
Premium Rate Schedule Increases (Formula) - What changed with the 2014 regulation?
Use greater of 58% and original pricing ratio
Pricing LTC
HIPAA Impact
- Defined qualified LTC plans
- Standardized benefit triggers
- Clarified taxation of premium and benefits
- ER-paid premium is NOT taxable income to EE
- EE-paid premium is deductible from EE income
- Benefits are not taxable income
Pricing LTC
Pricing Considerations: ER Group
- Participation rates
- Benefits should be tied to cost of services in area
- Must offer 5% compound inflation to PH
- Modified guaranteed issue
Pricing LTC
Concerns of GLTC Carriers
- Must sell to both ERs and EEs
- Up-front distribution costs
- Risk of low enrollment
- Morbidity varies significantly by participation and size of group
Pricing LTC
Problems with Group Transfer
- Difficulties determining experience of group
- Inadequacy of stat reserves or experience fund held
- Difficulties in data transmission
- Reserves reflect requirements of state of current carrier, not assuming carrier
- Reserve methods vary by company
Pricing LTC
Model Assumptions
- Lapsation
- Mortality
- Morbidity/Claim Costs
- Selection
- Expenses
- Interest
- Reserve Basis
- Profit Criteria
Pricing LTC
Assumption Changes That Drive Need for Rate Increase (List and Example)
- Morbidity
- Claim costs at older ages increases
- Persistency
- Higher persistency = higher claims over life of product
- Interest
- Declining IR = contract reserves earn less than originally expected
Pricing LTC
Common Misconceptions about LTC
-
Products are Annually Renewable
- Guaranteed renewable with level premiums (unless increase is pursued)
-
Using Historical LR to Determine Performance is Appropriate
- Must consider change in contract reserves in numerator of LR
-
Companies can “Wait and See” How Experience Unfolds
- As time passes without rate increase, the future premiums to which rate increase would be applied shrinks
