“New Insurance Regulation” Protects Consumers from LTC Insurance Rate Increases
There are two different ways long-term care insurance premiums are regulated in the 50 states.
To help you understand the new regulation, it will help if I first briefly explain the old regulation.
The intent of the old regulation was to make sure that consumers did not overpay for long-term care insurance and to make sure that the insurance companies did not earn huge profits.
The intent was good, but the actual implementation of the regulations had some unintended consequences.
In most states, this regulation required the insurer to pay no less than 60 (or 65) cents in claims for every dollar that they collected in premiums. The remainder would cover the insurer’s costs (administration, taxes, customer service, distribution, etc…) and still allow room for some profit.
The regulators thought this was the best way to protect consumers and prevent the insurers from overcharging.
A problem arose, however, when some insurance companies realized that they had grossly underestimated their claims. For some companies, their claims turned out to be twice as high as they had projected. The old regulation allowed the insurers to double their premiums since the claims were twice as high as they had anticipated.
By taking advantage of this “loophole”, these increases not only doubled the premiums the policyholders were paying, but these higher premiums also dramatically increased the insurer’s profits! Essentially, the insurers were rewarded for doing a bad job to begin with.
This new regulation was crafted with the intent of keeping LTC insurance premiums stable and is therefore called the “Rate Stability Regulation”.
This new regulation requires insurers to do a better job of pricing their policies and to use more conservative projections.
This new regulation requires the insurers to price a “cushion” into their premiums so that even if their projections are not conservative enough, they still won’t have to increase premiums over the life of the policy. A qualified actuary must certify that there’s enough “cushion” in the pricing such that the policy won’t ever need a rate increase, even if their experience is “moderately” worse than expected.
If a premium increase is required, this new regulation removes the profit incentive from the premium increase. This new regulation requires that nearly every penny of any increase go towards actual claims payments. Since there is no money to be made on a premium increase, the insurers are motivated to price their policies right the first time.
If a premium increase is required, this new regulation requires a qualified actuary to certify that the policyholders will only get that one premium increase and no other increases will be necessary over the life of the policy.
If a premium increase is approved, the insurer must re-certify that increase, every year for at least 3 years. If the projections turn out to be wrong, the insurance commissioner can require the insurer to refund all (or part) of the premium increase to the policyholders.
(I moved this from the other thread since it's a completely different topic and probably should be discussed on it's own.)
There are two different ways long-term care insurance premiums are regulated in the 50 states.
To help you understand the new regulation, it will help if I first briefly explain the old regulation.
The intent of the old regulation was to make sure that consumers did not overpay for long-term care insurance and to make sure that the insurance companies did not earn huge profits.
The intent was good, but the actual implementation of the regulations had some unintended consequences.
In most states, this regulation required the insurer to pay no less than 60 (or 65) cents in claims for every dollar that they collected in premiums. The remainder would cover the insurer’s costs (administration, taxes, customer service, distribution, etc…) and still allow room for some profit.
The regulators thought this was the best way to protect consumers and prevent the insurers from overcharging.
A problem arose, however, when some insurance companies realized that they had grossly underestimated their claims. For some companies, their claims turned out to be twice as high as they had projected. The old regulation allowed the insurers to double their premiums since the claims were twice as high as they had anticipated.
By taking advantage of this “loophole”, these increases not only doubled the premiums the policyholders were paying, but these higher premiums also dramatically increased the insurer’s profits! Essentially, the insurers were rewarded for doing a bad job to begin with.
This new regulation was crafted with the intent of keeping LTC insurance premiums stable and is therefore called the “Rate Stability Regulation”.
This new regulation requires insurers to do a better job of pricing their policies and to use more conservative projections.
This new regulation requires the insurers to price a “cushion” into their premiums so that even if their projections are not conservative enough, they still won’t have to increase premiums over the life of the policy. A qualified actuary must certify that there’s enough “cushion” in the pricing such that the policy won’t ever need a rate increase, even if their experience is “moderately” worse than expected.
If a premium increase is required, this new regulation removes the profit incentive from the premium increase. This new regulation requires that nearly every penny of any increase go towards actual claims payments. Since there is no money to be made on a premium increase, the insurers are motivated to price their policies right the first time.
If a premium increase is required, this new regulation requires a qualified actuary to certify that the policyholders will only get that one premium increase and no other increases will be necessary over the life of the policy.
If a premium increase is approved, the insurer must re-certify that increase, every year for at least 3 years. If the projections turn out to be wrong, the insurance commissioner can require the insurer to refund all (or part) of the premium increase to the policyholders.
(I moved this from the other thread since it's a completely different topic and probably should be discussed on it's own.)
