It is certainly widely accepted that rate increases, particularly the big fat and somewhat unanticipated ones, are bad for all concerned. It should not however be a revelation be that individual health insurance is often subject to the variable and often violent wind storms created by medical inflation. Unfortunately, that universally accepted truth does not exactly hold water when viewing the history of rate increases in the world of stand-alone long term care insurance. Medical inflation has been consistent with expectations and was always a planned-for pricing consideration. The fact is that, this time, what did contribute to the creation of what I suspect looks more like an adverse selection rate spiral than anything seen before could simply not have been anticipated by those stakeholders involved in the creation and growth of this market.
Don’t misunderstand—the damage caused by this lack of omnipotent clairvoyance is very real and verges on the catastrophic. All too many have been running for the exit doors, including: reinsurers, companies, agents and most importantly consumers. Consumers point the finger at those old mean and greedy insurance companies. The politicized regulatory universe has done much the same, even though they know better. Companies have retreated moaning about lack of profitability, reserve drain and future claim uncertainty. And those of us out there every day trying to protect our customers have been caught in the crossfire. How do you explain to the most perceptive and intelligent clients in your book of business the cause of onerous rate increases so soon in the history of this “new“ and some would say “experimental” line of retirement protection?
The truth is, no one could have peered into their crystal ball and seen that this would become the most loved accident and health product of all time. Virtually the only lapse is death—new products are being priced with a one-half percent lapse rate. 15 years ago you would have been laughed out of the board room with so ludicrous a concept. Who could have predicted the collapse of our economy in the Great Recession and that the interest rate environment would remain dead flat ever since with no end in sight? Who would have guessed that the caregiving landscape would shift to assisted living and that the palliative effects of that level of care would dramatically affect longevity and claim duration? Who would have thought that two-thirds of the companies who lined up to help develop this market would throw in the towel so soon?
The destruction caused by what has appeared to be capricious rate actions must be accepted and frankly forgiven so that we can get past the grief and move on. As circumstances have developed, we have repeatedly had to explain that this is health insurance after all and that rate increases on older blocks of business must be proven justifiable to the appropriate state regulatory authority before they can be enforced. We also know that recent research conducted by the SOA clearly indicates that future rate increases on policies sold today are more stable and reliable than at any time in our past. We have explained to consumers that, even with the increase in cost, their policy will remain less expensive than purchasing new coverage today. Most important, we have gently explained the obvious that the new cost remains diminutive when compared to the potential claim.
What you may not know is what actually happens to consumers in terms of their protection when a rate increase takes place. What is the real dimension and size of the loss in coverage when consumers are facing a rate increase? I asked the largest historical writer of LTCI and the answer is—no one walked away with an empty basket. 85.2 percent kept their coverage and accepted the rate increase, 9.1 percent kept approximately the same premium and reduced their benefits, and only 5.4 percent took the non-forfeiture benefits with access to past premiums in the form of available benefits paid. The cost of caregiving in America remains the problem that will not go away. Although rate actions have been unpopular and unpleasant, they may not have been as disastrous as advertised. We have tried—I believe valiantly—to help, and there is no other answer but to profit from what we have learned and keep trying.
Other than that I have no opinions on the subject.
