Genworth, the largest seller of stand-alone long term care insurance (LTCI), is planning to significantly revise the way long term care policy premiums are structured. Traditionally, consumers purchase a policy and insurers charge flat premiums for several years. Depending on the policy provisions and claim results, recently, in the out years, rate increases are required.
Genworth’s CEO Tom McInerney argues that this existing model limits a “carrier’s flexibility in designing and pricing products, antagonizes consumers who dislike significant rate increases, and sours investors who worry about insufficient claims reserves,” according to a recent Forbes article.
Furthermore, a recent industry survey by LifePlans, Inc. revealed that 71 percent of LTCI buyers say they prefer small premium increases every few years. Only two percent of customers said they like the large and infrequent increases.
Genworth is rolling out a proposal to the National Association of Insurance Commissioners at the NAIC’s annual meeting in August in Philadelphia, PA. The firm is also negotiating with individual state regulators for permission to begin utilizing this new pricing model in order to sell an LTCI product that can be repriced every year.
Genworth’s proposal is called the Annual Rate Sufficiency Model. Under the plan, buyers of new LTCI policies would see modest, single-digit rate hikes each year or two. Genworth says there is a possibility consumers might even see small rate reductions in some years if the company has fewer claims than expected or if investment income is higher than projected.
The insurer expects the NAIC to take a few years to approve the change. Individual states could make decisions more quickly, and Genworth hopes to have an available product in a few states by early 2018.
This new annual repricing model will apply only to new policies. According to Genworth, there’s a possibility that initial premiums would be about 10 percent lower than they are today and that over the span of 35 years, a buyer could pay about 17 percent less.
Potential implications of New LTCI Pricing
Why would an insurance company want to introduce a pricing model that has the potential to bring in less premium dollars per buyer over time? According to Genworth, the new model has the potential to:
- Allow carriers to more closely match prices to claims experiences and interest rates, and adjust policies as necessary
- Generate more income in the early years of the policy which could produce more investment income
- Attract more, somewhat younger, buyers with lower initial premiums
A 2016 NAIC State of the U.S. Long Term Care Insurance Industry study reveals that the long term care insurance business continues to struggle. In 2002, there were more than 100 insurers selling LTCI products in the U.S. Today there are less than 20 companies. Additionally, in 2001, 1 million LTCI policies were sold. This number decreased dramatically to 100,000 policies in 2016.
All eyes will remain on Genworth and their plan to change premium pricing in hopes of benefiting both carriers and consumers.
Watch insurance expert Bill Hager speak on long term care insurance issues.
Bill Hager’s Experience as an Expert Insurance Witness
Mr. Hager served as an insurance regulator for eight years in five positions: (i) Assistant Attorney General assigned to the Iowa Department of Insurance, (ii) First Deputy Commissioner of Insurance, (iii) Iowa Commissioner of Insurance, (iv) Administrative Law Judge, and (v) Executive and Member of the National Association of Insurance Commissioners.
In this capacity Mr. Hager, along with his staff, approved (or disapproved) of the language of insurance policies used by each of the 1,000 property casualty insurance companies doing business in the state of Iowa.
While Iowa Commissioner of Insurance, Mr. Hager also served as a member of the National Association of Insurance Commissioners (including membership on its Executive Committee).
Mr. Hager has also served as President and Chief Executive Officer of the National Council on Compensation Insurance (NCCI) a major property casualty insurance company. He has also served as General Counsel and Chief Lobbyist to the American Academy of Actuaries, Washington DC and serves as well as an Insurance and Reinsurance Arbitrator certified by ARIAS-US and is a practicing Florida lawyer.
In addition to his current role as president of Insurance Metrics Corp., Mr. Hager represents District No. 89 in Palm Beach County as an elected member of the Florida House of Representatives. He serves or has served on the following committees or subcommittees by appointment: Insurance and Banking; Commerce, Judiciary (parent committee), Civil Justice Subcommittee; Taxation and Charter Schools.
For more information on Bill Hager’s expertise in long term care insurance policies, click here.