Closing a book of business

[LewB]

Inquiring minds want to know? Why do Medicare Supplement companies close a book of business and then come out with a new plan? Can someone explain the logic in it to me?

 

[rousemark]

Because the current book of business has people who have become older and therefore have more lllnesses meaning more claims. They close that book and raise the rates to cover the increasing losses. Then, they open a new book with younger, healthier folks and charge a lower premium do to lower claims ratios. After a couple of years, rinse and repeat.

 

[MedicareAgent]

Wow, I have never thought about that but it makes sense, thanks for the lesson Rousemark

 

[somarco]

Can someone explain the logic in it to me?

They do it because they can, and they do so with impunity. Agents and policyholders keep coming back for more.

Also, as Louis said, it allows them to purge that block and replace it with fresh(er) policyholders.

 

[LewB]

Because the current book of business has people who have become older and therefore have more lllnesses meaning more claims. They close that book and raise the rates to cover the increasing losses. Then, they open a new book with younger, healthier folks and charge a lower premium do to lower claims ratios. After a couple of years, rinse and repeat.

I tried to avoid the companies that did that. The longer I am in this business, the more I dislike drug companies, insurance companies, and politicians. If life were fair, all fifty states would have a birthday rule.

 

[goillini52]

I tried to avoid the companies that did that.

That would eliminate about all of them.

 

[rousemark]

Wow, I have never thought about that but it makes sense, thanks for the lesson Rousemark

The problem is that it penalizes theirvlong term policyholders whose health prevents them from going elsewhere. Once they close the book and are no longer sdding new healrhy people, the rates begin to go up. Those that healthy and can pass underwriting go elswhere which accelerates the adverse claim ratio as there are none left but the sick people. Then, the rates really begin to skyrocket. I wish every state would pass the birthday rule where folks can buy any plan without underwriting within 30-60 days of their birthday. Would put a crimp in the game companies play.

 

[Yagents]

I believe the carriers don't pay commission on bday rule GI new apps. Be careful what u ask for.

I think they are trying to repeal that bday law in nevada recently

 

[Millwood]

We used to have a ba. .ss Insurance Commissioner in Oklahoma. If a company closed a book they couldn't come back into the state with a new block for 3 years.
That's probably been 20+ yrs ago. Stopped a lot of this foolishness and kept the client from getting these wild swings in price.

 

[sshafran]

Please no birthday rule.

Carriers responsible for covering risks should not be required to ignore risks.

Underwriting is not the enemy.

<Points to ACA -- asks the audience: "see that over there?">

Case closed.