Insurance Commissioner Dave Jones Announces Legislature Passes Major Long-term Care Insurance Reform

[Arthur Rudnick]

previously posted by ned55

As a California resident, I am proud of the state's pending legislation for LTC (additional) rate stabilization.
Insurance companies must understand the risk involved when offering a product.
If they cannot adequately determine the risk (regulatory, interest rate, market risk included), they should not be selling Long Term Care Insurance..........

It appears that in 40 years, the carriers have not been able to price the product correctly. So, going by what you've posted, no company should be selling it.

I am far from being a fan of insurance companies. But, rate increases are everyday occurrences on every insurance product (with the exception of the few non-can policies available)

Every year (with very few exceptions) my health insurance premiums rise, so does my homeowners & auto insurance. Why should LTCi be any different? Are the actuaries for health, auto & homeowners any smarter or dumber than those working for LTCi carriers? Don't think so.

Over the past 30 years, we've seen interest rates at 5%, 10% & 15%. Were assumptions made that those rates would continue forever? Rates are now 1%-2% and obviously severely effect the the carriers Reserves.

So, from 2008 forward, "it's the low interest rate enviornment that madate rate increases". Before that, it was "wrong assumptions on lapse rates". And there was "policyholders are utilizing their policies more often and for a longer periods of time than we anticipated".

Insurance is a business and the carriers must first answer to their shareholders and not their policyholders.

And............
That's the real problem.

 

[scagnt83]

Insurance is a business and the carriers must first answer to their shareholders and not their policyholders.

And............
That's the real problem.

Im not 100% on that.

But lets say it is the real reason... whats the solution? Go with Mutual companies? Mutuals must turn a profit as well...

Staying with the same train of thought, all insurance is offered by a business. And no business can exist if its loosing money; no section of a business will be continued if it is loosing money.

Since we have established that any business (public/private/mutually held) must turn a profit from a line of business to continue it.
What is the answer?

Government run/publicly funded insurance has an even worse track record than LTCI...

A better question to ask is why would any company offer/keep a product/service that they are loosing money on?

Shareholders or not, if they are loosing money or making a significant amount more on other lines of business, what is the logic in keeping it around? Its a business decision that any business would make, publicly held or not.

Now I will give you the fact that companies have dropped LTCI out of shareholder pressure. But can you really blame investors in a company for wanting that company to be profitable? To an extent the duty to shareholders has adversely affected things. But to say thats the real problem is ignoring the facts at hand.
Most ICs are publicly held, but other product lines have not had the same troubles.

 

[Arthur Rudnick]

Originally Posted By scagnt33

Originally Posted by Arthur Rudnick
Insurance is a business and the carriers must first answer to their shareholders and not their policyholders.
And............
That's the real problem.

Im not 100% on that. But lets say it is the real reason... whats the solution? Go with Mutual companies? Mutuals must turn a profit as well...

Staying with the same train of thought, all insurance is offered by a business. And no business can exist if its loosing money; no section of a business will be continued if it is loosing money.

Since we have established that any business (public/private/mutually held) must turn a profit from a line of
business to continue it. What's the answer?

Government run/publicly funded insurance has an even worse track record than LTCI... A better question to ask is why would any company offer/keep a product/service that they are loosing money on?

Shareholders or not, if they are loosing money or making a significant amount more on other lines of business, what is
the logic in keeping it around? Its a business decision that any business would make, publicly held or not.

Now I will give you the fact that companies have dropped LTCI out of shareholder pressure. But can you really blame investors in a company for wanting that company to be profitable? To an extent the duty to shareholders has adversely affected things. But to say thats the real problem is ignoring the facts at hand. Most ICs are publicly held, but other product lines have not had the same troubles.

What's the answer?
Fair question. It appears that no one has come up with one. And, you're correct, whether it's a private or public business, no company will continue to market a product that consistently loses money. If I had a business that lost money, I would eventually go out of business. That's a risk I was aware of and was willing to take from day 1.

The problem with insurance companies, as it stands now, there's really no risk. If they lose money on a product, they request a rate increase and in 9 out of 10 cases, it's approved. There's really no downside other than hearing their customers (policyholders) yell & scream.

There MUST be ramifications for a business pricing a product incorrectly. And, the only answer that I can come up with (stated in my previous post) is to punish the carrier by letting them suffer their loss across their entire business and stop running to mommy ever time they screw up.

That will leave them with 3 choices:
1) Take the hit like every other business on the planet does
2) If they continue to lose money, stop selling the product
or.............
3) Figure out how to price the damn product correctly!

What's happening now is similar to the banks & GM. "Don't worry about losing money, just run to the government (DOI) and they'll bail you out"

There just doesn't seem to be any penalty facing the carriers for not running a business properly.

 

[bluemarlin08]

Arthur, those are my sentiments exactly spoken much better than I could. The insurance companies don't have much skin in the game, if they mispriced, they raise rates, some policies lapse, but the company suffers very little. Seems the policyholder is assuming most if not all the premium risk.

 

[Chuckles21]

There is no penalty as it stands and as long as tons of insurance agents keep peddling the lowest cost products out there that are most likely to have those increases there never will be. The way to hurt an insurance company is to not have anyone buy their product. That is the answer. The solution is a lot tougher unfortunately as most agents will sell the lowest cost for the ease of sale.

I am a NWM agent and everywhere i read they are always getting bashed for being overpriced. The funny part of this is that they never have had a rate increase. In my mind this means that they are one of the few that possibly are correctly priced. Yet here you all are crying about companies not getting the pricing correct and the consumers YOU sold these products to being hurt. I completely agree with you in this regards, but at least step up to the plate and take some blame for putting these very products in the consumers hands.

This was not directed at anyone person in particular, but more of a general stance.

 

[Arthur Rudnick]

Previously Posted By Chuckles21

There is no penalty as it stands and as long as tons of insurance agents keep peddling the lowest cost products out there that are most likely to have those increases there never will be. The way to hurt an insurance company is to not
have anyone buy their product. That is the answer. The solution is a lot tougher unfortunately as most agents will sell the lowest cost for the ease of sale.

I am a NWM agent and everywhere i read they are always getting bashed for being overpriced. The funny part of this is that they never have had a rate increase. In my mind this means that they are one of the few that possibly are correctly priced. Yet here you all are crying about companies not getting the pricing correct and the consumers YOU sold these
products to being hurt. I completely agree with you in this regards, but at least step up to the plate and take some blame for putting these very products in the consumers hands.

This was not directed at anyone person in particular, but more of a general stance.

Wonder what you'll be saying when (not "if", but "when") NWM announces a rate increase? If you've been in this business for more than 5 minutes, you have to realize that an increase will be coming somewhere down the road.

UNLESS............
NWM is getting 10% interest on their Reserves, while every other carrier is receiving 2%. I highly doubt that.

There are tons of posts on this Forum about how "overly priced" NWM has been compared to every other carrier. Is it better to pay 50%-75% more for a NWM product every year or pay 50%-75% less and suffer with a 10% - 20% rate increase every 5-10 years?

I'm sure you have your view as others do as well.

 

[Chuckles21]

Previously Posted By Chuckles21



Wonder what you'll be saying when (not "if", but "when") NWM announces a rate increase? If you've been in this business for more than 5 minutes, you have to realize that an increase will be coming somewhere down the road.

UNLESS............
NWM is getting 10% interest on their Reserves, while every other carrier is receiving 2%. I highly doubt that.

There are tons of posts on this Forum about how "overly priced" NWM has been compared to every other carrier. Is it better to pay 50%-75% more for a NWM product every year or pay 50%-75% less and suffer with a 10% - 20% rate increase every 5-10 years?

I'm sure you have your view as others do as well.

What I meant, and i'm not sure if you took it one way or the other is they have never had an inforce rate increase. I'm absolutely positive their new issue prices will go up.

What you fail to realize is that they may be that much higher but at least the clients can budget for this price knowing it is way more likely to stay at that level. To sell someone a policy that they can just afford at it's current low premium with the general knowledge of price increases in the future is not doing the client a favor.

 

[scagnt83]

The problem with insurance companies, as it stands now, there's really no risk. If they lose money on a product, they request a rate increase and in 9 out of 10 cases, it's approved. There's really no downside other than hearing their customers (policyholders) yell & scream.

There MUST be ramifications for a business pricing a product incorrectly. And, the only answer that I can come up with (stated in my previous post) is to punish the carrier by letting them suffer their loss across their entire business and stop running to mommy ever time they screw up.

That will leave them with 3 choices:
1) Take the hit like every other business on the planet does
2) If they continue to lose money, stop selling the product
or.............
3) Figure out how to price the damn product correctly!

What's happening now is similar to the banks & GM. "Don't worry about losing money, just run to the government (DOI) and they'll bail you out"

There just doesn't seem to be any penalty facing the carriers for not running a business properly.

I cant follow you on that one either.

I do see the analogy your trying to make.
Your comparing the gov approving rate increases to the gov approving bailouts.

But with GM & the banks it was every single tax payer fitting the bill for a company that had gone bust. Us taxpayers got no real individual benefit out of it. Nor did we have a choice on the front or back end.

With LTCI, first its a contract that an individual has agreed upon. And any extra premium is going towards a direct benefit to that individual that they presumably want.


But here is the thing, and the part that Im probably going to rub a few people the wrong way and seem a bit callous.

The LTCI contract says in very plain english that they have the right to raise rates. These individuals agreed to this contract, like it or not. The IC has every right to ask for rate increases if they can justify them financially (which they must do with the state doi).

Furthermore, even you claim that the lower front end pricing is to the consumers advantage. So one could argue that these policies were almost designed to guarantee a rate increase at some point in the future.
Most all applications have the words "We have the right to increase future yearly premiums" in big bold print. They are not that shy about it.
Hell, even before the sh*t hit the fan in the ltci world, my JH rep used to say to tell clients to expect a 20% increase over the life of the policy.

Back to point; you ask whats the penalty to the carriers. Its a free market.
So yes, the policy holders bitch and scream, especially if their agent never even mentioned the eventuality of rate increases.
But, unlike the gov mandated bailouts, policy holders are free and clear to drop their policy.
Now, Im well aware that its not that cut and dry. But at some point the IC cant raise rates because the profit from rate increases will turn into losses from lapses.

You say that the IC should eat the losses. But thats not what the legally binding contract calls for. It calls for them to have the ability to maintain reserves & cover operating costs so that they can keep guaranteeing benefits.. through rate increases.
What you are saying is that the DOI should not respect the legally binding contract the consumer willingly agreed to.

Now I realize that there is some leverage on the ICs side of this equation... more than the consumer has... but that is were good ole uncle sam has the ability to step in and deny those increases if they are indeed unfair or greedy. Maybe you can point me to some, but I have seen no evidence that the Insurers are being malicious or greedy with their premium increase requests.

But at the end of the day, the IC can only raise rates to the point that their clients allow them to.

But in the end is the client still paying a lesser amount for a larger benefit? That is the basic point of insurance.


I have always said that Genworth & JH priced their policies way too low. Especially when you compare them to the rest of the market. And they werent the only ones (although I would bet they are the two worst).
The rate increases might be necessary, but they look bad, especially in the large amounts they have done.


But its really both the agent and the ICs fault.
As an agent, would you sell a GR DI policy and not speak of budgeting for rate increases? Would you sell a HI policy and not forewarn of rate increases?
Both the IC and agents have done a very poor job explaining the premium structure of these policies to consumers.

If a policy goes up 20% but its still less than the highest premium policy on the market (that had no increase); was it really miss-priced?
Or was it priced to be affordable and raise with inflation to an extent?

Yes, it hurts seniors budgets when they havent planned for rate increases. But if the product was sold appropriately (meaning room in the budget for rate increases), are the rate increases really bad for the client?
One could argue that if sold appropriately, the lower front end price actually benefits the consumer. Not only have they paid less than what they had to until they actually needed to. But how many people now have LTCI coverage due to the lower front end cost of the lower priced policies? The answer is "a hell of a lot more than the high priced policies".

I remember back in the day being at NYL trying to sell their LTCI. I lost most competitive situations unless it was an established client.
Not only that, but my close rate on non-competitive cases was very poor (but so was most agents). The reason was that it was so high priced even well off clients had a hard time biting that premium bullet.

During working years people are still paying an arm & a leg for HI, they are contributing to 401Ks, kids, etc.
Many simply cant afford the higher front end policies from the start; but once 401K contributions stop, Medicare kicks in, kids independent (maybe.. lol), a slightly higher premium in theory doesnt hurt as much.

The lower priced (mispriced if you want) policies have enabled many more people to obtain LTCI coverage than the higher priced ones have.

Im not advocating for the rate increases contrary to what it might seem like. But by offering a GR policy w/ no non-can options, the IC is basically saying that they dont know for sure what the future holds, and thats why they are leaving room for changes.
As agents, we have to recognize this and communicate it effectively to our clients.

 

[Arthur Rudnick]

scagnt83,
I think you're missing the point........

No one is saying that the carriers are not justified in requesting rate increases, or that applicants aren't advised of a future rate increase. The issue here is that the carriers have no skin in the game. They price their product wrong and they run to the DOI and request an increase. Policyholders yell and yes, maybe there will be some who will lapse their policies. No big deal to a multi-billion dollar financial institution.

If you owned a business and consistently priced your product incorrectly, what's the result?
Either your get your act together or you close up shop.

One would think after almost 40 years the carriers would figure out how to run a business. We don't set premiums, the carriers do and they're then approved by the DOI. It's not the agents & policyholders who screwed up, it's the insurance companies.

So tell me, where is the risk or downside to the company? If you ran a business and you lost money, what do you do? Do you have the option of running to the government (DOI) for a bail out? Why should an insurance company have that option?

If there was a penalty for wrong prices that meant something, I'd bet the carriers would finally hire some actuaries that had a clue.

You say: "But at the end of the day, the IC can only raise rates to the point that their clients allow them"

Tell that to those Hancock policyholders in PA who were hit with a 90% rate increase, or Hancock's NJ policyholders who had to deal with a 73% rate increase. Did Hancock check with the policyholders first to see if that was OK with them?

LTCi used to be a product for the middle-class. That's who the target market was for. We can debate all we want about who's at fault, but the fact remains at the rate the industry is going there will be no one left other than the upper-class to afford the product. And, many in the upper-class can afford to self-insure.

Let the carriers get hit in the pocketbook and you'll see a change in the way they go about their business.

 

[Chuckles21]

Im not advocating for the rate increases contrary to what it might seem like. But by offering a GR policy w/ no non-can options, the IC is basically saying that they dont know for sure what the future holds, and thats why they are leaving room for changes.
As agents, we have to recognize this and communicate it effectively to our clients.

scagnt,

This is pretty much the point I was trying to make in my post above. I don't think rate increases are a good thing, but how did agents not see this coming? The agents need to take some of the blame for either not properly communicating to clients what they should have seen coming, or for not understanding what they were selling.

I agree that companies taking it in the shorts financially would change some practices, but a contract is a contract. They didn't hide it in small print for no one to find. The best way to make them feel it is to not sell their product. Unfortunately that will not happen based on Genworth still being the biggest player in the game.