To help stabilize long-term care insurance premiums and help prevent long-term care insurance rate increases, Louisiana has enacted strict regulations. Recent evidence shows that the regulations are working very well to reduce the frequency and size of long-term care insurance rate increases.
To understand why these regulations are working, we must also understand why the old regulations did NOT work.
Profit Incentive:
Under the old rules: if a rate increase was requested, the insurers could price normal profit levels into the rate increase. In many cases, a rate increase could result in increased profits for the insurance company.
Under the new rules: if an insurance company requests a rate increase, they must first decrease the profit levels in their initial pricing to a cap that is pre-determined by the regulation. Secondly, they cannot price normal profit levels into the rate increase. Essentially, these new regulations have removed the insurance company’s profit incentive.
Margin for error:
Under the old rules: the insurance companies were NOT allowed to include in their pricing any margin for error. There was no cushion priced into the policy if claims were to exceed projections.
Under the new rules: every insurance company is REQUIRED to include a "cushion" in their pricing. To try to avoid needing any future rate increases they must include a "margin for error" just in case their pricing assumptions turn out to be wrong.
Actuarial certification:
Under the old rules: the insurance companies did NOT have to certify the accuracy of their pricing assumptions. If their assumptions turned out to be wrong, then they would just request a rate increase.
Under the new rules: the insurance companies are required to have a qualified actuary certify that no premium increases are anticipated over the life of the policy. Because of the "margin for error" that is now required to be priced into the policy, the actuary is certifying that the “margin for error” is sufficient enough so that no premium increases are anticipated.
Caps on rate increases:
Under the old rules: there was no cap on the rate increases and it was very easy to get a rate increase. Premiums were tied directly to projected claims. If claims projections increased, then premiums could be increased. It was that simple.
Under the new rules: If a rate increase is requested and approved, the insurer has to have an "annual review" with the regulators, for up to 5 years, to make sure the rate increase was justified and that it was not too high. If the rate increase turns out to have been too high, the insurer has to amend the rate increase. Also, the new rules put a cap on the amount of a rate increase. The insurer is not allowed to have a rate increase that would force current policyholders to pay premiums that are higher than the premiums being offered to new applicants.
To understand why these regulations are working, we must also understand why the old regulations did NOT work.
Profit Incentive:
Under the old rules: if a rate increase was requested, the insurers could price normal profit levels into the rate increase. In many cases, a rate increase could result in increased profits for the insurance company.
Under the new rules: if an insurance company requests a rate increase, they must first decrease the profit levels in their initial pricing to a cap that is pre-determined by the regulation. Secondly, they cannot price normal profit levels into the rate increase. Essentially, these new regulations have removed the insurance company’s profit incentive.
Margin for error:
Under the old rules: the insurance companies were NOT allowed to include in their pricing any margin for error. There was no cushion priced into the policy if claims were to exceed projections.
Under the new rules: every insurance company is REQUIRED to include a "cushion" in their pricing. To try to avoid needing any future rate increases they must include a "margin for error" just in case their pricing assumptions turn out to be wrong.
Actuarial certification:
Under the old rules: the insurance companies did NOT have to certify the accuracy of their pricing assumptions. If their assumptions turned out to be wrong, then they would just request a rate increase.
Under the new rules: the insurance companies are required to have a qualified actuary certify that no premium increases are anticipated over the life of the policy. Because of the "margin for error" that is now required to be priced into the policy, the actuary is certifying that the “margin for error” is sufficient enough so that no premium increases are anticipated.
Caps on rate increases:
Under the old rules: there was no cap on the rate increases and it was very easy to get a rate increase. Premiums were tied directly to projected claims. If claims projections increased, then premiums could be increased. It was that simple.
Under the new rules: If a rate increase is requested and approved, the insurer has to have an "annual review" with the regulators, for up to 5 years, to make sure the rate increase was justified and that it was not too high. If the rate increase turns out to have been too high, the insurer has to amend the rate increase. Also, the new rules put a cap on the amount of a rate increase. The insurer is not allowed to have a rate increase that would force current policyholders to pay premiums that are higher than the premiums being offered to new applicants.
