A consumer who purchases long-term care insurance today faces a significantly lower risk of future premium rate increases, according to Jesse Slome, executive director of the American Association for Long-Term Care Insurance. The following is a summary of his remarks in a recent public statement: As carriers are hit with plummeting interest rates, they need higher premiums to pay future claims. Today, long-term care insurers assume a conservative 3% to 5% long-term investment return for new policies. Ten-year U.S. Treasuries yield 2.8% compared to 4.4% in 2004.
Policies that were priced in the year 2000 generally anticipated a yearly lapse rate of 3% to 5% of policyholders. But actual lapse rates are only about 1%. So an insurer that had anticipated paying $100 million in claims could face $150 million in claims. Considering that insurers paid $7.5 billion in claims last year, a 50% increase in claims costs would be significant. Today’s policies use very conservative lapse rate assumptions, typically as low as 1%. “That’s another reason we are optimistic about the future,” said Slome.
However, regulators now require insurers to factor moderately adverse conditions into their pricing. Since there’s quite a bit more scrutiny, an insurer that’s seeking a rate increase has to provide significant detail about why their original projections were wrong. Today’s hurdles are much higher. Some states are outright declining requests. No one can predict what the next 10, 20, or 30 years will bring, but the conditions that created a need for rate increases on older policies just don’t exist. For more information, visit www.insuranceexpos.com.
