LTC Rate Increases Are on the Rise

CA is seeing increases under 50%, often spread over a few years. Rates for new business have increased approximately 130% in the last 10 years. Insurers did not anticipate that the government would keep interest rates so low for so long. This has impacted the insurance carrier’s ability to generate sufficient revenue on reserves. Fewer policies have lapsed than actuaries anticipated, thereby requiring an increase in reserves to pay more future claims. The rate of current claims has been higher than anticipated as well. CA rate stability legislation made carriers adjust rates upwards for new business, while outlining guidelines to make it tougher to raise rates going forward. With rate increase announcements, carriers typically offer alternate plans to either mitigate or eliminate the increases. They also may offer the ability to walk away and have a policy maximum equal to the amount of premiums paid minus claims (contingent non-forfeiture). The unlimited benefit multiplier that was issued years ago is no longer available on traditional LTC policies. These policies are receiving the larger increases. A similar LTC policy with a $120/day benefit, 5 year multiplier, and 5% compound inflation rider would cost a 65/62 year old couple around $14,000 per year today. Assuming current ages of 80/77, and their increased benefit of $240/day, if coverage was available to purchase with any insurer, it might cost about $100,000 per year. This figure is estimated based on the fact that a $240/day LTC policy with a 5 year multiplier and 5% compound inflation feature would cost a 75 year old couple $88,600 with one of the larger LTC carriers still in the business. Most applicants are realizing how smart it was to buy early and they are paying the increases. We don’t like the increases (we have LTC policies too), but we are glad that they are having moderate increases on the old underpriced blocks of business, so that there is more money to pay claims in the future. Unlike other forms of business, insurance carriers reserve for future costs. Insurance carriers are taking measures to increase reserves in anticipation of future claims. The Departments of Insurance throughout the nation are cooperating in the insurance carrier quest to bolster reserves, and they are approving increases. It is the prudent thing to do to keep the product financially healthy and available to those in need. We anticipate that this may lead to better financial ratings for certain carriers as well.