‘Inadequate Rate’ Violations

Refer to “III. Discussion”, pages 5 – 6, of the document (SERFF Tracking Number META-127151622, aka (CT) State Tracking Number 201181606, pertaining to a MET filing in 2012 re: TIAA-CREF).

The following argument was put forth to justify the applicant’s (MET) rate increase.

“While the terms excessive, inadequate nor unfairly discriminatory are not defined, the Legislature has given us guidance as to their meanings through other statutes dealing with rate filings. Conn. Gen. Stat. §38a-665, which addresses rates pertaining to commercial risk insurance:

Rates shall not be excessive or inadequate, as herein defined, nor shall they be unfairly discriminatory. No rate shall be held to be excessive unless (1) such rate is unreasonably high for the insurance provided or (2) a reasonable degree of competition does not exist in the area with respect to the classification to which such rate is applicable. No rate shall be held inadequate unless (A) it is unreasonably low for the insurance provided, and (B) continued use of it would endanger solvency of the insurer, or unless (C) such rate is unreasonably low for the insurance provided and the use of such rate by the insurer using same has, or, if continued, will have the effect of destroying competition or creating a monopoly”.

  1. It is interesting to note that the LTCI rate justification argument borrowed from Commercial Risk Insurance. It also borrowed from CT Agencies Reg. §38a-474-3, which governs rate filings for Medicare Supplement & uses similar language.
  2. The applicant then goes on to state “the actuarial review of the rate Application to determine if the rates are reasonable, i.e. not excessive, inadequate or unfairly discriminatory, must be in compliance with ASOP 8 issued by the Actuarial Standards Board of the American Academy of Actuaries” and defends the rate application as not resulting in being excessive, inadequate, or unfairly discriminatory.

Let’s instead turn this argument on its head:

  1. It logically follows that prior to the rate application, rates were not reasonable given their inadequacy. Is this a violation of Conn. Gen. Stat. §38a-665 (A & B above)? Given the size and scope of rate applications by nearly all carriers since 2012, can one conclude that Conn. Gen. Stat. §38a-665 was violated en masse?
  2. Not only that, rates were inadequate from the beginning, in most instances for well over a decade. Carriers often reference the unusually low lapse rate as a part justifier for a rate increase. But this was known “right out of the gate” by LTCI carriers as being problematic.

So why didn’t carriers address the issue of inadequate rates when it was first known?

The inadequate rate violations have caused LTCI consumers great harm.

Author: Samuel Cuscovitch

Research scientist / strategist.

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