Another Over The Top In CT

With the increase, ILTC1 still remains at a stratospheric CT lifetime loss ratio of 141%. If you do the math, ILTC2 is also underpriced by over 50% and that is for a vintage sold 11/2003 – 6/2008.

This post is prompted by Prudential’s PRUD-132273692 filing, which includes policy forms ILTC1 – ILTC3. Our interest are ILTC1 and ILTC2, the older books of the filing. The requested increases are:

                • ILTC1 / +176%
                • ILTC2 / +103%
                • ILTC3 / +48.9%
                • ILTC3R / +24.5%

Noteworthy is the late start for ILTC1, the oldest book of the 4 (pre-2000), an 18% increase in 2016 followed by 2 rate increases of 10% (2019) and 15% (effective 2020).

This filing has the same ring as a recent METLIFE filing, one that contains several books across different eras or vintages. For us it is convenient that different vintages appear in one tidy filing as it allows us to more easily construct a consumer timeline & narrative of the LTCI industry.

With respect to the pre-2000 ILTC1, one might ask — what has suddenly changed to request such an increase in one gigantic gulp after twenty years? Policyholders would wind up paying 4.12x original premium if granted, but we wonder if the CT DOI, like they did with Brighthouse’s +173% Well Over The Top request, will table it to bend to increasing pressures within CT and hope for a Hail Mary from NAIC this Fall.

Pending CT legislation known as SB329 proposes the following addition:

If the commissioner determines, in the commissioner’s discretion, that an insurance company, fraternal benefit society, hospital service corporation, medical service corporation or health care center deliberately or recklessly included a misstatement of fact in, or deliberately or recklessly omitted a statement of fact from, a rate filing filed on or after January 1, 2021, that caused a long-term care policy to be underpriced by at least fifty per cent, the commissioner shall refer such rate filing to the Attorney General for an investigation pursuant to section 5 of this act.

I am on record opposing this addition which is redundant with Connecticut General Statutes 38a-665 that disallows the underpricing of insurance contracts already. The question might be which pre-2000 LTCI product isn’t underpriced by 50%? If you do the math, ILTC2 is also underpriced by over 50% and that is for a vintage sold 11/2003 – 6/2008.

What is next for ILTC1? With the increase, ILTC1 still remains at a stratospheric CT lifetime loss ratio of 141%. Our analysis shows that if priced at the statutory minimum loss ratio of 60%, the actuarially justified Shock Lapse premium would be nearly 20x what the ILTC1 policyholder paid in 2015. Makes sense, right? In lieu of the unlikely Shock Lapse scenario, ILTC1 policyholders can expect to experience a 14.5% average compound annual increase until they lapse or go on-claim, whenever than might be.

This is not to pick solely on Prudential. Here is written public testimony from an individual irate about the same issue with Transamerica. After all, the LTCI industry is the problem. You can hear the March 10th testimony including the author who submitted testimony somewhere in the middle.

The SB329 excerpt above seems written more for the industry than the consumer. We track LTCI legislation and will comment further as the legislative session proceeds. Another concern we see in this bill is the emphasis on affordable benefit options (ABO). What does affordable convey? Why the need to put into legislation? Of course we know the answer but will cover later if it stays in legislation. The whole point with SB329 is that it seems to be especially targeted to dismissing early legacy policies, such as ILTC1 and ILTC2.

Update: Examining PRU filings since 2016, we have noted an important change in assumption of their morbidity model that increases claims expense projections and lifetime loss ratios, which are detrimental to policyholders. Against the 2020 filing, we employed What If analysis to arrive at an increase of 0.26x (8%) from 3.25x to 3.51x original premium using our Step Down model (considered fair premium) resulting from the changed assumption. One might consider 8% noise compared to +173% requested increase, but we wonder what other subtle changes might be going on below the surface? Note: Step Down model does not hold policyholders responsible for carrier past losses.



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