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Search Results for: rate hikes

Ding Dong the Wicked Witch of LTCi Rate Hikes is Dead

September 9, 2016 by Honey Leave a Comment

The following is a guest blog by my friend and highly respected LTCi colleague, Ron Hagelman, who can be reached at rhagelman@broadtowerinsurance.com, www.BroadtowerInsurance.com.

The article laments the undeserved, unintended ill-will earned by the LTCi industry. Ron’s sentiment matches my own and expresses the widespread confidence of LTCi actuaries that LTCi pricing is now extremely rate stable. Here are blogs I’ve written about rate hikes.

Here is info on the Society of Actuaries study Ron refers to.  Thanks, Ron, for allowing me to re-publish this.

Wicked Witch“There are simply those who, even after repeated exposure to the glare of the truth, are subsequently unable to admit they were wrong. Our industry suffers seriously from this flaw in human behavior. Far too many have conveniently pointed the finger of blame at those responsible for our lifeless interest environment (whoever those people are) and not taken sufficient responsibility for the “mistakes” that were made in our past pricing assumptions. “We” got it way wrong and the damage done to all concerned is much more extensive than many are willing to admit. Stand-alone LTCI sales are a shadow of their former selves. The destruction to new sales caused by repeated rate increases is pervasive and insidious. We have unfortunately created a general public malaise and aversion to all things LTCI both in terms of those who we said were the smart ones for leveraging their risk early and those prospective buyers considering the security of policy ownership. What is of course much worse is that we have successfully decimated the ranks of those willing to help sell the product. The age-old equation is now painfully obvious to all concerned: rising premium creating falling sales culminating in a drastically reduced field force. This artificially created sales spiral is much more than just a self-fulfilling prophecy. We must first admit that it is also a self-inflicted wound.

We must first freely admit and acknowledge our own culpability. Frankly, we over built benefits, underpriced mortality and morbidity, and overestimated potential sales in the initial rush to achieve market share. We completely missed the whole side of the barn in terms of persistency and honestly we were basing our future experience on far too little actual claims data.

That Has All Changed!

“Ding Dong the Wicked (Rate Increase) Witch is Dead!” The Society of Actuaries has recently completed a research project designed specifically to evaluate the historical potential for rate increases.   The research clearly indicates that products priced today are much less likely to have future rate increases. What is absolutely certain over the last 15 years is that the need for long term care services and support, the growth of assets and income needing protection, and the certainty of a need for expensive care is now greater than ever. We have also accumulated a substantial volume of claims information upon which to more accurately base current pricing.

The conclusion of the SOA analysis is that confidence in current pricing “should” be at an all-time high. Claims data is no longer scarce. We have an abundance of claims to evaluate at this time, meaning we have reduced the potential likelihood of future rate actions. According to the SOA, “Premium stability on today’s LTCI prod- ucts is at its highest.” The SOA identified a number of benefits of the new pricing stability as the study found that, “Claim experience nationwide in 2014 was 70 times more credible than in 2000.” The fact that we now have a history to evaluate has laid the groundwork for future carrier optimism concerning this market. Pricing stability contributes to:

  • Greater carrier confidence in assumptions concerning lapse, morbidity and mortality.
  • Less operational administrative risk translating into lower expenses. Constant change is expensive.
  • Less friction on the regulatory level and potential stress on reserves.

Restoration of consumer confidence at this point is a massive undertaking.

The Study also illuminated the validity of what we knew were serious contributing factors:

  • Long term investment return has fallen dramatically from 6.4 percent in 2000 to 4.6 percent in 2014.
  • Commissions have crept up during the same period of time, emphasizing first year compensation, and while administration expenses have declined.
  • Based on experience, allowable margins for error have also increased.

What is important is that we have learned from our experience and that the relative predictability of current premiums has risen from a low of a 40 percent chance of a future need to raise premiums to only 10 percent today. The study also pointed out that the regulatory environment has provided evolving strength by implementing the necessity of providing adequate margins for adverse circumstances under the NAIC Model Regulations beginning in 2000 and subsequently enhanced in 2009 and 2014.

The journey now standing before us must certainly begin by joining hands with those new friends willing to take that first step on the yellow brick road as we must ask the wizard to help us restore the faith of consumers and agents alike. Together we must recognize that we have indeed survived the flying monkeys and that our strength of purpose to find a home for the risk that will not be ignored was always built upon our brains, our heart and our courage.

Other than that I have no opinion on the subject.”

Filed Under: Helpful Information About LTC, I'll Just Self-Insure, Information About LTC Tagged With: LTCi rate hikes, LTCi Rates, Ron Hagelman, Society of Actuaries

LTCi Rate Hikes in the News

August 1, 2016 by Honey Leave a Comment

Rate HikesInflammatory comments about rate hikes on the Federal long-term care insurance plan are in the news.

I have written extensively about rate hikes. I encourage people to read what I’ve written. Even after reading about what causes rate hikes, many people still don’t understand them well, or they are reacting to them emotionally rather than rationally. That is when you should call me.

The long-term care insurance (LTCi) industry does not like or want rate hikes. It never has, it never will.

LTCi rate hikes are bad for business.

The LTCi industry did not deliberately sell low-priced policies in order to raise rates later, causing people to drop their policies so they can weasel out of paying claims.

People have many more misconceptions about LTCi rate hikes.

In the case of people who own the Federal LTCi plan, I feel especially bad. They have group coverage. They do not have an accountable salesperson to call. Many are elderly. There is no one to explain what their options are.

Many Federal LTCi policyholders have coverage with extremely robust benefits – benefits that have continuously increased over the years. Sometimes we can pare back these LTCi policies, lower premiums, and retain extremely high performing coverage. Sometimes I show people that even with the rate hike, they still have under-priced coverage.

If you, or someone you know, own a Federal LTCi policy and need further understanding of your LTCi rate hike, please call me.

Filed Under: Helpful Information About LTC, I'll Just Self-Insure, Information About LTC Tagged With: Federal John Hancock LTCi, Long Term Care insurance, LTCi

Understanding Rate Hikes

November 18, 2013 by Honey Leveen Leave a Comment

Rising CostsAs far as I can tell, every reputable long-term care insurance (LTCi) carrier that’s sold LTCi for more than five years  has given its policyholders at least one rate hike. I will attempt to explain what causes LTCi rate hikes and what to do about them.

What causes rate hikes?

  1. LTC insurance policies have extraordinarily high persistency, which means that about 95% of all LTCi, industry-wide, remains on the books after it is sold. When LTCi is properly placed, hardly anyone ever drops their policy.  LTCi persistency is higher than actuaries anticipated
  2. LTCi policies also have incredibly long “tails”, meaning that an LTCi policy sold to a 55-year old might stay on the books 30 or more years before it is collected from
  3. Protracted, low, interest rates
  4. Claims that last longer than expected

These characteristics combine to cause a perfect actuarial storm for LTCi carriers and policyholders.

LTCi’s high persistency rate and long tail are unique. Because of both of these traits, when an LTCi policy is issued, the carrier must post very large amounts of reserve funds. The carrier invests the reserves in conservative, long-term assets. The majority of LTCi’s profitability is derived from interest earned on these posted reserve funds. When interest rates plummeted unexpectedly in recent years and stayed down for so long, when policies experienced higher than predicted persistency rates, longer “tails” and claim durations, prior actuarial assumptions became incorrect. Rate hikes are a means to adjust for these inaccurate assumptions and to ensure that all policies are paid in full when clients collect on them.

It’s a good thing LTCi carriers do this. They act in a responsible way. I would rather have LTCi carriers give rate hikes to be able to honor their obligations to policyholders, than behave like the federal government and make financial commitments that it cannot meet in the future.

If clients cannot increase their payments to cover the rate hikes, the majority of LTCi carriers allow policyholders to pare back their LTCi at time to get their premiums back down. Even if an LTCi policy needs to get pared back to keep its premiums affordable,  the policyholder will normally still have a high-performance policy.

What causes public alarm and outcry over LTCi rate hikes?

When I get client calls in response to news of their LTCi rate hike, reactions typically consist of fear, anger or a mixture of both.

I blame the media and the insurance industry for much of  these reactions.

The media is historically under-educated on the subject of LTCi. Today, with fewer journalists  and less freedom than ever to adequately research before tight deadlines, the media often gets the story of LTCi rate hikes all wrong. There are exceptions. Terry Savage is one. She’s one of a dying breed of true journalists with the luxury of being able to meticulously research her stories before they’re published. More often than not, media runs “if it bleeds, it leads” stories about LTCi. Such incorrect stories describing “intolerable” LTCi rate hikes, without providing adequate explanation, are the norm in mainstream media, not the exception.

The insurance industry must also accept some blame because of its high employee turnover. It is highly unusual for the selling agent to be still active, accountable and present when clients receive rate hikes.  And when policy holders inquiring about the increased premiums do not receive the proper explanations and information, their logical reaction is a combination of anger and fear. When this  results, lacking a competent agent’s insight, help and advice, policyholders too often make the wrong decision about their LTCi policies.

The truth is, even with rate hikes factored in, the original LTCi policy is normally still a steal of a deal. It is easy to prove this. All we need to do is take the rate hiked LTCi policy’s current monthly or daily benefit (if it has built-in automatic growth every year, its current values are usually significantly higher than what the policy started at). We then compare rates for a replacement LTCi policy at the policyholder’s current age, not their original buying age. When we compare the prices of equivalent new coverage with the present policy’s benefits, and at the client’s present age, the results are normally quite shocking. Even with the rate hike taken into account, the original LTCi policy is still very inexpensive, compared to what a new, comparable policy would cost.

In my experience, policyholders calm down when they understand the impact of insurers’ claims experience and low interest rates. When the circumstances causing LTCi rates hikes are explained to them in a businesslike, rational, professional manner, the majority of my clients choose to keep their LTCi policies and tolerate the rate hike.

I lament that so many LTCi policyholders have no one they can trust and turn to for advice when their rate hike letter arrives. This can cause unintended, bad headlines and publicity for LTCi. This in turn gives people and families additional excuses to put off having conversations about responsible and reasonable long-term care planning.

I have seen in excess of 300 of my clients’ LTCi policies pay out lavishly and with ease, exactly as planned. This has given my clients increased dignity and options. It has prevented much stress and strife, both emotional and financial, for my clients families. I have never had a single claim denied in the 23 years I’ve been in practice.

Filed Under: Helpful Information About LTC, Information About LTC Tagged With: Helpful Information About LTC, Honey Leveen, Long Term Care insurance, LTC Insurance, LTCi, LTCi rate hikes, www.honeyleveen.com

LTCi Rates Are Stable

July 11, 2016 by Honey Leave a Comment

LTCi Presenters 2016On June 27, 2016, I attended a landmark long-term care insurance (LTCi) presentation. It took place at the www.NAHU.org Convention in Albuquerque, NM. My colleagues and I produced the session as part of our work on NAHU’s National LTC Advisory Committee. Actuaries spoke in clear, lay language and explained why very sound, long-range actuarial evidence indicates today’s LTCi policies should be very immune to future rate hikes. The actuaries giving the talk do not work for a particular LTCi carrier; they are members of the Society of Actuaries (www.soa.org)

I have written about LTCi rate hikes before.

The reasons actuaries are very confident today’s LTCi policies will suffer few, if any rate hikes are:

  • Current LTCi pricing assumptions are based on claims data that is much more extensive now than existed just a few years ago.
  • Current LTCi policies are priced to insulate against future rate hikes. Today’s LTCi rates are higher than they were 14 years ago but still reasonable.
  • Competitive LTCi plans now have prices that are much closer to each other than they used to be. This indicates actuaries agree on what carriers will experience.
  • Today’s LTCi rates have been priced with much lower policy lapse rate assumptions (0.6% lapse rates).
  • Today’s LTCi rates are now based on today’s very low investment performance (4.6% interest in all policy years).
  • Today’s LTCi policies are required to assume claim rates that are at least 10% higher than are actually expected.

Filed Under: Helpful Information About LTC, I'll Just Self-Insure, Information About LTC Tagged With: Long Term Care insurance, LTCi, LTCi pricing

Mechanics and Basics of LTC Rate Increases

November 10, 2014 by Honey Leveen Leave a Comment

LTCi Rate IncreasesI’m fond of this article about long-term care insurance (LTCi) rate hikes from The Society of Actuaries Long-Term Care newsletter.

Yes, I belong to the Society of Actuaries! I have for years. I’m in the LTCi section. I get a quarterly newsletter and try never to miss their annual conference. I normally can barely understand lots of their newsletter articles (which, unsurprisingly, are usually written by actuaries) because they’re so technical.

Once in a while, however, actuaries write articles that are accessible to non-professional mathematicians. “Mechanics and Basics of Long-Term Care Rate Increases” is an example of such a rare event.

Click here to read my prior blog about how and why LTCi rate hikes occur.

Any detail-oriented person interested in really understanding the inner working mechanisms of LTCi should read both my blog and this article.

Filed Under: Helpful Information About LTC, Information About LTC, Long-Term Care Awareness Month Tagged With: Honey Leveen, Long Term Care insurance, LTCi, Society of Actuaries, www.honeyleveen.com, www.soa.org

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Honey Leveen, LUTCF, CLTC, LTCP
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Phone: 713-988-4671
Fax: 281-829-7177

Email: honey@honeyleveen.com

Email: honey@honeyleveen.com

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