Long Term Care Guild

According to OPM and John Hancock LTC Fed Plan policyholders will be seeing rate increases of 5 to 25%. Considering these plans were all issued after 2002 it seems stiff compared to recent industry increases from Genworth, JH and others. Most of those were applied to policies much older than the Fed Plan policies. I would be interested in your comments. Do you think we will being increases (on in force business) much more frequently in the future?

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I think it all comes down to experience and longeivity in this business. Genworth was first to have an increase. 9-12% depending on the policy series. Then Hancock at 15%. Then Metlife at 18% a few months later. Seems the longer the big three waited, the worse the bite was. Hopefully a lesson has been learned here. A company has to charge a premium that reflects all aspects of risk! Some do. Some don't. I believe the order of the big three just commented on is the direction of future increases, if any. This is a serious business. The leaders lead. The followerers follow.
Bill, thanks for your response. I think this is an important issue for LTCi. The three rate increases that GNW, JH and Met implemented came with comments that they were necessitated by lapse rates that were much lower than anticipated. This makes sense in that policies persisting more than anticipated would result in more claims than anticipated, and missing on lapse rates is certainly understandable considering the infancy of the LTCi industry.

I'm not sure, however, that this logic hold up for policies issued between 2002 and 2009 (The Fed Plan). The OPM in their statement hinted that rates could be increased (again) at the end of this second contract (2017).

If we are to be successful in increasing market penetration beyond the current 10% we need to continue to drop median issue ages - this could be difficult if the perception of stable rates is lost. I believe given the benefit structure of LTCi and the statistical history the older larger players have accumulated stable rates should be possible. (It would be interesting to hear the comments of a pricing actuary on this). The spector of clients purchasing robust coverage when they are in their forties or fifties only to have the coverage become unaffordable when they are in their sixties or seventies would not bode well for the industry - not to mention run counter to us (agents) proudly pointing to the rate increase history of the better companies.

I am sure that there are justifiable reasons for the rate increases coming to the Fed Plan - and I am just as sure that there will be protests of "bait and switch" when the increases hit home. Conseco and Penn Treaty messed up badly years ago but we still have articles written about those problems today - that we must overcome. I believe Steve Moses' theory on the coming explosion in the LICi but no way that will happen if stable rates don't continue. L would love to see more comments on this.
I think the FLTCIP should be proud of the very small rate increase that they are having on their in-force block of business.

The "federal family" is a high risk pool (military, law enforcement, DEA, etc...) When you consider the lenient underwriting, the high risk pool, and the lower than expected enrollment, I think the administrator of the program should be proud of what they accomplished. The 5% to 25% rate increase is much lower than I had expected.

Additionally, 7 years ago, LTCi underwriting was much more liberal than it is now. Also the pricing of the Lifetime Benefit Period and the 5% compound Automatic Inflation Benefit was priced much lower back then than it is now.

In light of all those factors, I am surprised at the low rate increase and take my hat off to the administrator of the program.

I am not provy to their data, but I suspect that the 25% rate increase will be directed at those who chose the Lifetime Benefit Period AND the 5% compound AIB for issue ages below 60. That is perfectly reasonable. If they'd had higher participation, they probably would not have had to have a rate increase. But, I think we all over-estimated what kind of participation they would have.
I don't understand why anyone would think that a 20% rate increase on a LTCi policy (or even a 30%) rate increase on a LTCi policy that is 10 or 15 years old, would make the policy "unaffordable."

When the value of a dollar is taken into consideration, even a 20% rate increase on a policy that is 10 years old means that there's a net "decrease" in cost in real dollars.

Assuming a 20% rate increase on a policy that is 10 years old, if the inflation rate was less than 2% per year, then it would still be a net "decrease" in cost in real dollars.

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