Wednesday, March 1, 2017

No. 206: Long-Term Care Insurance Premium Increases for Three Companies Are Partially Approved by the Florida Regulator

On January 12, 2017, the Florida Office of Insurance Regulation (FLOIR) announced partial approval of long-term care (LTC) insurance premium increases requested by Metropolitan Life Insurance Company (MetLife), Unum Life Insurance Company of America (Unum), and Provident Life and Accident Insurance Company (Provident). The approvals were through consent orders issued after August 2016 hearings at which FLOIR received public input about the requested increases.

Upon review of MetLife's request for approval of LTC insurance premium increases, FLOIR determined that the requested increases were not reasonable in relation to the benefits provided, but that some increases were necessary for the company to have adequate rates and protect the interests of policyholders. FLOIR approved a portion of the requested increases. The company agreed it would refrain from requesting further increases for ten years, implement the increases over three years, and have the increases reflect policyholder issue age and type of policy.

MetLife agreed to provide four options for policyholders who want to lower their premiums: accept a reduction in the daily benefit, accept a lengthening of the elimination period, accept a reduction in or removal of the inflation provision, or accept a paid-up policy with maximum benefits equal to the premiums paid. The company waived its right to a hearing on the order, and waived its right to challenge the order in an administrative proceeding or in court.

The order includes tables showing percentage increases by issue age for eight policy series: employer group, group, LTC97, VIP1, VIP1RS, TIAA, VIP2 Old, and VIP2 New. For "group," the increases are 20 percent for issue ages up to 70, with smaller percentage increases for older issue ages. For "VIP1," the increases are 70 percent for issue ages up to 70, with smaller percentage increases for older issue ages. For "TIAA," the increases are 55 percent for issue ages up to 70, with smaller percentage increases for older issue ages. A list showing numbers of policyholders in each of Florida's 67 counties accompanies the order.

As indicated above, one MetLife series is "TIAA," which stands for Teachers Insurance and Annuity Association of America. TIAA caters primarily to faculty members of colleges and universities. In November 2003, TIAA informed its 46,000 LTC insurance policyholders that it was getting out of the LTC insurance business and was transferring its existing block of policies to MetLife. I learned of the transfer through telephone calls from professors at Indiana University and other schools. The professors, who had chosen TIAA because of its reputation for stellar treatment of its policyholders, were furious.

I had written several articles in The Insurance Forum about policy transfers. The first is in the October 1989 issue. The first of three major articles about the TIAA/MetLife transfer is in the March/April 2004 issue. TIAA and MetLife are domiciled in New York, and the transfer had to be approved by the New York superintendent of insurance. I sent a statement to the superintendent suggesting several conditions he should impose before approving the transfer. He approved the transfer, but some of my suggested conditions were not imposed. My statement is in the March/April 2004 article.

Unum and Provident
The consent orders directed at Unum and Provident (they are affiliates) are similar to the order directed at MetLife. For Unum, the increases are for three policy series: LTC94, LTC92, and BLTC. For "LTC94," the increases are 101 percent for issue ages up to 70, with smaller percentage increases for older issue ages. A county list accompanies the order.

For Provident, the increases are for one policy series: LTC03. The increases are 85 percent for issue ages up to 70, with smaller percentage increases for older issue ages. There is no county list.

Two Questions
The consent orders express the increases in percentages, but the press release expresses the increases in dollars per month. For example, in MetLife's "TIAA" series, the order says the increases are 55 percent for most issue ages, but the press release says the "average monthly premium increase" is $25 in the first year. I asked FLOIR these questions:
  1. Were the figures in the press release shown in dollars per month to make the premium increases look small?
  2. If not, why did you show the premium increases in the press release in dollars per month?
A spokeswoman for FLOIR answered "No" to the first question. In answer to the second question, she said:
The approved rate filing changes for each company were calculated using percentages by series/form number and issue age, which varied extensively on each exhibit (from the Consent Orders). It would have been confusing for consumers to easily translate this information into actual costs. To help them understand this information better, we developed the average monthly premium impact charts so they could determine what these increased costs would be on their monthly budgets over the 10-year time period.
General Observations
TIAA transferred its existing block of LTC insurance policies to MetLife for two reasons. First, TIAA did not want to administer a block of policies in runoff. Second, MetLife at the time was a "major player" in the LTC insurance business. Ironically, a few years later MetLife itself got out of the LTC insurance business, but is administering its blocks in runoff. Unum and Provident also have gotten out of the LTC insurance business, and are administering their blocks in runoff.

Most companies once active in the LTC insurance business have gotten out of the business. Some transferred their existing LTC insurance blocks to other companies, and some are administering their blocks in runoff. Only a few companies remain active in selling LTC insurance.

Penn Treaty Network America Insurance Company and an affiliate, which are LTC insurance companies, have been in rehabilitation since 2009, have been administering their blocks in runoff, and may be liquidated soon. Also, some other LTC insurance companies have financial problems.

In the Forum since 1991, and on my blog, I have expressed my belief that the problem of financing the LTC exposure cannot be solved through the mechanism of private insurance. The reason is that the LTC exposure violates important insurance principles.

FLOIR's partial approval of the increases requested by MetLife, Unum, and Provident, with a guarantee of no further requests for increases for ten years, is interesting. However, I think it is an example of dealing with problems by "kicking them down the road." What eventually will happen to the LTC insurance business remains to be seen.

Available Material
I am offering a complimentary 35-page PDF consisting of the FLOIR press release (2 pages); the order directed at MetLife, including the county list (10 pages); the order directed at Unum, including the county list (9 pages); the order directed at Provident (7 pages); and the October 1989 and March/April 2004 articles in The Insurance Forum (7 pages). Email and ask for the March 2017 package relating to the FLOIR approval of LTC insurance premium increases.