Long Term Care Insurance Where We Are and Where We re Headed

Transcription

1 Long Term Care Insurance Where We Are and Where We re Headed Moderator: Speaker: Speaker: Rod Perkins Vice President, Insurance Regulation ACLI Roger Loomis FSA, MAAA Consulting Actuary Actuarial Resources Corporation James M. Glickman, FSA, MAAA, CLU, FLMI President and CEO LifeCare Assurance Company

2 Spectrum of LTC and Life/LTC Hybrid Products Standalone LTCi Standalone LTCi with Return of Premium on Death 7702b Product Extension of Benefits (EOB) Coverage 7702b Product LTC Rider 101g Products Acceleration and Chronic Illness 1

3 % LTC Policies by Benefit Type 31% of policies sold in 2015 with some LTC protection were stand alone LTC. 35% 30% For combo products, most of the coverage is for the life portion, not the LTC portion. For 101g, 3% is for LTC; For LTC Rider, 7% is for LTC; For EOB (Extension of Benefits), 27% is for LTC; and For Standalone, 100% is LTC. Percentage Sales by Policies 25% 20% 15% 10% 5% 0% 101g LTC Rider EOB Standalone LTC Benefits Non LTC Benefits 2

4 Roger Loomis, FSA, MAAA Consulting Actuary Actuarial Resources Corporation

5 2015 LTC Pricing Project Jointly sponsored by the SOA s LTC Section and ILTCI Research Question: For traditional LTCI, how stable are premiums on new blocks? 4

6 Actual Gross Premiums for 6 Companies 5

7 Methodology Six large insurers who have been in the market continuously for at least 15 years participated Each provided the research team with pricing data for 3 points in time: December 2000 December 2007 June 2014 Data aggregated into illustrative market assumptions 7

8 Assumption Analysis How have the assumptions changed over time? Should we now be more confident that the current assumptions are right? How much downside risk still exists? 8

9 LTC is a Lapse Supported Product A level premium supports increasing claim costs For each policy, a large reserve is developed to fund future claims If a policy lapses, there is no surrender value and the reserve is released Reserves and benefits are funded by three sources: Premium Interest Lapses the reserves of policies that lapse help fund the reserve increases of the policies that persist Being supported by lapses helps keep premiums low But if the assumed lapses don t happen, premium increases are required to make up the difference A 3% lapse rate has the same effect as an extra 3% interest yield 9

10 Lapse Assumptions Very Conservative 10

11 Morbidity Assumptions Now Higher 11

12 Understanding Increase in Morbidity Assumptions In uninsured population, morbidity has decreased by 1% 2% per year. So why is morbidity going up? Insured population has higher morbidity: people with insurance benefits want to use them 15 years ago, we had very little data on insured morbidity for high ages actual experience evolved differently than original assumptions We now have credible data on insured morbidity 12

13 More Data for All Policy Years 2014 assumptions based on 16 times as much data as 2000 Pricing Year Policy-Years of Data , ,895, ,999,086 13

14 Much More Data for High-Claim Years 2014 assumptions based on 70 times the data for cells in attained Age 80+ and policy duration 10+ Pricing Year Policy-Years of Data , , ,836 14

15 Companies More Conservative 2015 SOA experience study shows actual claims from 2000 to Companies average pricing best estimate claim costs are now 108% of actual industry data 15

16 CC Confidence Intervals 16

17 Risk Margins Higher 17

18 PV Claims as Percentage of Expected PV Claims 18

19 Lower Lapses Mean More People Collect Benefits When They Need it 19 19

20 What is the Probability of a Rate Increase? Probability is based upon our confidence in our pricing assumptions and the size of margins There is no 20/20 hindsight: probability is based upon our current confidence level and margins, not foreknowledge of what will happen High correlation between companies if one company needs a rate increase, more probably will too (e.g. if I say there is a 50% chance of rain it doesn t mean that 50% of the houses on my block will get rain and 50% won t) 20

21 Probability of Rate Increase 21

22 Summary Issue Year Prob Rate Increase Average Projected Increase % 34% % 18% % 10% Based on: Best-estimate of parameter risk at time of issue (no hindsight) Rock-bottom lapse assumptions Higher Margins 22 22

23 Based on This Actuarial Analysis For new business, strong margins, better understanding of morbidity, and rock-bottom lapse assumptions indicate relatively low probability of a rate increase (e.g. 10%) 23

24 James M. Glickman, FSA, MAAA, CLU, FLMI President and CEO LifeCare Assurance Company

25 Why LTC Actuaries Believe New Pricing is More Stable YEAR New Business Premium Rates Average Industry Premiums for the Same Benefit Amounts % baseline for Highest premiums were 200% of lowest % higher than Highest premiums were 160% of lowest % higher than Highest premiums were 145% of lowest. Premiums for the same benefits higher while variation in premiums is lower. Higher lapse and interest rate assumptions created lower premiums originally. 25

26 YEAR Why LTC Actuaries Believe New Pricing is More Stable Voluntary Lapse Rates Average Industry Voluntary Lapse Rate Assumptions % ultimate lapse rate % ultimate lapse rate % ultimate lapse rate Low voluntary lapse rates have been the biggest contributor to lower than necessary pricing. With voluntary lapse rates approaching zero there is little remaining downside. 26

27 YEAR Why LTC Actuaries Believe New Pricing is More Stable Investment Income Average Industry Investment Income Assumptions % all years % all years % all years Interest rates are long duration with no disintermediation risk. Durations are most important as the asset accumulation is greatest. Target inflation of 2% implies a long duration investment grade return of 5 6%. A reduction in rates presents risk, but future increases present upside opportunity. 27

28 Why LTC Actuaries Believe New Pricing is More Stable Morbidity YEAR Average Industry Morbidity at Ages 80, 90 and Claim costs use the 1984 NNHS Tables 2007 Compared to 2000: 10% higher at age 80; 15% at 90; same at Compared to 2000: 15% higher at age 80; 45% at 90; 25% at 100. Claim data has increased 28 fold from 2000 to LTC Experience Study just released in January Claim costs as % of 2015 study; 70% for 2000; 84% for 2007; 108% for

29 Why LTC Actuaries Believe New Pricing is More Stable YEAR Margins for Adverse Experience (MAE) Average Industry Pricing Margin Loads 2000 Under minimum loss ratios, margins were 0% by statute 2007 Under rate stabilization, 5 10% margins were effectively mandated Margin increased to 5 17%; However, starting in 2016, the minimum is 10%. In 2000, minimum LRs were required, preventing any margins for conservativeness. Rate Stabilization, starting in 2002, required an explicit margin for conservativeness. 5 10% was originally used, but now the minimum target margin is required to be 10%. 29

30 Why LTC Actuaries Believe New Pricing is More Stable YEAR Anticipated Internal Rate of Return Average Industry Pricing Margins % Internal Rate of Return (No Margin Allowed by Regulation) % Internal Rate of Return (Average Margin used 8%) % Internal Rate of Return (Average Margin used 12%) In 2000, 10% IRRs typically viewed as sufficient. By 2014, 25% IRRs are common, with loaded claim costs, tougher underwriting standards, low interest rates forever, and large margins for adverse deviations. 30

31 Rod Perkins Vice President, Insurance Regulation American Council of Life Insurers

32 Innovative Products Under Consideration Cash Value LTC Products Flexible Premium Structures Transitional Benefits that Change with Insurable Need Short Duration Products (Short Term Care) Limited Condition Policies to Meet Market Need of Those Totally Uninsurable Today Regulatory Change Will Be Necessary 32

33 Incentives to Promote Product Innovation: LTC Premiums Paid from Qualified Accounts Allow for Long Term Care Insurance within Cafeteria Plans Increase Employer Incentives to Offer Long Term Care Insurance Support Greater State and Federal Tax Incentives to Purchase Long Term Care Insurance Promote Greater Education and Awareness 33

34 Efforts Underway: Bi Partisan Policy Center Recommendations For Long Term Care Financing NAIC Long Term Care Innovation Subgroup Consideration of Regulatory Change to Support Market Innovation Focus on LTC Rate Increases and Rating Practices A Consistent, Predictable Regulatory Environment Will Be The Key To Market Innovation and Growth 34