Group LTCI Rate Increases

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Group LTCI Rate Increases

• Sixth Annual Intercompany LTCI Conference
• February 26 March 1, 2006 Anaheim, CA

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Session Participants

• PRODUCER
• Roger Gagne, John Hancock
• PRESENTERS
• Bill Weller, Omega Squared of Sedona
• Peggy Hauser, Long Term Care Group
• Al Schmitz, Milliman

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Observation
There have been fewer rate increases in Group LTC
than in Individual LTC

• Why??
• Please note your opinions on the sheet provided
• At the end well ask you to record whether your
  opinions have changed
• Results will be left tomorrow outside this room,
  for you to pick up

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Session Overview

• During this session, our speakers will consider
  various possible explanations for our observation
  on GLTC rate increases
• Audience participation is encouraged!

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Hypothesis

• There have been fewer rate increases in Group LTC
  than in Individual LTC because
• Compared to Individual LTC, GLTC insureds are
  younger, and GLTC plans have longer elimination
  periods. Thus, claims to date are quite small
  compared to premiums, and rate increases can not
  yet be justified.

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Issue Age Data

• Data from the fourth Intercompany Study by the
  SOA LTC Experience Committee
• Group insureds are younger
• Average issue age is 47 for group, 67 for
  individual

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Percentage of Total Issues by Issue Age Group
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Implications

• Younger ages means lower incidence of claim
• Much more exposure needed to get credible
  experience
• One rule of thumb is that 1,082 claims are needed
  to have 90 confidence that the observed
  incidence rate is within 5 of expected 1

1 Source Longley-Cook (1962), An Introduction to
Credibility Theory
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Incidence Rate (per 1,000) by Attained Age
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Implications

• Recall that average issue age for Group was 47,
  versus 67 for Individual
• Even if Groups overall incidence rate is 1 per
  1,000, would still need over 1,000,000 life-years
  of exposure for 90 confidence within 5

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Elimination Period Differences

• Intercompany Study data also showed that little
  Group business is sold with short elimination
  periods
• Incidence rates for elimination periods of 20
  days or less were much higher than those for
  longer EPs

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Incidence Rates by Elimination Period
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Your Opinion
There have been fewer rate increases in Group LTC
than in Individual LTC because . . .

• Compared to Individual LTC, GLTC insureds are
  younger, and GLTC plans have longer elimination
  periods. Thus, claims to date are quite small
  compared to premiums, and rate increases can not
  yet be justified.
• What do you think?

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• Bill Weller
• Omega Squared of Sedona

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Hypothesis

• There have been fewer rate increases in Group LTC
  than in Individual LTC because
• Companies entered the Individual market first and
  learned ways to avoid mis-pricing when they later
  entered the Group market.

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Later Entry?

• Actual Data - 7 Group writers
• Individual before Group
• 5 or more years
• 2 companies
• Group before Individual
• 5 or more years
• 2 companies
• Essentially same time
• 3 companies

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Hypothesis - Revised

• There have been fewer rate increases in Group LTC
  than in Individual LTC because
• Group companies entered after useful Individual
  experience from other companies was available.

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Actual Entry Dates
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Your Opinion
There have been fewer rate increases in Group LTC
than in Individual LTC because . . .

• Later entry - avoided mis-pricing?
• Later entry - Individual experience was
  available?
• What do you think?

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Hypothesis

• There have been fewer rate increases in Group LTC
  than in Individual LTC because
• Companies in Group market used persistency
  assumptions closer to actual than those in
  Individual market
• So impact of adverse experience has been smaller.

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Persistency Differences

• Mortality probably less use of Life mortality
  in early filings
• Lapse Rates historical non-LTC lapse rates for
  Group products smaller than for similar
  Individual
• Early LTC lapse rates lower for Group than
  Individual

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Persistency Improvements

• Improvements - Mortality

Reduced deaths / 1000
Under 0.5
ages under 48
0.5 to 1.5
ages 48 to 71
1.5 to 5.0
ages 72 to 76 and 89
5.0 to 8.0
ages 77 to 88
94 GAM versus 83 GAM
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Persistency Results

• Lapse Rate Studies SOA 1st Study 1984-1991
  (publ. In 1993-94 Reports)
• Table F-2 Lapse Rates by Issue age and Duration
  shows age group 50-59 lower than 60-69 by 71 to
  47 for years 2-4 (lowest lapse rate 7.1).
• 50-59 only place where lapse rates under 12!

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Persistency Results

• Lapse Rate Studies HIAA 1993
• Total Termination Rate by Issue Year 1 - IF
  (Dec. 93) / IF (Dec. 92)
• Individual Results
• Iss Yr 1990 8.3
• Iss Yr 1989 7.7
• Iss Yr 1988 Prior 9.6
• Group Results - not credible but better than
  Individual

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Persistency Results

• Lapse Rate Studies HIAA 1996
• From 1993 to 1994 (Total Term)
• Individual Results
• Iss Yr 1992 8.0
• Iss Yr 1991 7.2
• Iss Yr 1990 7.0
• Iss Yr 1989 7.4
• Iss Yr 1988 Prior 8.9
• Group Results 92 Prior 3.8

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Persistency Assumptions Now

• Most Recent review of Filings by Academy for NAIC
  Minimum Reserve Requirements
• Individual assumed ultimate lapse rate at 2.5 or
  less
• Group assumed ultimate lapse rate at 3.5 or less

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Your Opinion
There have been fewer rate increases in Group LTC
than in Individual LTC because . . .

• Persistency differences between original
  assumptions and actual experience have been
  smaller for Group?
• What do you think?

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• Peggy Hauser
• Long Term Care Group

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Hypothesis

• There have been fewer rate increases in Group LTC
  than in Individual LTC because
• GLTC insureds have purchased less comprehensive
  benefit designs fewer unlimited benefit period
  purchases and fewer plans with compound inflation
  protection.

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Who Bought Unlimited Benefits?
INDIVIDUAL
GROUP
Source Intercompany Study
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Who Bought Inflation Protection?
INDIVIDUAL
GROUP
Source Intercompany Study
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Compound Inflation Benefits Exacerbate the Impact
of Deviations in Persistency
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Were Unlimited Benefit Periods and Compound
Inflation Benefits Underpriced?

• Unlimited benefit periods and compound inflation
  benefits have experienced the highest increases
  in new business rates in the individual market.
• 3 Examples
• Company A
• Company B
• Company C

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Were Unlimited Benefit Periods and Compound
Inflation Benefits Underpriced?

• Company A Comparison of filings in 2001 2003
• Lifetime benefit premiums increased by roughly
  12 more than 3 year benefit premium premiums.
• Loads to add compound inflation protection
  doubled at the youngest ages.

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Were Unlimited Benefit Periods and Compound
Inflation Benefits Underpriced?

• Company B Comparison of filings in 2000 2003
• Lifetime benefit premiums increased by roughly 9
  more than 3 year benefit period premiums.
• No change in inflation protection loads
  considerably lower loads than Company A.

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Were Unlimited Benefit Periods and Compound
Inflation Benefits Underpriced?

• Company C Comparison of filings in 2001 2004
• Lifetime benefit premiums increased by roughly
  16 more than 3 year benefit premium premiums.
• Loads to add compound inflation protection
  increased by 4-13.
• Inflation loads higher than Company B but
  significantly less than Company A

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Your Opinion
There have been fewer rate increases in Group LTC
than in Individual LTC because . . .

• GLTC insureds have purchased less comprehensive
  benefit designs fewer unlimited benefit period
  purchases and fewer plans with compound inflation
  protection.
• What do you think?

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• Al Schmitz
• Milliman

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Hypothesis
There have been fewer rate increases in Group LTC
than in Individual LTC because . . .

• The number of group carriers is small and a rate
  increase would damage ability to market, and/or
• There is a threat of an employer moving inforce
  business.

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GLTC Market

• Approximately 20 U.S. organizations involved in
  GLTC
• Many more (over 100?) Individual LTC companies
• Top five GLTC carriers have 90 of
  employer-sponsored sales

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The Current Group Market

• Most Cases are from RFP / Competitive Bid
• Items Important in Competitive Bid
• Carrier qualifications Rate stability
• Plan design Customer service
• Underwriting Care management
• Premiums Marketing enrollment
• As Chief Decision Maker for Employer how would
  you compare two LTC Insurers on these items if
  one of them had a rate increase?
• Rate increase lawsuits ?

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Savvy Management?

• Short term bottom line impact versus long term
  market potential
• Impact of rate increase on inforce business
• Move the business (good riddance?)
• Detriment to other lines of business

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Your Opinion
There have been fewer rate increases in Group LTC
than in Individual LTC because . . .

• The number of group carriers is small and a rate
  increase would damage ability to market, and/or
• There is a threat of an employer moving inforce
  business.
• What do you think?

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• Questions Discussion