As issues surrounding the cost of long-term care for Americans becomes the focus of the industry, premium rate increases have historically been necessary to maintain the financial integrity of most blocks of stand-alone long-term care insurance (LTCI) business. In conjunction with those rate increases, insurers have offered (and regulators have approved) an evolving menu of rate increase mitigation options for policyholders who do not wish to or otherwise cannot afford to pay the increased rate. Recently, we have seen new and innovative alternatives proposed by industry participants. There is a growing recognition that insureds should be educated about the nature of their existing coverage and presented with a variety of options in the alternative to paying the approved rate increase amount. In the past few months alone, insurers are offering, and regulators are approving (and sometimes even requesting), an even wider variety of options, such as modifying existing coverage, reducing available benefit, or taking a reduced paid-up policy, policy buyouts and even “hybrid” policy buyouts.
Rate increase litigation also remains prevalent. Providing alternative options to a premium rate increase can serve to reduce the risk of litigation by: (1) satisfying the need of insureds to feel heard and attended to, as an individual, rather than as a group of policies, and (2) diminishing a common perception that the insurer is callously seeking more premium for the same coverage— particularly for those who might misinterpret the underlying reasons for the increased rates. These dynamics warrant consideration of how best to present mitigation options to insureds and what mitigation options to propose. Some of those options are explored below.
While no option is a panacea for all (and some of them come with risks of their own), we believe that consideration of a wider variety of rate increase mitigation options present an opportunity for insureds who are otherwise subject to a rate increase to customize and tailor their coverage. Doing so will allow adaptation to their budgets, care needs and changing health, and can simultaneously present an opportunity for insurers to solidify the financial footing of blocks of their business.