The New Hampshire Supreme Court recently ruled that New Hampshire’s regulation that places certain caps on long-term care insurance premium rate increases exceeds the Insurance Commissioner’s rulemaking authority and, therefore, is invalid. See Genworth Life Ins. Co. v. New Hampshire Dep’t of Ins., No. 2019-0727, 2021 WL 621005 (N.H. Feb. 17, 2021).
Some states, either by regulation or administrative practice, place caps on long-term care insurance premium rate increases. In 2015, New Hampshire promulgated amended long-term care insurance regulations that capped premium rate increases based on an insured’s attained age and applied the new caps retroactively to all long-term care insurance policies issued in the state (Amended Regulations). See generally N.H. Code Admin. R. § 19. As drafted, the regulation did not afford the Commissioner discretion to approve increases that exceed the caps. The rate caps were implemented on a sliding scale from 50 percent for all policyholders with attained ages 70 and below down to 10% for policyholders with attained ages over 90. As with caps implemented by other states, the caps adopted by New Hampshire had no actuarial basis.
The Commissioner’s rulemaking authority is born from and limited by enabling statutes, which, as it relates to the Long-Term Care Insurance Act and premium rate increases, required the Commissioner to issue rules “to promote premium adequacy and to protect the policyholder in the event of substantial rate increases. . . .” N.H. Rev. Stat. Ann. § 415-D:12. In 2016, Genworth Life Insurance Company filed an action in New Hampshire state court seeking declaratory and injunctive relief against the Insurance Department, challenging the validity of the rate increase caps imposed by the Amended Regulations. In addition to arguments under the contracts and takings clauses of the State and Federal Constitutions, Genworth argued that the Amended Regulations exceed the Commissioner’s rulemaking authority “because: (1) they subvert, rather than promote, premium adequacy; and (2) they prevent substantial rate increases, rather than protect policyholders in the event of substantial rate increases.” The trial court ruled in the Department’s favor and Genworth appealed.
The New Hampshire Supreme Court held the Amended Regulations failed to “promote premium adequacy” as required by the Long-Term Care Insurance Act, which the Court reasoned required the Commissioner to “support or encourage insurers in their efforts to maintain premiums at sufficient levels to cover the anticipated costs of claims over the life of the LTCI policy.” The Court highlighted that the Amended Regulations did not afford the Commissioner discretion to ignore the caps and did not contain an exception to avoid premium inadequacy. The Court also reasoned the premium rate caps failed to protect policyholders in the event of a substantial rate increase because the rate caps prevented the Commissioner from approving any substantial rate increase in the first place.
The Court’s opinion highlights the potential solvency risk inherent in applying premium rate caps to or otherwise delaying actuarially justified rate increases. It is unclear how the New Hampshire Insurance Department will respond to the Court’s decision, which will become final after the deadline to seek reconsideration expires. Of course, the Department could propose new rules to amend the regulations to conform to the specific defects identified by the Court, but this decision will hopefully serve as an opportunity for the Department to reconsider the premium rate caps altogether. For example, other states have refrained from implementing premium caps in favor of phased-in increases for larger rate increases, which arguably better informs policyholders while attempting to balance premium adequacy and policyholder protections.