States have given insurers the go-ahead to charge their customers much more money for long-term care insurance premiums in recent years, insurance company executives say, which has been a boon to the underwriters but is likely unwelcome news for financial advisers and their clients who must grapple with higher costs.
Insurers, struggling under the weight of financial commitments made to policyholders to cover nursing home care and other old-age-related costs, have increased annual insurance premiums for existing customers as a way to manage the fallout. Insurers must get state regulators' approval to enact these rate increases in any given state.
While insurance companies have increased premiums with regularity over the past several years — often leaving policyholders to choose between paying the higher bill, lapsing their policies or receiving reduced benefits — it appears insurers have recently been getting approval for much larger rate increases than in the past.
"If you look back over the last five or six years [to] 2013 and 2014, I think it was difficult receiving the large increases, triple-digit-type increases, from any of the states," said Thomas McInerney, president and CEO of Genworth Financial Inc. "I think that has changed."
All state regulators recognize there are "significant needs" for actuarially justified premium increases, Mr. McInerney said during a recent first-quarter earnings call.
"We are seeing some states where in the past they hadn't approved and now they're talking about doing some approval," Marianne Harrison, president and CEO of John Hancock, said during the insurer's Q1 earnings call.
Genworth, the largest long-term care insurer by number of policyholders, received approval in the first quarter to increase premiums an average 62%. The move affects a select group of policyholders who cumulatively pay $241 million in premiums.
That level is elevated from prior years. Genworth, which spun off from General Electric in 2006, raised costs an average 45% last year, affecting $875 million in annual premiums. In 2016 and 2017, the insurer raised premiums an average 28% each year.
Roughly 40 to 45 states have approved "significant premium increases on some policy forms," Mr. McInerney said, sometimes more than 200%. Some especially expensive policies — such as those with unlimited years of coverage and 5% compound annual inflation protection — require "300%-type increases," he said.
Some states, however, are "well behind" in giving "very significant premium increases" to Genworth and other insurers, Mr. McInerney said.
That thought was echoed by Ms. Harrison.
"In general, we've been doing pretty well across all of the states, getting [rate increases of] 100% in some spots, but in other spots, they're basically giving us a cap and then we come back year after year [for more approvals]," she said.
Long-term-care insurers have had to grapple with a number of economic challenges, including increased longevity, spiking health-care costs and sustained low interest rates. In addition to raising premium costs, many have had to divert hundreds of millions of dollars into their insurance reserves to cover future benefits.
Some insurance executives are seeking more consistency in rate approvals from state regulators.
"We're encouraged by what's going on at the [National Association of Insurance Commissioners]," John McGarry, executive vice president and chief financial officer at Unum Group, said during Unum's Q1 earnings call, referring to the body that sets insurance standards for states. "We've had a lot of discussions over the years with the actuarial teams and some of the staff at the states around consistency of approving actuarially justified rate increases."
There are typically inconsistencies around "arbitrary caps" the state regulators place on rate increases, Mr. McGarry said.