It was announced yesterday that John Hancock is filing for rate increases on just about all of their individual, in-force policy series going back to 1992. This includes Fortis.

In addition, a second round of increases have also been announced on policies dating back to 1991.

Rate increases will average 40% and will be as high as 72% on all Custom Care policies.

A decision on group polcies has not yet been determined.
Arthur

Most of the policies issued in the last 3 years will have no rate increase.
Most of the policies written in the last 3 to 7 years will have between a 17% to 22% increase.

The size of each rate increase will depend upon the state of residence, how old the policy series is, and, in particular, the type of inflation benefit that was chosen.

In state's where rate increases are approved, each policyholder will be given a variety of options for keeping their premium the same by reducing their benefits somewhat.

For example, if their policy was issued with a 5% compound, they may have the option to change that to 4% compound and thereby avoid the premium increase.

I've heard many people in our industry state that LTCi premiums are higher now (than several years ago) because of lower investment returns.

I've always believed that premiums are higher because the number of claims is higher than the insurers had initially projected. John Hancock confirmed my belief.

In John Hancock's webinar announcing the increase, they stated that their claims have more than doubled in the past 3 years. Not only is the number of claims higher than expected, but the claims are lasting longer than they had projected. They are now paying over $1.5 million PER DAY in long-term care insurance claims.

For those who say, "it's impossible to get any benefits out of a long term care insurance policy--those policies never pay any claims", they should call up John Hancock!

Scott A. Olson
Redlands, CA

So, Arthur, Scott, et al,

What is the current phrasiology (selling language) in relation to companies raising premiums. The majority of my experience (prior to hiatus from the industry for last 5 years) was with a captive company and we said... at that time (no longer true): "Our company has only taken one rate inrease in the last xx amount of years, and since we are such a well established company, and since we practically invented the LTCi product, blah blah blah, I am nearly certain that we won't - and you won't see any rate increases on a newer policy such as this one!"

But seriously... with players like John Hancock seeing premium increases as you've described how does a LTCi advisor best advise on this matter? I know from experience that the thought of future premium increases can be a major negative during the sales process.

It will be helpful to read your responses on this.

Thanks ~ Mike in Michigan

If someone is very concerned about a future increase in their LTCi premiums, they should buy a policy that has guaranteed level premiums.

Scott - should they be concerned about future premium increases? Are you? I guess what I'm asking is much do you (LTCi experts) talk about this? Only when asked? Or are you brutally up front with the uncertainly?
Your response(s) helps - thanks. Mike

The policies that are having rate increase requests right now are policies that, for the most part, are 5 to 10 years old.

The policies that are written now are based upon the most current pricing models:

very low lapse rate assumptions
very low mortality rate assumptions
low earnings projections and
substantially higher claims utilization assumptions


So, to say it in English, I am not concerned about large rate increases on any policy that is purchased today.

But, if someone is concerned about premium increases, they should just buy a policy that has guaranteed premiums.

Scott A. Olson
Redlands, CA

Thanks Scott.

Mike,
Prior to 2002, there was no such thing as rate increases on existing LTC policies.

Over the past few years, every major carrier has raised rates but they were all on earlier blocks of business, written prior to 2000.

What's disturbing about the Hancock increase is that rates are now being raised on policies that were written in 2007 and go through this year.

It'll be a tough conversation when you get a call from a policyholder who had his policy delivered 4 months ago and now is asking why he's being hit with a 20% increase.

Each application (at least in NY) has a disclosure statement that must be signed by the applicant apprising them of past rate increases on existing policyholders by the company. The potential for future rate increases must now be part of every sales conversation.

The industry has been told for the past 5 years that products were now being priced correctly and future rate increases would be minimal. The LTC Model Act was also suppoosed to limit future increases. But, over the past few years this has proved not to be the case.

The top 3-4 major carriers have been selling this stuff for over 30 years and one would think that they had a handle on the costs of their business. Guess not!

It's something that we have no control over and unfortunately have to live with it. Unlike Scott, I'm concerned about future rate increases. There are still a few carriers out there that can proudly say: "We've never had a rate increase on existing policyholders." But, I don't believe they'll be saying that for long.
Arthur

When I first looked at United of Omaha's product a few years ago and saw that they made a big deal about a 5 year rate lock built in...I poo poo-ed it as something that would simply look to the client as a ticket to a rate increase in 5 years. Maybe now the built in 5 year guarantee is actually a nice selling point if people are more concerned about getting a rate increase right after they bought the plan. For even more money you can raise the guarantee to 10 years. (All in Georgia anyway) Hence, Scott's point about 10-pay and 10 year rate lock.

When I sell a Mutual of Omaha plan, I can add a 5+ year rate lock feature if the client wants to pay more money....but I never do. Maybe some people would want to pay for it though. The theory being that if the carrier raises your rates in the first 5 years of ownership, something is not right......or you simply bought into the tail end of a block of business about to be replaced with a newer product.

Keep in mind that the Class Act will solve all our problems anyway.....so why fret over it.

Arthur,

What you are saying is true in ONLY 3 states(one of them happens to be your state of residence.)

The rate increases being requested by John Hancock in the other 47 states are for policies that are 3 to 15 years old.

The policies that are 3 to 7 years old will have rate increase requests between 17% and 22%. The policies that are older than that will have the higher rate increase requests.

Scott,
I think we're saying the same thing.

"The rate increases being requested by John Hancock in the other 47 states are for policies that are 3 to 15 years old"

In addition to NY, FL & CA (which cover policies delivered this year) there are 2007 rates which covered policies that were written & delivered in 2009, subject to increases of 17%.

We all know, that at the end of the day, the proposed increases will be knocked down. I can't imagine any state insurance department agreeing to increases of up to 72%.

There are also 3 policy series that are going through their 2nd round of increases of 60%+.

Scott, do you know if this 60% increase is a a total of the 2, or is the 60% in addition to the 1st round?
Arthur

I forgot about TN.

The 60% you're referring to is not a JH policy series. It's a Fortis policy series that JH bought in 1998. I don't know if it's cumulative or not.

And most of the policies that are getting the 17% rate increase request were not available for sale after 2007. There's only a few states where they were available in 2008 and a couple where they were available in 2009. It was replaced by Custom Care 2 Enhanced which was rolled out in 2007.

What I found most interesting about the Hancock announcement on rate increases was the fact that they are suspending sales of any group long term care effective immediately.

Does anyone have any insight on this? My understanding is that the group block offered less stringent underwriting and group discounts, but likely led to a high risk block of business.

Please advise.

Does anyone know of any strong Group LTC products available? Anyone have experience on the group side vs individual?

Thanks!

The group policies were not necessarily cheaper. In fact, in quite a few cases I found the group policies more expensive than JH's comparable individual policies. I think the more lenient underwriting is the key point.

I prefer multi-life policies sold to groups, rather than true group policy.

True group policies are rarely partnership-qualified. And, in many of the cases I've found, true group policies are not at all cheaper than individual policies. True group policies are usually not as flexible as individual policies and individual policies usually have better home healthcare benefits.

Lastly, many multi-life policies, especially employer-based, can have underwriting that is as lenient as "true group" LTCi.

Last several posts give excellent information. Thanks all. Mike