Insurance, Administration

Section R590-148-24

Premium Rate Schedule Increases

Notice of Proposed Rule

(Amendment)

DAR File No.: 34312
Filed: 12/15/2010 09:16:13 AM

RULE ANALYSIS

Purpose of the rule or reason for the change:

The purpose of the changes is to align the requirements for rate increase filings with the prevailing practice of other states that allow companies to file rate increases for long-term care policies without a certificate verifying that no future rate increases are anticipated.

Summary of the rule or change:

A new Subsection R590-148-24(4) has been added allowing an insurer to file a rate increase request without the certification required in Subsection R590-148-24(2)(b)(i). The change will remove the restriction of only one rate increase for the life of a long term care policy, which means that instead of one large rate increase an insurer can extend smaller rate increases over a longer period of time. In addition, the new subsection allows the commissioner to require that additional disclosure and nonforfeiture benefits be provided to policyholders when an insurer files a rate increase without the required certification.

State statutory or constitutional authorization for this rule:

• Section 31A-22-1404
• Section 31A-2-201

Anticipated cost or savings to:

the state budget:

The department does not anticipate any fiscal impact because the changes only affect the content of rate filings made to the department. It is not anticipated that there will be a significant increase in rate filings to affect the work load of the department.

local governments:

The changes to this rule will have no impact on local governments themselves. If their employees have long-term care coverage through traditional insurers they may be affected by this change if their insurer requests a rate increase. The effect on the employee will be that the increase could then be extended over several years rather than one large increase up front.

small businesses:

No impact is anticipated because long-term care insurance is typically not issued in the small group market.

persons other than small businesses, businesses, or local governmental entities:

The change will make it easier for long-term care insurers to file for rate increases on business issued on or after 01/01/2003. To the extent that requested rate increases will be granted, it will help insurers to cover anticipated claims costs. Policyholders of a long-term care insurer that requests a rate increase will be more likely to have the increase spread over a long period of time versus the one-time rate increase required by the current rule.

Compliance costs for affected persons:

The change will make it easier for long-term care insurers to file for rate increases on business issued on or after 01/01/2003. To the extent that requested rate increases will be granted, it will help insurers to cover anticipated claims costs. Policyholders of a long-term care insurer that requests a rate increase will be more likely to have the increase spread over a long period of time versus the one-time rate increase required by the current rule.

Comments by the department head on the fiscal impact the rule may have on businesses:

This rule will have no impact on small businesses. It could have some impact on employees of large employers who have long-term care insurance plans. Long-term care insurers will be allowed to cover their costs and file for rate increases more than once in the life of a long-term care policy and will allow the increases to be spread over a long period of time rather than a large one-time rate increase that is now required.

Neal T. Gooch, Commissioner

The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:

Insurance
Administration
450 N MAIN ST
SALT LAKE CITY, UT 84114-1201

Direct questions regarding this rule to:

• Jilene Whitby at the above address, by phone at 801-538-3803, by FAX at 801-538-3829, or by Internet E-mail at jwhitby@utah.gov

Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:

01/31/2011

This rule may become effective on:

02/07/2011

Authorized by:

Jilene Whitby, Information Specialist

R590. Insurance, Administration.

R590-148. Long-Term Care Insurance Rule.

R590-148-24. Premium Rate Schedule Increases.

(1) This section shall apply as follows:

(a) except as provided in Subsection R590-148-24(1)(b), this section applies to any long-term care policy or certificate issued in this state on or after January 1, 2003.

(b) for certificates issued on or after July 1, 2002, under a group long-term care insurance policy, which policy was in force at the time this rule became effective, the provisions of this section shall apply on the policy anniversary following January 1, 2003.

(2) An insurer shall file notice of a pending premium rate schedule increase, including an exceptional increase, to the commissioner prior to the notice to the policyholders and shall include:

(a) information required by Section R590-148-19;

(b) certification by a qualified actuary that:

(i) if the requested premium rate schedule increase is implemented and the underlying assumptions, which reflect moderately adverse conditions, are realized, no further premium rate schedule increases are anticipated;

(ii) the premium rate filing is in compliance with the provisions of this section;

(c) an actuarial memorandum justifying the rate schedule change request that includes:

(i) lifetime projections of earned premiums and incurred claims based on the filed premium rate schedule increase; and the method and assumptions used in determining the projected values, including reflection of any assumptions that deviate from those used for pricing other forms currently available for sale:

(A) annual values for the five years preceding and the three years following the valuation date shall be provided separately;

(B) the projections shall include the development of the lifetime loss ratio, unless the rate increase is an exceptional increase;

(C) the projections shall demonstrate compliance with Subsection R590-148-24(3); and

(D) for exceptional increases:

(I) the projected experience should be limited to the increases in claims expenses attributable to the approved reasons for the exceptional increase; and

(II) in the event the commissioner determines as provided in Section R590-148-5(2)(j)(iv) that offsets may exist, the insurer shall use appropriate net projected experience;

(ii) disclosure of how reserves have been incorporated in this rate increase whenever the rate increase will trigger contingent benefit upon lapse;

(iii) disclosure of the analysis performed to determine why a rate adjustment is necessary, which pricing assumptions were not realized and why, and what other actions taken by the company have been relied on by the actuary;

(iv) a statement that policy design, underwriting and claims adjudication practices have been taken into consideration; and

(v) in the event that it is necessary to maintain consistent premium rates for new certificates and certificates receiving a rate increase, the insurer will need to file composite rates reflecting projections of new certificates;

(d) a statement that renewal premium rate schedules are not greater than new business premium rate schedules except for differences attributable to benefits, unless sufficient justification is provided to the commissioner; and

(e) sufficient information for review of the premium rate schedule increase by the commissioner.

(3) All premium rate schedule increases shall be determined in accordance with the following requirements:

(a) exceptional increases shall provide that at least 70% of the present value of projected additional premiums from the exceptional increase will be returned to policyholders in benefits;

(b) premium rate schedule increases shall be calculated such that the sum of the accumulated value of incurred claims, without the inclusion of active life reserves, and the present value of future projected incurred claims, without the inclusion of active life reserves, will not be less than the sum of the following:

(i) the accumulated value of the initial earned premium times 58%;

(ii) 85% percent of the accumulated value of prior premium rate schedule increases on an earned basis;

(iii) the present value of future projected initial earned premiums times 58%; and

(iv) 85% percent of the present value of future projected premiums not in Subsection R590-148-24(3)(b)(iii) on an earned basis;

(c) in the event that a policy form has both exceptional and other increases, the values in Subsections R590-148-24(3)(b)(ii) and (iv) will also include 70% for exceptional rate increase amounts; and

(d) all present and accumulated values used to determine rate increases shall use the maximum valuation interest rate for contract reserves which is the maximum rate permitted by law in the valuation of whole life insurance issued on the same date as the health insurance contract. The actuary shall disclose as part of the actuarial memorandum, the use of any appropriate averages.

(4)(a) The insurer may request a premium rate schedule increase that is lower than the rate increase necessary to provide the certification required in R590-148-24(2)(b)(i) and the commissioner may accept such premium rate schedule increase, without submission of the certification required in R590-148-24(2)(b)(i), if:

(i) in the opinion of the commissioner accepting such lower premium rate schedule increase is in the best interest of Utah policyholders;

(ii) the actuarial memorandum discloses the rate increase necessary to provide the certification required in R590-148-24(2)(b)(i); and

(iii) the rate increase filing satisfies all other requirements of this section.

(b) The commissioner may condition the acceptance of the premium rate schedule increase under Subsection R590-148-24(4)(a) upon:

(i) the disclosure, to the affected policyholders, of the premium rate schedule increase necessary to provide the certification required in R590-148-24(2)(b)(i); and

(ii) the extension of a contingent nonforfeiture benefit upon lapse to policyholders who would have been eligible for contingent nonforfeiture benefit upon lapse based on the premium rate schedule increase necessary to provide certification required in R590-148-24(2)(b)(i).

([4]5) For each rate increase that is implemented, the insurer shall file for review by the commissioner updated projections, as defined in Subsection R590-148-24(2)(c)(i), annually for the next three years and include a comparison of actual results to projected values. The commissioner may extend the period to greater than three years if actual results are not consistent with projected values from prior projections. For group insurance policies that meet the conditions in Subsection R590-148-24([11]12), the projections required by this subsection shall be provided to the policyholder in lieu of filing with the commissioner.

([5]6) If any premium rate in the revised premium rate schedule is greater than 200% of the comparable rate in the initial premium schedule, lifetime projections, as defined in Subsection R590-148-24(2)(c)(i), shall be filed for review by the commissioner every five years following the end of the required period in Subsection R590-148-24([4]5). For group insurance policies that meet the conditions in Subsection R590-148-24([11]12), the projections required by this subsection shall be provided to the policyholder in lieu of filing with the commissioner.

([6]7)(a) If the commissioner has determined that the actual experience following a rate increase does not adequately match the projected experience and that the current projections under moderately adverse conditions demonstrate that incurred claims will not exceed proportions of premiums specified in Subsection R590-148-24(3), the commissioner may require the insurer to implement any of the following:

(i) premium rate schedule adjustments; or

(ii) other measures to reduce the difference between the projected and actual experience.

(b) In determining whether the actual experience adequately matches the projected experience, consideration should be given to Subsection R590-148-24(2)(c)(v), if applicable.

([7]8) If the majority of the policies or certificates to which the increase is applicable are eligible for the contingent benefit upon lapse, the insurer shall file:

(a) a plan, subject to commissioner approval, for improved administration or claims processing designed to eliminate the potential for further deterioration of the policy form requiring further premium rate schedule increases, or both, or to demonstrate that appropriate administration and claims processing have been implemented or are in effect; otherwise the commissioner may impose the condition in Subsection R590-148-24([8]9); and

(b) the original anticipated lifetime loss ratio, and the premium rate schedule increase that would have been calculated according to Subsection R590-148-24(3) had the greater of the original anticipated lifetime loss ratio or 58% been used in the calculations described in Subsection R590-148-24(3)(a)(i) and (iii).

([8]9)(a) For a rate increase filing that meets the following criteria, the commissioner shall review, for all policies included in the filing, the projected lapse rates and past lapse rates during the 12 months following each increase to determine if significant adverse lapsation has occurred or is anticipated:

(i) the rate increase is not the first rate increase requested for the specific policy form or forms;

(ii) the rate increase is not an exceptional increase; and

(iii) the majority of the policies or certificates to which the increase is applicable are eligible for the contingent benefit upon lapse.

(b) In the event significant adverse lapsation has occurred, is anticipated in the filing or is evidenced in the actual results as presented in the updated projections provided by the insurer following the requested rate increase, the commissioner may determine that a rate spiral exists. Following the determination that a rate spiral exists, the commissioner may require the insurer to offer, without underwriting, to all in force insureds subject to the rate increase the option to replace existing coverage with one or more reasonably comparable products being offered by the insurer or its affiliates.

(i) The offer shall:

(A) be subject to the approval of the commissioner;

(B) be based on actuarially sound principles, but not be based on attained age; and

(C) provide that maximum benefits under any new policy accepted by an insured shall be reduced by comparable benefits already paid under the existing policy.

(ii) The insurer shall maintain the experience of all the replacement insureds separate from the experience of insureds originally issued the policy forms. In the event of a request for a rate increase on the policy form, the rate increase shall be limited to the lesser of:

(A) the maximum rate increase determined based on the combined experience; and

(B) the maximum rate increase determined based only on the experience of the insureds originally issued the form plus 10%.

([9]10) If the commissioner determines that the insurer has exhibited a persistent practice of filing inadequate initial premium rates for long-term care insurance, the commissioner may, in addition to the provisions of Subsection R590-148-24([8]9), prohibit the insurer from either of the following:

(a) filing and marketing comparable coverage for a period of up to five years; or

(b) offering all other similar coverages and limiting marketing of new applications to the products subject to recent premium rate schedule increases.

([10]11) Subsections R590-148-24(1) through ([9]10) shall not apply to policies for which the long-term care benefits provided by the policy are incidental, as defined in Subsection R590-148-5(2)(m), if the policy complies with all of the following provisions:

(a) the interest credited internally to determine cash value accumulations, including long-term care, if any, are guaranteed not to be less than the minimum guaranteed interest rate for cash value accumulations without long-term care set forth in the policy;

(b) the portion of the policy that provides insurance benefits other than long-term care coverage meets the nonforfeiture requirements as applicable in any of the following:

(i) Section 31A-22-408; and

(ii) Section 31A-22-409;

(c) the policy meets the disclosure requirements of Subsections 31A-22-1409(7) and (8) and 31A-22-1410;

(d) the portion of the policy that provides insurance benefits other than long-term care coverage meets the requirements as applicable in the following:

(i) policy illustrations as required by R590-177; and

(ii) disclosure requirements in R590-133;

(e) an actuarial memorandum is filed with the insurance department that includes:

(i) a description of the basis on which the long-term care rates were determined;

(ii) a description of the basis for the reserves;

(iii) a summary of the type of policy, benefits, renewability, general marketing method, and limits on ages of issuance;

(iv) a description and a table of each actuarial assumption used. For expenses, an insurer must include percent of premium dollars per policy and dollars per unit of benefits, if any;

(v) a description and a table of the anticipated policy reserves and additional reserves to be held in each future year for active lives;

(vi) the estimated average annual premium per policy and the average issue age;

(vii) a statement as to whether underwriting is performed at the time of application. The statement shall indicate whether underwriting is used and, if used, the statement shall include a description of the type or types of underwriting used, such as medical underwriting or functional assessment underwriting. Concerning a group policy, the statement shall indicate whether the enrollee or any dependent will be underwritten and when underwriting occurs; and

(viii) a description of the effect of the long-term care policy provision on the required premiums, nonforfeiture values and reserves on the underlying insurance policy, both for active lives and those in long-term care claim status.

([11]12) Subsections R590-148-24([6]7) and ([8]9) shall not apply to group insurance policies where:

(a) the policies insure 250 or more persons and the policyholder has 5,000 or more eligible employees of a single employer; or

(b) the policyholder, and not the certificateholders, pays a material portion of the premium, which shall not be less than 20% of the total premium for the group in the calendar year prior to the year a rate increase is filed.

 

KEY: insurance

Date of Enactment or Last Substantive Amendment: [July 30, 2007]2011

Notice of Continuation: July 25, 2007

Authorizing, and Implemented or Interpreted Law: 31A-2-201; 31A-22-1404