Rate Stability Rules

Developed by the National Association of Insurance Commissioners (NAIC), these are rules put in place to make it more difficult for insurance companies to raise premiums on Long-Term Care Insurance. Known as Long-Term Care Insurance Model Regulation, policies that were issued after the state adopted this rate stability model are given clear guidelines which give consumers additional peace-of-mind when purchasing a Long-Term Care Insurance policy.  The rules help prevent the repeating of pricing errors with older legacy policies by placing more rules and guidelines on insurance companies and their actuaries and the regulators themselves.

These rules on today’s Long-Term Care Insurance help ensure premiums remain stable but affordable.

The guidelines include:

  • Lapse rate assumptions on new policy series must drop to near zero.  Few people ever drop a Long-Term Care Insurance policy get older plans ever never priced for a near zero lapse rate.
  • Interest rate and investment assumptions on reserve funds must reflect the extreme low-interest-rate environment. In the past actuaries never assumed that interest rates would have been so low for so long.
  • Gender Rate Pricing was required to reflect the actual claims data which shows women, who live longer and thrive longer in a long-term care situation, are a bigger risk than men. This works exactly opposite of life insurance for the same reason.
  • Adjusted mortality and morbidity assumptions, based on claims data, reflecting longer longevity and more policyholders using Long-Term Care Insurance for home care, adult day care centers, and assisted living in addition to nursing home.   
  • Required insurance companies to include an extra buffer to cover possible mistakes in date in order to diminish the risk of future rate increasing for other unforeseen events.
  • Additional rules on the availability of future premium increase requests and the elimination of “profit” being made on any approved rate increase.
  • Premium pricing based on rate stability and prevent underpricing.
  • Current plans must be priced at least much as older plans with rate increases.
  • Actuarial Certification. In the past, an insurance company did not have to certify the accuracy of their pricing assumptions. This meant that if they were wrong, they could easily request a rate increase to correct their mistake. Under these new rate stability regulations, the insurance company’s actuary must certify that no premium increases are anticipated over the life of the policy. 

The vast majority of rate increases have occurred on Long-Term Care Insurance policies issued before these new rules went into effect.  

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