Marianne Harrison traveled to Delaware today to testify at a hearing on the long-term care insurance rate increases John Hancock Long-Term Care has proposed for that state.
Harrison said Hancock, Boston, a unit of Manulife Financial Corp., Toronto (TSX:MFC), will try to shield policyholders from the full impact of the increases as much as policyholder and will leave any policies that were sold to consumers who were 80 or older at the time of purchase as is.
"We are not increasing rates more at younger ages to compensate for this," Harrison said, according to a written version of her remarks posted on the Delaware Insurance Department website.
John Hancock Life Insurance Company (U.S.A.), the Manulife subsidiary that wrote the policies, is asking for permission to increase rates on 1,199 in-force long-term care insurace (LTCI) policies an average of 36.3%.
The proposed Delaware increases are part of a national wave of increases. Hancock first warned producers about the increases in September 2010.
The Delaware policies that would be affected by the proposed increase were written from 1991 to 2009. The increases proposed for specific blocks of policies range from 21.5% -- for a block of Custom Care II policies written from 2004 to 2006 and a second block of Custom Care II policies written from 2004 to 2009 -- up to 71.1%, for two blocks of Custom Care policies written from 2002 to 2004.
Due to the formula used to apply the increases, rate for some policyholders could go up 90%, Hancock says in its rate filing.
The company previously increased rates on the policies an average of 13% in 2009.
"The rates that we are requesting for your approval are the ultimate rates that we believe are necessary in order to certify that the revised premium rate schedules are sufficient to cover anticipated costs if underlying assumptions are realized, with no future premium increases anticipated," Carol Folsom, a Hancock consultant, says in the rate filing.
LTCI policyholders who are paying for an inflation protection option could avoid any premium increase by reducing inflation protection, Folsom says.
Arthur Lucker, an actuary at INS Consultants Inc., Philadelphia, says in a memorandum submitted to the Delaware department that he believes the proposed increases are actuarially justified.
In recent months, Manulife has indicated that it views LTCI has a product not targeted for growth.
Harrison told the Delaware department her company still thinks LTCI is important.
"We believe in the vital role long-term care insurance plays in the financial planning process and in the lives of our customers and their families, especially in an environment in which government programs are severely strained and the need for private sources to help cover long-term care costs continues to rise dramatically," Harrison said. "We are proud to be one of the largest writers of long-term care insurance in the United States."
Hancock has paid a total of $3.7 billion in LTCI claims to 61,000 claimants, and it is now paying $1.5 million in LTCI benefits per day, Harrison said.
Low interest rates have hit LTCI issuers hard. Hancock is absorbing the effects of the low rates itself and not including the effects of low rates in the current rate increase proposal, Harrison said.
The increases do reflect factors such as lower-than-expected lapse rates and the increasing lifespans of insureds with conditions such as Alzheimer's disease, Harrison said.
"The LTC industry is still comparatively young and, until recently, there has been very little actual claims data to rely on for setting original pricing assumptions, particularly at the older ages and later policy durations beyond the tenth year of coverage," Harrison said.
Hancock now has 4 times as much claims data for older insureds and later durations than it had a few years ago, she said.
In the past, some LTCI insurers have attributed rate increase requests mainly to low lapse rates.
Hancock originally expected lapse rate to be about 3% to 6% in the later policy durations; the actual lapse rate for later durations has been less than 1%, Harrison said.
At Hancock, claims incidence has been higher than expected for insureds over age 80 on most policy series, Harrison said.
CORRECTION: An earlier version of this article described a step policyholders can take to reduce the effects of the proposed premium increases incorrectly. Policyholders with inflation protection can reduce the effects of the proposed increases by decreasing their level of inflation protection.