ACLI ‘disappointed’ by South Carolina decision to leave compact

The recent decision by South Carolina to leave the Insurance Product Regulation Compact – the first state to do so – does not appear to be the start of a revolt over long-term care insurance pricing.

One of the founders of the compact, South Carolina withdrew on May 16 because of a conflict over long-term care insurance rate increase application reviews. The Interstate Insurance Product Regulation Commission, which oversees the compact, voted in December 2021 to keep a rule that lets the compact review and approve requests for LTCI rate increases under 15%.

That decision added to the disenchantment felt by South Carolina regulators over the LTCi rate process. South Carolina legislators passed their own law requiring all LTCi rate reviews to be handled in house.

Created by the National Association of Insurance Commissioners in 2002, the compact reviews and approves (or disapproves) individual and group annuity, life insurance, disability income, and long-term care insurance products. States steadily joined the compact in the years following its adoption. Only California, North Dakota, South Dakota, Florida, New York and South Carolina remain outside the compact.

Whit Cornman, a spokesman for the American Council of Life Insurers, downplayed the dispute over the LTCi rate process.

"We are disappointed that South Carolina withdrew from the compact but encouraged that the insurance department has expressed an interest in rejoining in the future. We are not aware of any other states that are considering leaving the compact," Cornman said in a statement.

“While long-term care insurance is priced with the intent that premiums will remain level, actuarially justified rate increases are sometimes needed to ensure benefits will be available when claims are made. Like all insurance products, LTCI must be priced to cover expected claims."

LTCi on the wane

Of the more than 100 companies offering long-term care insurance in 2004, according to the NAIC, just about a dozen still operated in 2019. Fewer new policies are being written, causing companies to increase premiums on new and existing customers, which further dampens demand.

Between 1990 and 2015, the average annual long-term care insurance premium increased from $1,071 to $2,772, the NAIC found. Many insurers continue to seek substantial price hikes on LTCi policies.

“As insurers have gained experience since the introduction of LTCi and prediction technology has improved, LTCi policies today are more likely to be priced in line with actual experience and are therefore less likely to require a future rate increase," Cornman said. "Moreover, some LTCi policies, especially those combined with life insurance, have a guaranteed premium amount that cannot increase.”

Insurers have the choice of filing products through the insurance compact or filing products directly with a state. If a company chooses the latter course, then the regulator will apply the existing product standard laws and procedures of the state.

If a company files with the compact, then the compact's uniform standards and review process will apply. Many companies find it more efficient and expeditious to make one filing through the compact for all member states than to make individual filings in each state.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.