New Hampshire Court Strikes Down LTCi Rate Hike Caps

By John Hilton

A recent New Hampshire Supreme Court ruling tossed out certain caps on long-term care insurance premium rates set by the state insurance commissioner.

The Feb. 17 ruling, on an appeal brought by Genworth Financial, concluded that setting the LTCi caps exceeds the insurance commissioner's rulemaking authority. The fallout could be felt throughout an industry struggling to accommodate insurers' requests for repeated rate hikes to stabilize LTCi blocks.

"This decision will hopefully serve as an opportunity for the department to reconsider the premium rate caps altogether," the law firm Faegre Drinker Biddle & Reath said in a blog post. "Other states have refrained from implementing premium caps in favor of phased-in increases for larger rate increases, which arguably better informs policyholders while attempting to balance premium adequacy and policyholder protections."

2015 Rules

In 2015, New Hampshire unveiled new LTCi amended regulations under former longtime insurance commissioner Roger Sevigny. The regulations capped premium rate increases based on an insured’s attained age and applied the new caps retroactively to all long-term care insurance policies issued in the state.

As drafted, the regulation did not afford the commissioner discretion to approve increases that exceed the caps, Faegre Drinker explained. The rate caps were implemented on a sliding scale from 50 percent for all policyholders with attained ages 70 and below down to 10% for policyholders with attained ages over 90.

As with caps implemented by other states, the caps adopted by New Hampshire had no actuarial basis, Faegre Drinker noted. Insurers could seek rate hikes once every three years.

Previously, the commissioner approved rate requests based on a 2004 regulation. To obtain approval under those guidelines, "insurers had to satisfy more stringent loss-ratio standards and certify that requested increases were actuarially justified," court documents stated.

Genworth challenged the 2015 regulation in a lawsuit filed a year later. The insurer argued that the 2015 regulations exceed the commissioner's rulemaking authority “because: (1) they subvert, rather than promote, premium adequacy; and (2) they prevent substantial rate increases, rather than protect policyholders in the event of substantial rate increases.”

Mispriced Policies

Insurers badly mispriced popular LTCi policies while racking up big sales during the 1990s, in particular. With ultra-low interest rates, many insurers continue to seek rate hikes to prop up their balance sheets. Genworth manages the largest LTCi block in the industry, the company has told regulators.

Lower court rulings favored the department, prompting Genworth's appeal to the New Hampshire Supreme Court. The high court agreed with Genworth that the rate caps are not serving their purpose.

"Insurers who issued LTCI policies based upon the previous rate-increase regulations, believing they could increase rates as necessary to maintain premium adequacy, are now more restricted in their ability to achieve premium adequacy, especially given the unique difficulties insurers face in predicting costs for LTCI policies," the judges wrote.

The amended regulations did not give the commissioner discretion to ignore the caps and did not contain an exception to avoid premium inadequacy, the court noted. Likewise, the premium rate caps failed to protect policyholders in the event of a substantial rate increase because the rate caps prevented the commissioner from approving any substantial rate increase in the first place, judges wrote.

The New Hampshire Department of Insurance has not responded to the court ruling.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.