NAIC grappling with LTC insurance while owning the enormity of the problem, its president says

July 30, 2019 — Long term care insurance issues top a list of regulatory concerns for current  National Association of Insurance Commissioners President Eric Cioppa, according to the organization’s first podcast series recording.

“If a company goes into the guaranty fund, we’ve failed. There’s just no way around it,” Cioppa said bluntly. He said LTC needs to be fixed, and added that failure is not an option.

He referred listeners to the ongoing  $3 billion minimum liquidation of the now  insolvent LTC company, Penn Treaty, which a few years ago had fought liquidation in the Pennsylvania Commonwealth court system back when NAIC CEO Mike Consedine was state insurance commissioner. The Commonwealth Court of Pennsylvania issued orders placing Penn Treaty and its sister company American Network in liquidation in March 2017 after state regulatory recommendations, this time under then-Pennsylvania insurance commissioner Teresa Miller.

“The industry may have mispriced [the premiums], but we approved the rates and we just have to look in the mirror if we don’t fix this,” Cioppa said in the segment.

The  #TheRegulatorsPodcast —Insurance Insights from Inside the NAIC, featured Maine’s superintendent of insurance sharing his views on what keeps him up at night in his capacity as a leading regulator. Consedine served as Cioppa’s interviewer.

In addition to LTC insurance, Cioppa also identified cybersecurity, annuity suitability, the international capital standard development and macroprudential financial risk monitoring  as key oversight issues for state regulators. However, this first podcast conversation chiefly  focused on LTC matters.

LTC is “especially problematic,” Cioppa told Consedine on the podcast. The policies were underpriced when they were developed 20, 30 or 40 years ago and it took a long time for the industry to realize this, according to Cioppa.  He noted that sometimes consumers would rather pay the sometimes triple-digit percent rate increases on their broad policies rather than see their benefits be reduced by  half or even more in their state’s guaranty fund after an insolvency. The value of these older policies are significant, Cioppa noted.

Policy rate increase standards are part of a solution the state insurance departments are now working on, a project which involves developing a commonality across the states for establishing and approving  rates, but this harmonization on rates is not the only solution, Cioppa cautioned.

“We have to balance solvency with consumer protection,” Cioppa said. We need to protect the consumers and make sure the companies live up to their promises, he stressed. There exists a “vulnerable population” with affordability issues with their LTC policies,  Cioppa warned.

Some customers are being priced out of their policies while the LTC insurance companies run into financial problems, Cioppa lamented. The NAIC president noted that some companies might want to “wall off” their nonperforming LTC business, but dismissed this as not a very good option.

Cioppa championed the work a new NAIC rate task force has undertaken in delving into achieving a measure of rate approval commonality across states. The state regulators’ work also includes exploring and defining the magnitude of the LTC problem, which likely means measuring  industry reserve shortfalls.

Separately, the Federal Interagency Task Force on Long Term Care Insurance met last week at the  U.S. Treasury Department, meeting with  industry actuaries, according to social media posts. According to one participant, discussions topics included tax incentives for the purchase of LTC insurance.

The NAIC expects to discuss a myriad of interrelated LTC matters at its upcoming summer national meeting in New York the first weekend in August.