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Long Term Care Insurance

Discriminatory Integrated Filings

Discriminatory integrated filings may be a way of your LTCI mess, but only if you are part of an integrated filing and only if you are hardy.

Recently, I have been asked about the fairness of integrated filings. Transamerica, an LTCI carrier with 50 books, has used an integrated filing (IF) approach since 2009.

What is an integrated filing (IF)?

Nearly all LTCI carriers have more than 1 Book of business. An IF combines several books into one logical filing. By that, we mean the Master Exhibit values represent the sum of premiums & claims across all books. The lifetime loss ratio that drives rate adjudication is calculated accordingly. To be sure, other filings combine books under one cover (SERFF-ID) but the books are logically separate.

Transamerica and Brighthouse are known to use IF. Other carriers may use IF in the future.

Administrative efficiency and lower cost is one reason to use IF. The question I was asked is whether it is discriminatory. Most people would intuitively answer this question “Yes”! Is there a data science technique to answer this question?

First, if every filing for a rate increase has been integrated for over a decade as in Transamerica’s case, the task would be to somehow disassemble the filing into its 50 component books. This is a monumental, mind boggling task. The carriers hold the cards by not releasing details.

Brighthouse in the past two years evolved to an IF from 13 book filings. Key conclusions from a research experiment looking at this case reveal:

    • Books that have a low ratio of current rate : SDN (fair rate) just prior to integration are treated very favorably, having escaped a high potential premium had they stayed on their own. These tend to be underperforming books that we sometimes refer to a trash.
    • By contrast, books that have a high ratio just prior to integration are treated very unfavorably. Why is this? They are subsidizing the trash to the degree of a trash’s weight.

An integrated filing is a zero sum game for consumers. Unless all (13 or 50) books perform the same, you have winners & losers. If you are a winner, do not rock the boat. If you are a big loser, consider rocking the boat.

Integrated filings are discriminatory

How you do know if you are a loser or winner? Without any data we have a rule-of-thumb: If you had reason to believe you were winning before, you probably just lost. Vice versa. Rule-of-thumbs lack certainty. If certainty is necessary, the required data together with a computational task is required to derive SDN to be conclusive on discrimination and financial loss. We do that for stakeholders when there is an incentive.

Here is where it can get nasty

What about the questioner who wants clarity. Have they been on the losing end subsidizing the trash? What is the loss in hard dollar terms? I say to them, you need to acquire the most recent filing of all 50 books. One could do the same experiment as was done for Brighthouse.

Just ask for the 50 filings. Say you have a right to know. You know that I am kidding, right!?

Another approach is to ask the carrier (or DOI) to disassemble your policy history to determine you have been treated fairly. What is their criteria that your book has not been unfairly treated? Shouldn’t this be stated in the filing already?

Simplest approach: If the carrier (or DOI) is unable or unwilling to track it through, then you may have a claim that your Original Policy Assumption (Methodological Quirk) stands. What would that mean exactly? OPA’s were designed to meet minimum statutory loss ratio. You are back to square 1.0 x your original premium. Forever.

Wouldn’t mind hearing an intelligent rebuttal or two as this is untested.

Final thought: Brighthouse is not the subject of this post. It is the perfect case to respond to a policyholder’s inquiry.

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