A reinsurer with a $220.7 million block of long-term care (LTC) insurance became concerned that this business was not performing well. To determine whether its concerns were justified, the reinsurer asked Milliman to do an actuarial appraisal of the LTC insurance, which had been acquired from a major life insurer. Milliman’s analysis confirmed that the loss ratios were higher and the profits lower than desired. The analysis also concluded that the only way for the reinsurer to correct this situation was by obtaining a nationwide rate increase. The reinsurer hired Milliman to apply for this increase in all 50 states as well as in the District of Columbia, Puerto Rico, and the Virgin Islands.

Challenges of a nationwide rate increase filing

The nationwide filing presented Milliman with a number of significant challenges. For one thing, Milliman had to prepare an actuarial justification for the rate increase. The justification had to clearly illustrate to regulators across the country that historical experience was adverse compared to that assumed in the initial rate scale, be it due to persistency or morbidity performance, and that the only viable option left was a rate increase. Adding to the complexity of Milliman’s task was the nature of the LTC block. The rate increase had to be filed for 121,304 contracts issued over more than a decade, from 1988 through 2001. And, ignoring variations by state, 13 different policy forms/filings were involved in the rate increase request.

Applying for a nationwide rate increase like this one is a major administrative undertaking. The amount of paperwork generated is enormous and in many jurisdictions, multiple contacts with regulators are required. There must be consistent, persistent follow-up for every filing. The regulations governing LTC rate increases vary considerably and in many jurisdictions are unique. Plus, a number of jurisdictions have “desk-drawer” (unwritten) rules that must be complied with before a rate increase will be granted. Fortunately, Milliman is familiar with these rules and has good working relationships with regulators.

Customized filings and fast response

In addition to preparing a highly persuasive actuarial justification for the rate increase, Milliman adopted a strategic, comprehensive approach to the filing effort. This approach included the following steps:

• For every jurisdiction that required a non-generic filing, Milliman used its understanding of the regulations in that jurisdiction to customize the filing. The goal was to prepare and submit “regulator-friendly” filings to regulators pressed for time and resources.
• Each time a regulator requested additional information, Milliman immediately contacted the regulator to make sure Milliman understood exactly what the regulator wanted. By doing this, Milliman expedited the filing process and strengthened its relationships with regulators.
• Milliman created a computer program that automated the process of developing the numeric exhibits that formed an integral part of the rate increase justification. This tool enabled Milliman to input historical information by contract or calendar year, then factor in assumptions about the future. By deploying this tool, Milliman was able to quickly turn around regulator requests for projections. The tool also enabled Milliman to be confident that when responding to multiple information requests from regulators, it was providing consistent data. (Although developed for this project, the proprietary tool has been successfully used by Milliman in subsequent rate applications.)
• Milliman deployed elaborate tracking mechanisms that carefully monitored the status of every filing. If Milliman failed to hear from a regulator within a reasonable period of time, Milliman took the initiative and contacted the regulator. Because of this follow-up, none of Milliman’s filings became stale.

Measuring success: Premium jumps by $33.6 million

Despite the large amount of documentation involved, Milliman was able to submit rate increase applications in all 53 jurisdictions within a 41-day period. Milliman obtained a decision from 10 jurisdictions within 30 days or less after filing, from 13 additional jurisdictions within 31 to 60 days, and from nine others within 61 to 90 days.

Thanks to Milliman’s efforts, its reinsurer client obtained rate increases from every jurisdiction except one. The average approved increase across all affected policies was 15%. That translated into an annual additional premium of $33.6 million. The reinsurer was extremely pleased with this result, especially since the cost of hiring Milliman for the filing was a fraction of the additional premium realized.