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Unexpected Insurance Rate Increases: What to Do and How to Handle Them

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December 20, 2018 / by Sharon Goodman, ASA, MAAA

If you are in the health insurance market, then you might have product lines where you expected rates to stay the same for the life of the policy.

Unfortunately, something unexpected happened. Your experience is coming in worse than anticipated, so rates are no longer adequate. The only way to change rates now is to file for a rate increase. So what do you do?

For many companies, the prospect of filing a rate increase is seen as daunting and potentially damaging to your trust with customers. Furthermore, the amount of information required to be submitted to insurance departments is often very detailed. In some states, you could be required to reproduce original pricing from decades ago.

Despite difficulties with these filings, some insurance departments want to clear the slate and settle on a higher increase now (possibly with a grade-in period and rate guarantee) in order to eliminate uncertainty in the foreseeable future.

Here are some issues we have seen in our practice with experience analysis and rate increase filings.

What happens if your loss ratios look reasonable?

  • If they are performing as expected, then you might think you don’t need a rate increase.
  • In some cases, that decision depends on how your pricing termination assumptions compare to actual experience and industry data.
  • Another factor could be the actual distribution of business issued compared to the assumptions used in pricing.
  • In addition to setting current assumptions, did you consider what might happen 10 to 40 years from now? Trend, mortality improvement, or other assumptions could have an impact on your analysis and strategy.

Alternatively, what happens if your experience is not so favorable, and you only have a small block of business? Should you bother with filing a rate increase?

  • Yes, even with limited experience, you might be able to supplement it with industry studies.
  • Because it is a closed block, it will just get smaller over time. It would be better to file sooner, when it will have a larger impact.
  • Some states have minimum exposure requirements, and it will be more challenging in the future for rate filings.
  • You cannot recoup past losses, so again, filing sooner rather than later is better.

Why do you need a consulting firm to do this work?

  • With longer duration contracts, the future revenue from the rate increases significantly outweighs the consulting fees.
  • We see a much broader spectrum of questions and topics than what might be observed within a single company. We believe this is an advantage we can provide to maximize your rate increase approved.
  • We have experience with specialized long-term care (LTC) filings requiring rate stabilization certification.
  • With large volumes of filings over many years of practice, we have developed great working relationships with state insurance departments.

If your company is trying to navigate unexpected rate increases, we can help. Contact us today to learn more!

 

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Photo by JESHOOTS.COM on Unsplash

Topics: Insurance, Rate Increases

Sharon Goodman, ASA, MAAA

Written by Sharon Goodman, ASA, MAAA

Sharon currently serves as a Consulting Actuary focusing on financial reporting and rate increases, and has been working in the field since 1990.