A Report on the Actuarial, Marketing, and Legal Analyses of the CLASS Program. Premium Illustration

10/14/2011

The first 5 proposed plans are designed to mitigate the risk for adverse selection to a certain extent. Premiums for some of these plans can be made competitive with private insurance because the expense and profit savings could partially offset the anticipated extra claims.

Using comparable plan features, the following preliminary comparison illustrates the pricing position specifically of the Phased Enrollment plan relative to the offerings from three current group insurers30:

Monthly Premium Illustration
  $50 Initial Daily Benefit - 5 Year Benefit Period - 30 Day Elimination Period  
3% Annual Benefit Increasea
  Prudentialb
  Level Premium  
UNUMb
  Level Premium  
Genworth
  Level Premium  
CLASSc
  Initial Premium  
25   $37 $38 $41 $32
30 $37 $38 $43 $35
35 $41 $45 $45 $39
40 $44 $51 $46 $42
45 $56 $57 $46 $46
50 $70 $68 $51 $55
55 $81 $85 $61 $72
60 $107 $119 $88 $116
65 $139 $156 $122 $181
70 $195 $223 $196 $334d
Note:
  1. Assumed long term CPI average
  2. i. Estimates of currently unavailable 3% inflation protection option
    ii. Rate revisions pending due to low investment returns
  3. i. Estimated premiums, 4% annual premium increase to age 70 & level thereafter
    ii. $50 initial daily benefit for 2-3 ADLs, $60 for 4+ ADLs & cognitive impairment
    iii. 100% of daily benefit for 5 benefit years, 20% threafter
  4. Level premium

The CLASS premium estimates for the Phased Enrollment design above are derived from Genworth’s net premium rates (net of anticipated expenses and profits) adjusted for:

  • CLASS-specific expenses,
  • a loading for adverse selection from individual enrollment,
  • a margin for unfavorable experience, and
  • an increasing premium methodology (see Increasing Premium section below).

Genworth’srates are chosen because we believe that the associated pricing morbidity, mortality, lapse and investment assumptions are the most current among the three insurers. It is important to recognize that these are preliminary illustrations of premiums, not final pricing. As noted in the Next Steps section, premium estimation needs to be further refined with experience claim data, among other steps.

Since the Phased Enrollment process is similar to the enrollment process for guaranteed issue group plans, we expect that claim assumptions for the CLASS plans to closely reflect the claim experience of that segment of the private group market. As discussed earlier, residual effect of adverse selection from private insurance’s guaranteed issued group enrollment is already embedded in group long-term care insurance’s claim experience and their premiums. There are approximately 1.5 million certificates of group long-term care insurance currently in force. A survey is underway to collect recent claim assumptions for guaranteed issue group plans from six insurers that have group in-force business. This data source can provide considerable confidence in setting claim assumptions for a number of the proposed CLASS plans.

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