9 Insurance Questions for 2018

Change is coming slowly to the insurance industry and while 2017 showed much movement, 2018 will be the year that brings the next step in evolution for the insurance industry. In this post, I pose some of the questions and possible answers for the insurance industry this year.  

1) Will this be the year that the U.S. Insurance Industry makes a definitive move towards level commissions and/or fee based products across all product lines (also from 2017)? The Department of Labor Fiduciary Rule continues to be a hot topic. Aside from the delays in implementing the Best Interest Contract Exemption phase, the House GOP Guns For DOL Fiduciary Rule by seeking to preserve a provision of the chamber's spending bill that would kill the Labor Department's fiduciary rule as they negotiate a measure to fund the government. While there may be success in terminating the Rule, the spirit of the Rule is already here as a number of insurance companies have adapted and changed the commission structures on some annuities. The National Association of Insurance Commissioners’ annuity suitability working group is working on their own draft suitability model which contains a best interest standard as a revision of the Suitability in Annuity Transactions Model. And it appears that the State rules could be more wide-ranging and consumer friendly than the DOL Rule as New York Department of Financial Services Rings in the New Year with New Suitability Requirements for Insurance Companies

2) Is there a future for long term care insurance? Yes. Though, 2017 saw continued premium increases on in-force long term insurance policies, though again, these were on older policies written before the NAIC’s LTC Model Rate Stabilization Act. Even with rate increases, these older LTC policies have lower premiums than comparable policies on the market currently. And on long term care insurance policies issued prior to the implementation by State Insurance Departments of the National Association of Insurance Commissioners Model Rate Stabilization Act, there have significant premium increases due to multiple issues. For more read my article: Can Long-Term Care Insurance Survive?.  The NAIC has also adopted amendments to the Life and Health Guaranty Association Model Act which will expand the assessment base for LTCI insolvencies to include both the life and annuity account and the health account and more equitably allocating the assessments for LTCI insolvencies, which currently fall solely upon member guaranty association insurers that write lines–including LTCI–that are considered health insurance coverage in insolvency.

As a side note, Genworth Says China Oceanwide Deal Is Moving Forward and this is important because Genworth was the largest issuer by far of individual long term care insurance policies. 

3) How will climate change impact the insurance industry: Well, whether you believe in climate change or not, there is no denying that 2017 was a record year for natural disasters in the U.S. which meant record claims payments for insurance companies. In fact, Disasters Affected 8% of U.S. Population in 2017, FEMA Notes in Review of Historic Year. The cost to the economy and insurance companies is high as 2017 ‘One of Worst’ for U.S. Weather with 15 Events Costing $1 Billion or More. Insurance companies have had extra capacity due to an influx of capital. However, it is almost certain there will immediate increases in insurance rates eventually followed by higher deductibles and limitations on coverage. Here’s a look at the Impact of Recent Natural Catastrophes on Insurance Market

4) Will Insurance be “disrupted” by technology this year? Many “InsureTech” companies have tried to “disrupt” the insurance industry, however, as I’ve written, the likelihood is that the insurance industry will evolve to absorb new technology. And many InsureTech companies are now working with insurance industry professionals and companies. Insurance is a complex, highly regulated, well-capitalized industry with 100+ years of experience (data which is a technology company’s life blood). It’s hard to disrupt companies that have tens of billions of dollars in reserve. Yet, across every line of insurance, it is recognized that technology can be used to improve the underwriting, policy management and claims process (yes, basically all components of the insurance industry). The insurance industry still operated under some very antiquated procedures and assumptions. Blockchain is the hot new word and is one of the more promising technologies. Blockchain establishes a permanent “ledger” of immutable information that could help with underwriting, coverage verification and claims payment. And the RiskBlock Alliance which is an insurance industry consortium released Riskblock, a New Product (which) Uses Blockchain to Show Proof of Insurance.

5) Will an insurance company have a major data breach: More companies with bigger data breaches occurred in 2017. It is likely that this will continue and that this may happen to an insurance company. It’s a good idea to consider adding an Identity Theft Fraud Expense Coverage rider as an endorsement to your homeowners or renters insurance policy by contacting your insurance company. As of September 2017, consider the Equifax breach: Is it the biggest data breach?

6) What is the impact of the Tax Cuts and Jobs Act on the Insurance Industry? For insurers, agencies and other businesses organized as C corporations, they will see their statutory tax rate reduced from a top rate of 35% down to 21%. Which is good news for property & casualty entities. The feeling among insurance analysts and industry members are positive and here’s What They Are Saying About Effects of Trump Tax Cuts on Insurance Industry. For life insurance and annuity companies, the TCJA will conceivably have no long term impact on overall tax payments, though there are changes to accounting for deferred acquisition costs and reduced capitalization levels which will require rating agencies and state insurance regulators to adjust their risk-based capital rules and formulas to reflect the new tax rules. Long term, this should increase profits for life insurance companies who will hopefully pass on savings to consumers. For more, here’s How Trump's Tax Act Could Affect Annuity Issuers. The repeal of the individual mandate and it’s impact on health insurance is below. 

7) Will the Children’s Health Insurance Plan be funded? Currently the funding for Children’s Health Insurance Plan (CHIP) expired on September 30, 2017. Congress did pass a temporary patch in December, 2017, however it will not be enough. If Congress fails to approve long-term funding for CHIP in January, nearly 1.7 million children in separate CHIP programs in 21 states with shortfalls in March 2018 could lose coverage by the end of February 2018. So, When Will States Run Out of Federal CHIP Funds? (January 2018 Update)

8) What will become of the Affordable Care Act? Despite a year of many attempts to repeal and undermine the Affordable Care Act, it remains in place and providing positive benefits. The ACA remains popular with the majority of Americans, insurance companies and medical professionals, yet, puzzlingly, instead of make repairs, attempts to send it the junkyard continue. Obamacare has not been repealed and is not failing. In Mark Twain’s words, the rumors of my death are over-exaggerated. Here a few things to consider: 

• The individual mandate has not been repealed, the penalty for no coverage has been changed to zero - it can be increased again at any time. This reduction of the Individual Mandate penalty does not impact need for coverage for 2018 (for coverage year 2018, filing taxes in 2019, the penalty still applies). It will go into effect for coverage year 2019, filing taxes in 2020. It is likely that without a penalty, that fewer healthy people will enroll in ACA plans which could lead to a deterioration of the risk pool and leave some counties “bare” with companies offering health insurance. Individual states can still impose their own individual mandate penalty and this option is being reviewed in several states as Advocates push new state-level insurance mandate.
• Enrollment was not significantly reduced. The federal ACA exchange reported that 8.7 million people enrolled which is only 500,000 fewer people enrolled.  healthcare.gov serves 39 states with 11 states having their own exchange. These states for the most part, had longer open enrollment periods, so their final enrollment numbers will be forthcoming. This is despite actions like: reducing the enrollment period by half, scheduling website maintenance for a major portion of every Sunday, a 90% reduction in outreach along with constantly stating that Obamacare is failing.
• ACA Health Insurers are gaining profitability. According to the Kaiser Family Foundation’s report on Individual Insurance Market Performance in Late 2017, their earlier analysis of first quarter financial data from 2011-2017 found that insurer financial performance indeed worsened in 2014 and 2015 with the opening of the exchange markets, but showed signs of improving in 2016 and stabilizing in 2017 as insurers began to regain profitability.
• Short Term Health plans can now be 364 days rather than 90 days. These plans don’t have to meet ACA standards including covering pre-existing conditions, which means people can end up with huge bills and/or not have coverage. Insurers can exclude coverage for medications, maternity care & mental health care. Bottom line, since these plans are less expensive, consumers may opt for them without realizing the difference in coverage. 
• Association Health Insurance Plans Expanded: These allow small firms to form “small business health plans” for which it’s estimated that 11 million people would be eligible. This would remove more people from the ACA risk pool conceivably making it more high-risk (higher premiums). Here’s why these plans have been limited is that they are not subject to ACA Essential Benefits Rules and age bands (even higher premiums for older workers, under the ACA, older workers can only be charged 3 times more than younger workers). These plans have a history of fraud and insolvency as detailed in this consumer alert from the NAIC and by the Society of Actuaries who have warned that such plans “threaten the stability of the small group market” and “provide inadequate benefits and insufficient protection to consumers.”
• And yes, this is all part of a plan put into place last March 23rd (2017) by the Trump administration.  As shown in a one page document, that was not made public or shared with all members of congress, there was a list of 10 executive actions planned. Senator Bob Casey (D-PA) who obtained the document and released it stated that “The primary problem here is government officials, government agencies, were taking steps that would lead to fewer people having coverage and erecting barriers to people having coverage,” he said. “In addition to that, you have kind of a closed-door, back-room slimy deal here that should trouble anyone.” While some of these actions make sense as part of an improvement plan, on their own, they are problematic especially the ones allowing states the right to modify essential benefits and insurance companies to offer “skinny” exchanges (minimal medical service provider options). Bottom line, this shows that there was no intent to have better, cheaper health insurance for everyone. Cheaper, arguably yes; better, not by a long shot. The outlook for 2018 is continued attempts at eroding the ACA marketplace. And while Senator Susan Collins was promised that the bi-partisan health care stabilization bill would be heard, it is likely that will not happen and it’s even more unlikely that it would pass the House or be signed by Trump. 

9) Will State Insurance Commissioners fill the regulatory void? With the move towards federal deregulation, State Insurance Departments are moving in to fill the void left by federal government as discussed on suitability - best interest standard and in the health insurance marketplace. There has not been much news from the Federal Insurance Office which looks to have limited scope. 

As always, thank you for reading. If you like it, please share. Have a nice weekend,

Tony