Why does the FLTCIP need a rate increase?
Some of the key assumptions that were used in developing premium rates in the first contract period that were intended to be conservative and were consistent with industry practices at the time, turned out to be inaccurate for the FLTCIP. In particular, enrollee persistency has been higher than expected. This means that more people than expected are keeping their coverage (rather than voluntarily canceling it) and people are living longer than expected when the initial rates were set. Investment experience has been worse than expected. Even if overall trends improve, experience is unlikely to match the underlying assumptions used in the original pricing. Based on revised assumptions (which are derived from an analysis of actual experience), in order to assure that there is enough money in the Experience Fund to cover the claims and costs that are now expected to be incurred over the course of time, it is necessary to adjust the premium rates for certain plan designs and age groups. The
