The regulatory body in charge of setting minimum standards for insurers recently released a new set of actuarial guidelines related to valuation for group long-term disability insurance. Consequently, companies issuing these policies should be diligent in making sure they are doing all in their power to become compliant in the near future.
The proposed guidelines specifically create new tables that are designed to help companies meet their own needs for group long-term disability policy claims, according to a report from the National Association of Insurance Commissioners. More specifically, it relates to valuation tables for these types of policies, as originally recommended in a Society of Actuaries Group Disability Experience Committee report last year. It is also important to note that these proposals focused on tabular reserves, and did not include those for other liabilities including issues related to incurred but not reported liabilities.
The tables will be company-specific and weighted using a combination of their own termination experiences and previous valuation tables laid out by the GLTD, the report said. This will theoretically help insurance providers better deal with how such claims will affect them after the date at which the new standards go into effect. It should be noted that every time termination rates change for companies, that does not mean they have to update their own valuation tables, but rather these will be based on the latest assumptions they have available to them.
Modeling guidelines under these new rules should meet minimum valuation standards set forth by the regulation models so that claim termination rates fall into this area automatically, the proposal said. Further, companies with fewer than 50 open disabled claims within two years of the effective date, and fewer than 200 more than two years before that day will be exempt from own experience measurements. Instead, they will be required to use 100 percent of the valuation table for calculating termination rates going forward.
Obviously these new requirements mean that insurance providers will need to do more to make sure they are compliant with the latest regulations. This could mean that one company could hold fewer reserves than they would today while another company may have to hold additional reserves. Given the experience requirements, this regulatory change could be a boon to companies that found previous iterations of the regulation to be overly restrictive.