The commissioner of the New Jersey Department of Banking and Insurance (the “DOBI”), Richard J. Badolato, has taken action in conjunction with the New Jersey Life and Health Insurance Guaranty Association (“NJLHIGA”) to address certain issues caused by the insolvency of American Network Insurance Company (“ANIC”), a Pennsylvania insurer that sold long term care (“LTC”) insurance policies in New Jersey.
The action followed the March 1, 2017 order of liquidation issued by a Pennsylvania court that declared ANIC and its affiliated company Penn Treaty insolvent. The Pennsylvania court's decision made the NJLHIGA responsible for paying the claims of New Jersey residents with ANIC LTC policies.
“ANIC/Penn Treaty charged premiums that were far too low to cover all the claims of their policyholders. The companies' poor pricing decisions, combined with increasing life spans and market circumstances like low interest rates, resulted in the companies having fewer assets than liabilities, compelling the Pennsylvania court to order liquidation,” Commissioner Badolato said in a statement.
The LTC claims of ANIC and Penn Treaty combined are expected to total approximately $4.5 billion nationwide, and New Jersey is only one of over 40 states affected. The NJLHIGA estimated the costs in New Jersey alone to be approximately $211 million over several years.
Now that the claims for New Jersey residents have become the NJLHIGA's responsibility under the Pennsylvania liquidation order, the NJLHIGA – like all other guaranty associations throughout the nation – sought premium rate increases for ANIC's LTC policies. The NJLHIGA contended that, without these premium increases, the NJLHIGA's costs of covering these LTC claims would completely be borne by all New Jersey policyholders, including health insurance policyholders, and taxpayers through the assessments on all other LTC and health insurers doing business in New Jersey.
The DOBI said that it was balancing these competing interests by approving some premium increases, but only to levels sufficient to achieve prices commensurate with those that would be charged for this coverage today. The DOBI said that it also was requiring the NJLHIGA to offer New Jersey policyholders other options that would reduce or eliminate the burden of premium increases.
As a result, according to the DOBI, policyholders would be given DOBI-mandated options that would allow them to reduce or forgo potentially significant premium increases in exchange for reduced coverage. Policyholders also may choose to surrender the policy in exchange for a cash payment. No matter which option policyholders choose, they can also shop around for other plans made available by other insurers, according to the DOBI.
The DOBI emphasized that these rate increases would not recoup past losses experienced by ANIC on these policies and would not eliminate the significant impact on all other LTC and health insurers. According to the DOBI, because every ANIC policyholder has unique coverage needs and budgets, the options offered would mitigate the impact on ANIC policyholders and more equitably balance the costs of this insolvency among all affected parties. In accordance with the DOBI requests, the NJLHIGA will send written notices to New Jersey resident ANIC LTC policyholders explaining the various options available to them under their specific policy. Policyholders will have approximately four months to review the options, seek necessary legal and/or financial advice, and make a selection.
“It is a bad situation for all affected, and one that leaves only difficult and limited options,” said Commissioner Badolato. “We must take this action in order to ensure there are enough funds available to pay future claims for New Jersey policyholders of ANIC, and to mitigate the costs to all other New Jersey policyholders and taxpayers.”
The more than 1,800 New Jersey residents with ANIC policies are fully protected by the NJLHIGA, which provides an unlimited benefit for LTC claims up to the amount of the selected benefit limit. New Jersey is one of only two states in the nation that have no lifetime limits on LTC benefits in cases of liquidation.
Penn Treaty did not conduct business in New Jersey and, therefore, New Jersey residents with Penn Treaty LTC policies will be covered by the guaranty fund of its state of domicile, the Commonwealth of Pennsylvania. Former New Jersey residents with ANIC policies, more than 700, are covered by the guaranty fund of their current state of residence.
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].