Long-Term Insurance:

Consumers Lack Protection in A Developing Market

T-HRD-92-5, Oct 24, 1991

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GAO discussed the problems with long-term care insurance policies and the model standards developed by the National Association of Insurance Commissioners (NAIC). GAO noted that: (1) long-term care insurance consumers are still vulnerable to considerable coverage and financial risks, although NAIC standards for long-term care insurance provide greater consumer protection than existed before fiscal year (FY) 1986; (2) many states have not adopted key NAIC standards, including standards developed between FY 1986 and FY 1988; (3) although insurers have adopted NAIC standards faster than the states have, most insurers' policies did not meet more recent NAIC standards; (4) NAIC standards do not address inconsistent terms in policies, eligibility criteria, and grievance procedures, which makes it difficult for consumers to compare policies; (5) because NAIC does not sufficiently address pricing, consumers face such risks as unpredictable premium increases, which may force policyholders to lapse their policies and lose their investments; and (6) in the absence of marketing standards, consumers have limited options to upgrade policies and are vulnerable to agents who try to sell them unnecessary policies to earn higher commissions. GAO believes that NAIC needs to consider extending its model standards to: (1) require more uniform language among policies; (2) improve methods for determining eligibility; and (3) provide greater protection against policyholders' loss of coverage and financial investment.

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