Covering Long-Term Care for a Failing Insurance Company’s Compliance

September 2, 2020
3 Minute Read

When a long-term care insurance company’s liquid assets dwindled, making it unlikely they could sustain future claims, they eventually had to liquidate. Our work supporting internal audit for 44 of the 50 states where policyholders had claims laid the foundation for honoring future obligations.

Long-term care insurance is serious business. It’s meant to provide a safety net to pay for assisted living, nursing home care or home health care in the event of chronic illness or disability, costs that would otherwise be devastating to patients and their families. And it relies on accountability—so when the worst occurs, policyholders get the care—and peace of mind— they need.

But what happens when an insurance company can’t make good on that promise?

This is the mounting dilemma faced by our client, a long-term care insurance company with 76 thousand policyholders across all 50 states. When premiums they were collecting fell far below the annual claims rate, their liquid assets couldn’t support future obligations, leaving the company in what’s known as rehabilitation. At the same time, their assistant vice president of internal controls was retiring.

Needing a steady and practiced hand to navigate the company’s risk assessment and audit, they recruited Phil Ballard, an RGP risk and compliance consultant, and eventually promoted him to Chief Internal Audit Officer.

“When a company goes into rehabilitation, the state becomes the board of directors with positioning and goals to bring the company back to life. Then, they either become viable again or move into liquidation, which is essentially bankruptcy.”

After two years performing risk assessments and audits for the company, his ability to keep an even keel and his eye for painstaking detail got noticed by the company’s board of directors.

“When a company goes into rehabilitation, the state becomes the board of directors with positioning and goals to bring the company back to life,” says Phil. “Then, they either become viable again or move into liquidation, which is essentially bankruptcy.”

Honoring Future Claims

To protect policyholders when their insurance companies can’t pay, insurance companies are required to be members of a state guaranty association, in essence a regulatory insurance policy that provides coverage when the original safety net fails. When our client’s business went into liquidation, the guaranty associations in 46 of the 50 states combined forces to handle the fallout and manage claims, collect premiums and make payments.

Phil went on to serve as the outsourced internal audit officer for that association as well as the company was appointed to administer claims.

“I worked to make sure that the controls the company had in place were working properly. Overall, they had more than 100 controls related to the applications used to manage claims and collect premiums,” Phil says. “I had to make sure the proper controls associated with those applications were secure.”

Phil also provided risk assessment and analysis over the financial and operational areas, including investment, receivables, contractual requirements and actuarial processes. Additionally, he oversaw third-party administrator processes for premium and claims activities.

Safeguarding a Vital Resource

Reporting the results to the Audit Risk and Advisory Committee in order to plan for needed adjustments, Phil provided assurance that state-mandated policyholder rate increases were implemented fairly, accurately and in a timely way.

“When it comes to long-term care insurance, companies have an enormous responsibility to make sure they can fund claims in a sustainable way. I take that work very seriously,” says Phil.

Ultimately, Phil’s effort laid the foundation for honoring future claims. He ensured that the guaranty associations’ investment and receivables balances were accurate, appropriately monitored and controlled to fulfill forthcoming obligations.

And Phil knows from experience that insurance—life insurance or otherwise—is a high-stakes resource, one that’s absolutely vital in times of need.

“I contracted COVID at the end of March 2020,” says Phil, emotion softening his voice. “After being hospitalized, I was put into an induced coma. On the second night in a coma, my heart stopped and I was resuscitated. When I eventually woke up, over two weeks had passed.

“RGP was in touch with my wife daily to make sure my short-term disability kicked in. During that difficult time, my wife never missed one of my paychecks.”

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