BILL NUMBER: SB 1613 CHAPTERED 09/18/02 CHAPTER 675 FILED WITH SECRETARY OF STATE SEPTEMBER 18, 2002 APPROVED BY GOVERNOR SEPTEMBER 17, 2002 PASSED THE SENATE AUGUST 31, 2002 PASSED THE ASSEMBLY AUGUST 31, 2002 AMENDED IN ASSEMBLY AUGUST 24, 2002 AMENDED IN SENATE APRIL 16, 2002 INTRODUCED BY Senator Dunn FEBRUARY 21, 2002 An act to amend Sections 10234.93 and 10236.11 of, and to amend, repeal, and add Section 10235.52 of, the Insurance Code, relating to insurance. LEGISLATIVE COUNSEL'S DIGEST SB 1613, Dunn. Long-term care insurance. (1) Existing law requires an insurer of long-term care in California to provide specified continuing education to agents and insurer representatives authorized to solicit individual consumers for the sale of long-term care insurance. This bill would require the evidence of the continuing education to be filed with and approved by the Insurance Commissioner for specified nonresident licensees. (2) Existing law requires an insurer of long-term care in California to notify current holders of its policies within 12 months of developing new benefits or benefit eligibility or new policies with new benefits or benefit eligibility. This bill would instead require, until June 30, 2003, the notification to be provided within 18 months if certain conditions are met. (3) Existing law requires an insurer to file with the Insurance Commissioner by January 1, 2002, premium rate schedules and new policy forms for all group long-term care insurance policies that it will offer, sell, issue, or deliver on or after January 1, 2003. This bill would specify that an insurer is not prohibited from filing new group and individual policy forms with the commissioner after January 1, 2003. The bill would authorize an insurer that has filed premium rate schedules and new policy forms by March 1, 2002, to continue to offer and market long-term care policies approved prior to January 1, 2002, until 90 days after approval of the premium rate schedules and new policy forms or June 30, 2003. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 10234.93 of the Insurance Code is amended to read: 10234.93. (a) Every insurer of long-term care in California shall: (1) Establish marketing procedures to assure that any comparison of policies by its agents or other producers will be fair and accurate. (2) Establish marketing procedures to assure excessive insurance is not sold or issued. (3) Submit to the commissioner within six months of the effective date of this act, a list of all agents or other insurer representatives authorized to solicit individual consumers for the sale of long-term care insurance. These submissions shall be updated at least semiannually. (4) Provide the following continuing education and require that each agent or other insurer representative authorized to solicit individual consumers for the sale of long-term care insurance shall satisfactorily complete the following continuing education requirements which shall be part of, and not in addition to, the continuing education requirements in Section 1749.3: (A) For licensees issued a license after January 1, 1992, eight hours of education in each of the first four 12-month periods beginning from the date of original license issuance and thereafter and eight hours of education prior to each license renewal. (B) For licensees issued a license before January 1, 1992, eight hours of education prior to each license renewal. (C) For nonresident licensees that are not otherwise subject to the continuing education requirements set forth in Section 1749.3, the evidence of education required by this section shall be filed with and approved by the commissioner as provided in subdivision (g) of Section 1749.4. Licensees shall complete the initial continuing education requirements of this section prior to being authorized to solicit individual consumers for the sale of long-term care insurance. The continuing education required by this section shall consist of topics related to long-term care services and long-term care insurance, including, but not limited to, California regulations and requirements, available long-term care services and facilities, changes or improvements in services or facilities, and alternatives to the purchase of private long-term care insurance. On or before July 1, 1998, the following additional continuing education topics shall be required: differences in eligibility for benefits and tax treatment between policies intended to be federally qualified and those not intended to be federally qualified, the effect of inflation in eroding the value of benefits and the importance of inflation protection, and NAIC consumer suitability standards and guidelines. (5) Display prominently on page one of the policy or certificate and the outline of coverage: "Notice to buyer: This policy may not cover all of the costs associated with long-term care incurred by the buyer during the period of coverage. The buyer is advised to review carefully all policy limitations." (6) Inquire and otherwise make every reasonable effort to identify whether a prospective applicant or enrollee for long-term care insurance already has accident and sickness or long-term care insurance and the types and amounts of any such insurance. (7) Every insurer or entity marketing long-term care insurance shall establish auditable procedures for verifying compliance with this subdivision. (8) Every insurer shall provide to a prospective applicant, at the time of solicitation, written notice that the Health Insurance Counseling and Advocacy Program (HICAP) provides health insurance counseling to senior California residents free of charge. Every agent shall provide the name, address, and telephone number of the local HICAP program and the statewide HICAP number, 1-800-434-0222. (9) Provide a copy of the long-term care insurance shoppers guide developed by the California Department of Aging to each prospective applicant prior to the presentation of an application or enrollment form for insurance. (b) In addition to other unfair trade practices, including those identified in this code, the following acts and practices are prohibited: (1) Twisting. Knowingly making any misleading representation or incomplete or fraudulent comparison of any insurance policies or insurers for the purpose of inducing, or tending to induce, any person to lapse, forfeit, surrender, terminate, retain, pledge, assign, borrow on, or convert any insurance policy or to take out a policy of insurance with another insurer. (2) High pressure tactics. Employing any method of marketing having the effect of or tending to induce the purchase of insurance through force, fright, threat, whether explicit or implied, or undue pressure to purchase or recommend the purchase of insurance. (3) Cold lead advertising. Making use directly or indirectly of any method of marketing which fails to disclose in a conspicuous manner that a purpose of the method of marketing is solicitation of insurance and that contact will be made by an insurance agent or insurance company. SEC. 2. Section 10235.52 of the Insurance Code is amended to read: 10235.52. (a) Every policy shall contain a provision that, in the event the insurer develops new benefits or benefit eligibility or new policies with new benefits or benefit eligibility not included in the previously issued policy, the insurer will grant current holders of its policies who are not in benefit or within the elimination period the following rights: (1) The policyholder will be notified of the availability of the new benefits or benefit eligibility or new policy within 12 months. The insurer's notice shall be filed with the department at the same time as the new policy or rider. (2) The insurer shall offer the policyholder new benefits or benefit eligibility in one of the following ways: (A) By adding a rider to the existing policy and paying a separate premium for the new benefit or benefit eligibility based on the insured's attained age. The premium for the existing policy will remain unchanged based on the insured's age at issuance. (B) By replacing the existing policy or certificate in accordance with Section 10234.87. (C) By replacing the existing policy or certificate with a new policy or certificate in which case consideration for past insured status shall be recognized by setting the premium for the replacement policy or certificate at the issue age of the policy or certificate being replaced. (b) The insured may be required to undergo new underwriting, but the underwriting can be no more restrictive than if the policyholder or certificate holder were applying for a new policy or certificate. (c) The insurer of a group policy as defined under subdivisions (a) to (c), inclusive, of Section 10231.6 must offer the group policyholder the opportunity to have the new benefits and provisions extended to existing certificate holders, but the insurer is relieved of the obligations imposed by this section if the holder of the group policy declines the issuer's offer. (d) The provisions of paragraph (1) of subdivision (a) that require an insurer to notify current policyholders of an opportunity to exchange or upgrade their current policies for a new policy shall be extended from 12 to 18 months if all the following conditions are met: (1) The insurer elects to offer insureds with policies that contain an upgrade right approved prior to January 1, 2000, the opportunity to exchange their policies for a new policy that was filed and approved pursuant to subdivision (c) of Section 10236.11. (2) The notification and offer to policyholders is made within 18 months after approval of the insurer's policy filed to comply with the requirements of Chapter 947 of the Statutes of 1999. (3) The notification letter is filed and approved by the Department of Insurance. The department shall develop standards for the notification letter by bulletin, in consultation with the Health Insurance and Advocacy Program, insurance industry, agents, and the California Partnership for Long-term Care. (e) This section shall become inoperative on June 30, 2003, and, as of January 1, 2004, is repealed, unless a later enacted statute that is enacted before January 1, 2004, deletes or extends the dates on which it becomes inoperative and is repealed. SEC. 3. Section 10235.52 is added to the Insurance Code, to read: 10235.52. (a) Every policy shall contain a provision that, in the event the insurer develops new benefits or benefit eligibility or new policies with new benefits or benefit eligibility not included in the previously issued policy, the insurer will grant current holders of its policies who are not in benefit or within the elimination period the following rights: (1) The policyholder will be notified of the availability of the new benefits or benefit eligibility or new policy within 12 months. The insurer's notice shall be filed with the department at the same time as the new policy or rider. (2) The insurer shall offer the policyholder new benefits or benefit eligibility in one of the following ways: (A) By adding a rider to the existing policy and paying a separate premium for the new benefit or benefit eligibility based on the insured's attained age. The premium for the existing policy will remain unchanged based on the insured's age at issuance. (B) By replacing the existing policy or certificate in accordance with Section 10234.87. (C) By replacing the existing policy or certificate with a new policy or certificate in which case consideration for past insured status shall be recognized by setting the premium for the replacement policy or certificate at the issue age of the policy or certificate being replaced. (b) The insured may be required to undergo new underwriting, but the underwriting can be no more restrictive than if the policyholder or certificate holder were applying for a new policy or certificate. (c) The insurer of a group policy as defined under subdivisions (a) to (c), inclusive, of Section 10231.6 must offer the group policyholder the opportunity to have the new benefits and provisions extended to existing certificate holders, but the insurer is relieved of the obligations imposed by this section if the holder of the group policy declines the issuer's offer. (d) This section shall become operative on June 30, 2003. SEC. 4. Section 10236.11 of the Insurance Code is amended to read: 10236.11. The premium rate schedules for all individual and group long-term care insurance policies issued in this state shall be filed with and receive the prior approval of the commissioner before the policy may be offered, sold, issued, or delivered to a resident of this state. All initial rate filings shall be subject to the following: (a) No approval for an initial premium schedule shall be granted unless the actuary performing the review for the commissioner certifies that the initial premium rate schedule is sufficient to cover anticipated costs under moderately adverse experience and that the premium rate schedule is reasonably expected to be sustainable over the life of the form with no future premium increases anticipated. The certification may rely on supporting data in the filing. The actuary performing the review may request an actuarial demonstration that the assumptions the insurer has used are reasonable. The actuarial demonstration shall include either premium and claim experience on similar policy forms, adjusted for any premium or benefit differences, relevant and creditable data from other studies, or both. (b) The insurer shall submit to the commissioner for approval a rate filing for each policy form that includes at least all of the following information: (1) An actuarial memorandum that describes the assumptions the insurer used to develop the premium rate schedule. The actuarial assumptions shall include, but not be limited to, a sufficiently detailed description of morbidity assumptions, voluntary lapse rates, mortality assumptions, asset investment yield rates, a description of all expense components, and plan and option mix assumptions. The memorandum shall also include the expected lifetime loss ratio and projections of yearly earned premiums, incurred claims, incurred claim loss ratios, and changes in contract reserves. (2) An actuarial certification consisting of at least all of the following: (A) A statement that the initial premium rate schedule is sufficient to cover anticipated costs under moderately adverse experience and that the premium rate schedule is reasonably expected to be sustainable over the life of the form with no future premium increases anticipated. (B) A statement that the policy design and coverage provided have been reviewed and taken into consideration. (C) A statement that the underwriting and claims adjudication processes have been reviewed and taken into consideration. (D) A complete description of the basis for contract reserves that are anticipated to be held under the form, to include all of the following: (i) Sufficient detail or sample calculations provided so as to have a complete depiction of the reserve amounts to be held. (ii) A statement that the assumptions used for reserves contain reasonable margins for adverse experience. (iii) A statement that the net valuation premium for renewal years does not increase (except for attained-age rating where permitted). (iv) A statement that the difference between the gross premium and the net valuation premium for renewal years is sufficient to cover expected renewal expenses, or if that statement cannot be made, a complete description of the situations in which this does not occur and the type and level of change in the reserve assumptions that would be necessary for the difference to be sufficient. An aggregate distribution of anticipated issues may be used as long as the underlying gross premiums maintain a reasonably consistent relationship. If the gross premiums for certain age groups appear to be inconsistent with this requirement, the commissioner may request a demonstration under subdivision (a) based on a standard age distribution. (E) A statement that the premium rate schedule is not less than the premium rate schedule for existing similar policy forms also available from the insurer except for reasonable differences attributable to benefits or a comparison of the premium schedules for similar policy forms that are currently available from the insurer with an explanation of the differences. (c) Premium rate schedules and new policy forms shall be filed by January 1, 2002, for all group long-term care insurance policies that an insurer will offer, sell, issue, or deliver on or after January 1, 2003, and for all previously approved individual long-term care insurance policies that an insurer will offer, sell, issue, or deliver on or after January 1, 2003, unless the January 1, 2002, deadline is extended by the commissioner. Insurers may continue to offer and market long-term care insurance policies approved prior to January 1, 2002, until the earlier of (1) 90 days after approval of both the premium rate schedules and new policy forms filed pursuant to this section or (2) January 1, 2003. Insurers that have filed premium rate schedules and new policy forms by March 1, 2002, may continue to offer and market long-term care insurance policies approved prior to January 1, 2002, until the earlier of (1) 90 days after approval of both the premium rate schedules and new policy forms filed pursuant to this section or (2) June 30, 2003. (d) Nothing in this section shall be construed as prohibiting an insurer from filing new group and individual policy forms, or from relieving an insurer of the obligation to file these forms, with the commissioner after January 1, 2003, if the policy form meets all the requirements of this chapter.