BILL NUMBER: AB 999 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY MARCH 31, 2011
INTRODUCED BY Assembly Member Yamada
FEBRUARY 18, 2011
An act to amend Section 10236.1 of
Sections 10234.93, 10236.1, 10236.13, and 10236.14 of, and to add
Section 10236.2 to, the Insurance Code, relating to long-term
care insurance.
LEGISLATIVE COUNSEL'S DIGEST
AB 999, as amended, Yamada. Long-term care insurance.
Existing law provides for the regulation of insurers
by the Department of Insurance , including insurers
issuing policies of long-term care insurance , by the
Insurance Commissioner . Existing law, for
policies issued before new rate schedules are approved and for which
rate revisions are filed on and after January 1, 2010, deems benefits
reasonable in relation to premiums if the premium rate schedules
have a lifetime expected loss ratio of at least 60% of the premium
scale in effect on December 31, 2009, plus 70% of premium increases
filed on or after January 1, 2010. Existing law, notwithstanding
these provisions, authorizes the commissioner, for rate increases
filed on or after January 1, 2010, to approve an application for a
rate revision based on less than a 70% loss ratio, but not less than
a 60% loss ratio, for the portion attributable to the rate increase
if the insurer can demonstrate that the rates are necessary to
protect the financial condition of the insurer, including further
reductions in capital and surplus. law regulates the
marketing or solicitation of long-term care insurance policies and,
in that regard, requires specified disclosures to prospective
applicants or enrollees.
This bill would require an insurer of long-term care insurance to
clearly post on its Internet Web site a specimen individual policy
form or group master policy and certificate form for each policy form
offered by the insurer.
Existing law requires the premium rate schedules for all
individual and group long-term care insurance policies issued in this
state to be filed with, and receive the prior approval of, the
Insurance Commissioner before the policy may be offered, sold,
issued, or delivered to a resident of this state. Existing law
requires an insurer of long-term care insurance to submit to the
Insurance Commissioner for approval all proposed premium rate
schedule increases and to include specified information with the rate
application. Approval of all premium rate schedule increases is
subject to specified criteria.
This bill would make a nonsubstantive change to these
provisions provide that if the premiums calculated
pursuant to those criteria produce a lifetime expected loss ratio
that is less than the highest lifetime expected loss ratio for the
policy form in all previous filings, the insurer is required to
reduce the premiums such that the current lifetime expected loss
ratio is equal to or greater than the highest of the previously filed
expected loss ratios.
With regard to individual or group long-term care insurance
policies issued before the approval of premium rate schedules by the
Insurance Commissioner, the bill would limit those premium rate
schedule increases to once every 5 years. For those policies, the
bill would also prohibit an insurer from justifying a rate increase
prior to approval by the Insurance Commissioner based upon asset
investment yield rate changes, and would require all of the
experience on long-term care policy forms issued by an insurer and
its affiliates to be pooled together. With regard to the approval of
other premium rate schedule increases by the Insurance Commissioner,
the bill would limit premium rate schedule increases to once every 10
years, except upon a demonstration of financial hardship, as
specified.
Vote: majority. Appropriation: no. Fiscal committee: no
yes . State-mandated local program: no.
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 training 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 training requirements that, for
resident licensees, shall count toward the licensee's continuing
education requirement, but may still result in completing more than
the minimum number of continuing education hours set forth in this
section:
(A) For licensees issued a license after January 1, 1992, eight
hours of training in each of the first four 12-month periods
beginning from the date of original license issuance and thereafter
eight hours of training prior to each license renewal.
(B) For licensees issued a license before January 1, 1992, eight
hours of training 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 training 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 training requirements of this
section prior to being authorized to solicit individual consumers
for the sale of long-term care insurance.
The training 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 training 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.
(10) Clearly post on its Internet Web site a specimen individual
policy form or group master policy and certificate form for each
policy form offered by the insurer.
(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.
SECTION 1. SEC. 2. Section 10236.1
of the Insurance Code is amended to read:
10236.1. (a) Benefits under individual long-term care insurance
policies issued before new premium rate schedules are approved under
Section 10236.11 shall be deemed reasonable in relation to premiums
if the expected loss ratio is at least 60 percent, calculated in a
manner that provides for adequate reserving of the long-term care
insurance risk.
(b) For individual long-term care insurance policies issued before
new premium rate schedules are approved under Section 10236.11, and
for which rate revisions are filed on or after January 1, 2010,
benefits shall be deemed reasonable in relation to the premium if the
premium rate schedules have a lifetime expected loss ratio of at
least 60 percent of the premium scale in effect on December 31, 2009,
plus 70 percent of premium increases filed on or after January 1,
2010, calculated in a manner that provides for adequate reserving of
the long-term care insurance risk. However, if the premiums
calculated in this manner produce a lifetime expected loss ratio that
is less than the highest lifetime expected loss ratio for this
policy form in all previous filings, the insurer shall reduce the
premiums such that the current lifetime expected loss ratio is equal
to or greater than the highest of the previously filed lifetime
expected loss ratios.
(c) In evaluating the expected loss ratio, due consideration shall
be given to all relevant factors, including the following:
(1) Statistical credibility of incurred claims experience and
earned premiums.
(2) The period for which rates are computed to provide coverage.
(3) Experienced and projected trends.
(4) Concentration of experience within early policy duration.
(5) Expected claim fluctuation.
(6) Experience refunds, adjustments, or dividends.
(7) Renewability features.
(8) All appropriate expense factors.
(9) Interest The discount rate
used in the calculation of lifetime expected loss ratios .
(10) Experimental nature of the coverage.
(11) Policy reserves.
(12) Mix of business by risk classification.
(13) Product features, such as long elimination periods, high
deductibles, and high maximum limits.
(d) Asset investment yield rate changes may not be used to justify
a rate increase.
(e) All of the experience on long-term care policy forms issued in
this state by an insurer and its affiliates, approved either prior
to approval under, or pursuant to, Section 10236.11, shall be pooled
together.
(f) Approval of all premium rate schedule increases filed on or
after January 1, 2012, shall be limited to no more than once every
five years.
(d)
(g) Notwithstanding any other provision of this
section, for rate revisions filed on or after January 1, 2010, the
commissioner may approve an application for a rate revision based on
less than a 70-percent loss ratio, but not less than a 60-percent
loss ratio, for the portion attributable to the rate increase if an
insurer can demonstrate that the rates are necessary to protect the
financial condition of the insurer, including avoidance of further
reductions in capital and surplus.
(h) This section applies only to long-term care insurance policies
issued before the approval of rate schedules under Section 10236.11.
SEC. 3. Section 10236.2 is added to the
Insurance Code , to read:
10236.2. The provisions of subdivisions (d), (e), and (f) of
Section 10236.1 shall apply to all group long-term care insurance
policies issued before the approval of premium rate schedules under
Section 10236.11.
SEC. 4. Section 10236.13 of the
Insurance Code is amended to read:
10236.13. No insurer may increase the premium for an individual
or group long-term care insurance policy or certificate approved for
sale under this chapter unless the insurer has received prior
approval for the increase from the commissioner.
The insurer shall submit to the commissioner for approval all
proposed premium rate schedule increases, including at least all of
the following information:
(a) Certification by an actuary, who is a member of the American
Academy of Actuaries and who meets the qualification standards of
that organization, that:
(1) If the requested premium rate schedule increase is implemented
and the underlying assumptions, which reflect moderately adverse
conditions, are realized, no further premium rate schedule increases
are anticipated.
(2) The premium rate filing is in compliance with the provisions
of this section.
(b) An actuarial memorandum justifying the rate schedule change
request that includes all of the following:
(1) Lifetime projections of earned premiums and incurred claims
based on the filed premium rate schedule increase, and the method and
assumptions used in determining the projected values, including
reflection of any assumptions that deviate from those used for
pricing other forms currently available for sale.
(A) Annual values for the five years preceding and the three years
following the valuation date shall be provided separately.
(B) The projections shall include the development of the lifetime
loss ratio.
(C) For policies issued with premium rate schedules approved under
Section 10236.11, the projections shall demonstrate compliance with
subdivision (a) of Section 10236.14. For all other policies, the
projections shall demonstrate compliance with Section 10236.1.
(D) If the commissioner determines that a premium rate increase is
justified due to changes in laws or regulations that are
retroactively applicable to long-term care insurance previously sold
in this state, then:
(i) The projected experience should be limited to the increases in
claims expenses attributable to the changes in law or regulations.
(ii) If the commissioner determines that potential offsets to
higher claims costs may exist, the insurer shall be required to use
appropriate net projected experience.
(2) Disclosure of how reserves have been incorporated in this rate
increase.
(3) Disclosure of the analysis performed to determine why a rate
adjustment is necessary, which pricing assumptions were not realized
and why, and what other actions taken by the company have been relied
on by the actuary.
(4) A statement that policy design, underwriting, and claims
adjudication practices have been taken into consideration.
(5) A statement that asset investment yield rate changes have not
been used to justify the rate increase.
(5)
(6) If it is necessary to maintain consistent premium
rates for new certificates and certificates receiving a rate
increase, the insurer shall file composite rates reflecting
projections of new certificates.
(c) A statement that renewal premium rate schedules are not
greater than new business premium rate schedules except for
differences attributable to benefits, unless sufficient justification
is provided to the commissioner.
(d) Sufficient information for approval of the premium rate
schedule increase by the commissioner.
(e) The provisions of this section are applicable to all
individual and group policies issued in this state on or after July
1, 2002.
SEC. 5. Section 10236.14 of the
Insurance Code is amended to read:
10236.14. Approval of all premium rate schedule increases
filed on or after January 1, 2012, shall be limited to no more than
once every 10 years, and shall be subject to the following
requirements:
(a) (1) Premium rate schedule increases
shall demonstrate that the sum of the accumulated value of incurred
claims, without the inclusion of active life reserves, and the
present value of future projected incurred claims, without the
inclusion of active life reserves, will not be less than the sum of
the following:
(1)
(A) The accumulated value of the initial earned premium
times 58 percent.
(2)
(B) Eighty-five percent of the accumulated value of
prior premium rate schedule increases on an earned basis.
(3)
(C) The present value of future projected initial
earned premiums times 58 percent.
(4)
(D) Eighty-five percent of the present value of future
projected premiums not in paragraph (3)
subparagraph (C) on an earned basis.
(2) However, if the premiums calculated in this manner produce an
expected lifetime loss ratio that is less than the highest expected
lifetime loss ratio for this policy form in all previous filings, the
insurer shall reduce the premiums such that the current expected
lifetime loss ratio is equal to or greater than the highest of the
previously filed expected lifetime loss ratios.
(b) In the event the commissioner determines that a premium rate
increase is justified due to changes in laws or regulations that are
retroactively applicable to long-term care insurance previously sold
in this state, a premium rate schedule increase may be approved if
the increase provides that 70 percent of the present value of
projected additional premiums shall be returned to policyholders in
benefits and the other requirements applicable to other premium rate
schedule increases are met.
(c) All present and accumulated values used to determine rate
increases should use the maximum valuation interest rate for contract
reserves. The actuary shall disclose as part of the actuarial
memorandum the use of any appropriate averages.
(d) If the requested premium rate schedule increase on
any new policy form approved under Section 10236.11 exceeds 15
percent or if the requested premium rate schedule increase on any
policy form approved under Section 10236.11 plus all increases
occurring after July 1, 2002, in the premium rate schedule for the
same policy form exceed 15 percent, no No
request for a rate increase on any policy form approved under
Section 10236.11 shall be approved by the commissioner except
as follows: all of the insurer's individual
experience on long-term care policy forms issued in this
state by the insurer and its affiliates that have been
approved either prior to approval under, or pursuant to
, Section 10236.11 are shall be
pooled together to project future claims experience
and the combined experience satisfies
shall satisfy the requirements in subdivision (a). An
insurer is not precluded from filing requests for premium rate
schedule increases on all of its policy forms if the combined
experiences after pooling all applicable policy forms satisfies the
requirements of subdivision (a).
(e) No approval for an increase in the premium schedule shall be
granted unless the actuary performing the review for the commissioner
certifies that if the requested premium rate schedule increase is
implemented and the underlying assumptions, which reflect moderately
adverse conditions, are realized, no further premium rate schedule
increases are anticipated. The certification may rely on supporting
data in the filing.
(f) Notwithstanding any other provision of this section, for
applications for rate revisions filed on or after January 1, 2012,
the commissioner may approve the application if an insurer
demonstrates that the rates are necessary to protect the financial
condition of the insurer, including avoidance of further reductions
in capital and surplus.
(f)
(g) The provisions of this section are applicable to
all individual and group policies issued in this state on or after
July 1, 2002.