BILL NUMBER: AB 999 ENROLLED
BILL TEXT
PASSED THE SENATE AUGUST 29, 2012
PASSED THE ASSEMBLY AUGUST 30, 2012
AMENDED IN SENATE AUGUST 23, 2012
AMENDED IN SENATE JUNE 7, 2012
AMENDED IN SENATE JUNE 9, 2011
AMENDED IN ASSEMBLY MAY 11, 2011
AMENDED IN ASSEMBLY MARCH 31, 2011
INTRODUCED BY Assembly Member Yamada
(Coauthor: Assembly Member Skinner)
FEBRUARY 18, 2011
An act to amend Sections 10234.6, 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, 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. Existing law regulates the marketing or
solicitation of long-term care insurance policies and, in that
regard, requires specified disclosures to prospective applicants or
enrollees. Existing law requires the Insurance Commissioner to
annually prepare a consumer rate guide for long-term care insurance
and to include specified information.
This bill would require an insurer of long-term care insurance to
clearly post on its Internet Web site and provide written notice at
the time of solicitation that a specimen individual policy form or
group master policy and certificate form for each policy form offered
by the insurer is available upon request and to provide that form
within 15 calendar days upon request. This bill would require the
annual consumer rate guide to include a specimen outline of coverage
for each product currently marketed by each insurer listed in the
rate guide.
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, including, but not limited to, certification by an
actuary as to specified matters. Approval of all premium rate
schedule increases is subject to specified criteria.
This bill would provide that if the premiums in any rate revision
filing 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 the initial filing or for requested
premium rates in any filing made after January 1, 2013, the insurer
would be required to reduce the premiums in that filing such that the
current lifetime expected loss ratio is equal to or greater than the
highest filed loss ratio, as specified. The bill would set forth
criteria for calculating the margin in the determination of a
lifetime expected loss ratio.
Existing law prohibits an approval for an increase in the premium
schedule from being granted unless the actuary performing the review
for the Insurance 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.
This bill would eliminate those provisions and, instead, authorize
an insurer to request a premium rate schedule increase that is lower
than the rate increase necessary to provide the required
certification or a series of premium rate schedule increases with a
present value of not more than the rate increase necessary to provide
that certification. The bill would authorize the Insurance
Commissioner to approve this request if, in his or her opinion,
accepting the lower premium rate schedule increase or increases is in
the best interest of California policyholders, and other conditions
are satisfied, as specified.
For long-term care insurance 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, except as specified, and would require all of the
experience on all similar long-term care policy forms issued by an
insurer and its affiliates and retained within the affiliated group
to be pooled together and used as the basis for determining whether
an increase is reasonable or shall be approved under specified
provisions. The bill would require similar long-term care policy
forms to be classified into benefit classifications of nursing
facility and residential care facility only, home care only, or
comprehensive long-term care benefits.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 10234.6 of the Insurance Code is amended to
read:
10234.6. (a) The commissioner shall, by June 1 of each year,
jointly design the format and content of a consumer rate guide for
long-term care insurance with a working group that includes
representatives of the Health Insurance Counseling and Advocacy
Program, the insurance industry, and insurance agents. The
commissioner shall annually prepare the consumer rate guide for
long-term care insurance that shall include, but not be limited to,
the following information:
(1) A comparison of the different types of long-term care
insurance and coverages available to California consumers and a
specimen outline of coverage for each product currently marketed by
each insurer listed in the rate guide.
(2) A premium history of each insurer that writes long-term care
policies for all the types of long-term care insurance and coverages
issued by the insurer in California.
(b) The consumer rate guide to be prepared by the commissioner
shall consist of two parts: a history of the rates for all policies
issued in California for the current year and for four preceding
years, and a comparison of the policies, benefits, and sample
premiums for all policies currently being issued for delivery in
California.
(1) For the rate history portion of the rate guide required by
this section, the department shall collect, and each insurer shall
provide to the department, all of the following information for each
long-term care policy, including all policies, whether issued by the
insurer or purchased or acquired from another insurer, issued in
California for the current year and for four preceding years:
(A) Company name.
(B) Policy type.
(C) Policy form identification.
(D) Dates sold.
(E) Date acquired (if applicable).
(F) Premium rate increases requested.
(G) Premium rate increases approved.
(H) Dates of premium rate increase approvals.
(I) Any other information requested by the department.
(2) For the policy comparison portion of the rate guide required
by this section, the department shall collect, and each insurer shall
provide to the department, the information needed to complete the
following form, along with any other information requested by the
department, for each long-term care policy currently issued for
delivery in California, including all policies, whether issued by the
insurer or purchased or acquired from another insurer: GRAPHIC
INSERT HERE: SEE PRINTED VERSION OF THE BILL]
If an insurer does not offer a policy for sale that fits the
criteria set forth in the sample premium portion of the policy
comparison section of the rate guide, the department shall include in
that section of the form for that policy a statement explaining that
a policy fitting that criteria is not offered by the insurer and
that the consumer may seek, from an agent, sample premium information
for the insurer's policy that most closely resembles the policy in
the sample.
The department shall use the format set forth in this section for
the policy comparison portion of the rate guide, unless the working
group convened pursuant to subdivision (a) designs an alternative
format and agrees that it should be used instead.
In compiling the policy comparison portion of the rate guide, the
department shall separate the group policies from the individual
policies available for sale so that group policies for all insurers
appear together in the guide and individual policies for all insurers
appear together in the guide.
The policy comparison portion of the rate guide shall contain a
cross-reference for each policy form listed indicating the page in
the rate guide where rate information on the policy form can be
found.
(c) The department shall publish, on the department's Internet Web
site, a premium history of each insurer that writes long-term care
policies for all the types of long-term care insurance and coverages
issued by the insurer in each state. Each insurer shall provide to
the department all of the information listed in paragraph (1) of
subdivision (b) for each long-term care policy, including all
policies, whether issued by the insurer or purchased or acquired from
another insurer, issued in the United States for the current year
and for the nine preceding years.
(d) Insurers shall provide the information required pursuant to
subdivisions (b) and (c) no later than July 31 of each year,
commencing in 2000.
(e) The consumer rate guide shall be published no later than
December 1 of each year commencing in 2000, and shall be distributed
using all of the following methods:
(1) Through Health Insurance Counseling and Advocacy Program
(HICAP) offices.
(2) By telephone using the department's consumer toll-free
telephone number.
(3) On the department's Internet Web site.
(4) A notice in the Long-Term Care Insurance Personal Worksheet
required by Section 10234.95.
(f) Notwithstanding any other provision of law, the data submitted
by insurers to the department pursuant to this section are public
records, and shall be open to inspection by members of the public
pursuant to the procedures of the California Public Records Act.
However, a trade secret, as defined in subdivision (d) of Section
3426.1 of the Civil Code, is not subject to this subdivision.
SEC. 2. 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 and provide written
notice at the time of solicitation that a specimen individual policy
form or group master policy and certificate form for each policy form
offered in this state is available to a prospective applicant upon
request. The individual specimen policy form or group master policy
and certificate form shall be provided to a requesting party within
15 calendar days or receipt of a request.
(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. 3. 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) (1) 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.
(2) However, if the premiums in any rate revision filing
calculated in the manner provided in paragraph (1) produce a lifetime
expected loss ratio that is less than the highest lifetime expected
loss ratio for this policy form in the initial filing or that for
requested premium rates in any filing made after January 1, 2013, the
insurer shall reduce the premiums in the filing so that the current
lifetime expected loss ratio is equal to or greater than the highest
initially filed loss ratio or that for requested premium rates filed
after January 1, 2013. In the determination of a lifetime expected
loss ratio, a margin may reflect changes in the manner in which risks
are shared between the insurer and a block of policies due to
changes in this law effective January 1, 2013, and that margin shall
not be increased unless the manner in which risks are shared between
the insurer and the block of policies is changed further by law or
regulation. The determination of the lifetime expected loss ratio
shall be based on the actual distribution of policies in force at the
time of the first filing after January 1, 2013, and not any prior
assumed distribution.
(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) 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 unless the insurer can demonstrate that its return
on investments is lower than the maximum valuation interest rate for
contract reserves for those policies or the commissioner determines
that a change in interest rates is justified due to changes in laws
or regulations that are retroactively applicable to long-term care
insurance previously sold in this state.
(e) The experience on all similar long-term care policy forms
issued in this state by an insurer and its affiliates and retained
within the affiliated group shall be pooled together and the combined
experience shall be used as the basis for assumptions that satisfy
the requirements in subdivisions (a) and (b). Those assumptions and
requested rate increases may vary by policy form if actuarially
appropriate. Similar long-term care policy forms shall be classified
into one of the following benefit classifications: nursing facility
and residential care facility only, home care only, or comprehensive
long-term care benefits.
(f) 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.
(g) This section applies only to long-term care insurance policies
issued before the approval of rate schedules under Section 10236.11.
SEC. 4. Section 10236.2 is added to the Insurance Code, to read:
10236.2. Except where the provisions of a group contract provide
otherwise, the provisions of subdivisions (d) and (e) 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. 5. 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 unless the insurer can
demonstrate that its return on investments is lower than the maximum
valuation interest rate for contract reserves for those policies or
the commissioner determines that a change in interest rates is
justified due to changes in laws or regulations that are
retroactively applicable to long-term care insurance previously sold
in this state.
(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) (1) The insurer, at its discretion, may request a premium rate
schedule increase that is lower than the rate increase necessary to
provide the certification required by subdivision (a) or a series of
premium rate schedule increases with a present value of not more than
the rate increase necessary to provide the certification required by
subdivision (a). The commissioner may accept the premium rate
schedule increase or series of increases without submission of the
certification required by subdivision (a) if all of the following
apply:
(A) In the opinion of the commissioner, accepting the lower
premium rate schedule increase or increases is in the best interest
of California policyholders.
(B) The actuarial memorandum discloses to the commissioner the
rate increase necessary to provide the certification required by
subdivision (a).
(C) The rate increase filing satisfies all other requirements of
this section.
(D) The insurer discloses to policyholders affected by the
approved increases the filed increase, the approved premium rate
schedule increase or increases, and the amount and timing of any
subsequent rate schedule increases included in the rate increase
filing whether those subsequent rate schedule increases are approved
or not approved by the commissioner.
(2) The commissioner may approve a lower requested premium rate
schedule increase and may approve the initial increase or more than
just the initial increase requested pursuant to paragraph (1).
(3) If the amount of increase after all increases disclosed
pursuant to subparagraph (D) of paragraph (1), whether the increase
or increases are approved or not approved by the commissioner,
triggers the contingent benefit upon lapse, the commissioner shall
require the administration by an insurer of the contingent benefit
upon lapse as a condition of approval of a premium rate schedule
increase that is lower than the amount necessary to provide the
certification required by paragraph (1) of subdivision (a) or with
the initial increase and each subsequent increase in a series of
premium rate schedule increases. The commissioner may waive this
condition of approval if an insurer demonstrates that the waiver is
necessary to protect the financial condition of the insurer,
including avoidance of further reductions in capital and surplus.
(4) For purposes of paragraph (2) of subdivision (a) of Section
10236.14, the loss ratio calculation shall assume future premiums are
based on the total filed rate schedule increase or series of
increases disclosed pursuant to subparagraph (D) of paragraph (1),
whether the increase or increases are approved or not approved by the
commissioner.
(5) Premium rate schedule increases requested pursuant to
paragraph (1) or approved as described in paragraph (2) shall comply
with the provisions of Sections 10234.6 and 10234.95.
(f) The provisions of this section are applicable to all
individual and group policies issued in this state on or after July
1, 2002.
SEC. 6. Section 10236.14 of the Insurance Code is amended to read:
10236.14. Approval of all premium rate schedule increases 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:
(A) The accumulated value of the initial earned premium times 58
percent.
(B) Eighty-five percent of the accumulated value of prior premium
rate schedule increases on an earned basis.
(C) The present value of future projected initial earned premiums
times 58 percent.
(D) Eighty-five percent of the present value of future projected
premiums not in subparagraph (C) on an earned basis.
(2) However, if the premiums in any rate revision filing
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 the initial filing or that for requested premium rates
in any filing made after January 1, 2013, the insurer shall reduce
the premiums in the filing so that the current lifetime expected loss
ratio is equal to or greater than the highest initially filed loss
ratio or that for requested premium rates filed after January 1,
2013. In the determination of a lifetime expected loss ratio, the
margin for moderately adverse experience shall be reflected and shall
not be increased unless the manner in which risks are shared between
the insurer and block of policies has been changed by this law or
any future law or regulation. The determination of the lifetime
expected loss ratio shall be based on the actual distribution of
policies issued and not any assumed distribution prior to actual
sales.
(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) No request for a rate increase on any policy form approved
under Section 10236.11 shall be approved by the commissioner except
as follows: the experience on all similar long-term care policy forms
issued in this state by the insurer and its affiliates and retained
by the affiliated group that have been approved either prior to
approval under, or pursuant to, Section 10236.11 shall be pooled
together and the combined experience shall be used as the basis for
assumptions that satisfy the requirements in subdivision (a). Those
assumptions and requested rate increases may vary by policy form if
actuarially appropriate. Similar long-term care policy forms shall be
classified into one of the following benefit classifications:
nursing facility and residential care facility only, home care only,
or comprehensive long-term care benefits. 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) Notwithstanding any other provision of this section, for
applications for rate revisions filed on or after January 1, 2013,
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) The provisions of this section are applicable to all
individual and group policies issued in this state on or after July
1, 2002.