BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    AB 2366


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          Date of Hearing:  April 6, 2016


                           ASSEMBLY COMMITTEE ON INSURANCE


                                   Tom Daly, Chair


          AB 2366  
          (Dababneh) - As Amended March 16, 2016


          SUBJECT:  Long-term care insurance


          SUMMARY:  Exempts insurers that offer a policy which combines  
          both life and long-term care (LTC) coverages from the  
          requirement to offer the new policy to their existing long-term  
          care policy holders.  


          EXISTING LAW:  


          1) Requires long-term care insurance policies to provide the  
          policy holder with the right to be: 


            a) notified of any new long-term care benefit or benefit  
            eligibility rule offered by the insurer, and


            b) offered the new benefit or benefit eligibility rule by the  
            insurer as either a replacement policy or a rider on the  
            existing policy.


          FISCAL EFFECT:  Undetermined








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          COMMENTS:  


           1)Purpose  .  According to the author, the requirement to offer  
            new LTC products to existing policyholders hinders the ability  
            of companies to make new products available for consumers,  
            creates a compliance debacle for new hybrid products, and can  
            be extremely confusing or misleading to existing  
            policyholders. The author introduced the bill to offer a  
            simple solution to ensure that insurance consumers are offered  
            the latest innovative insurance products, while protecting  
            existing policyholders from being forced to review and  
            contemplate a potentially inappropriate replacement product.   
            In fact, a number of existing Insurance Code sections require  
            significant protections for consumers against potential  
            unnecessary LTC replacement sales.  This modest change in the  
            law will assist in the development of new innovative LTC  
            products, and protect many existing policyholders from being  
            needlessly confused by an updated offer every time a new LTC  
            product is developed.  All products an insurer offers are  
            always available for review online, or by calling an insurance  
            agent or representative.



           2)Troubled Product  .  Long-term care insurance is a product with  
            a troubled history that has spawned a rigorous regulatory  
            regime.  Long-term care policies are subject to myriad  
            regulatory controls including prior approval requirements for  
            policies and advertisements, rate regulation, mandatory  
            benefits, and detailed requirements governing the sale of LTC  
            products to name a few.  These elaborate controls have arisen  
            from problems that prior LTC products have had in both product  
            design (what services are covered and in what quantity) and  
            pricing.  Many early products suffered from the dual sins of  
            paying for a large amount of a fairly narrow range of services  
            (mostly institutional care) with relatively low premiums that  








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            resulted in many policyholders owning policies that didn't  
            cover a lot of the services they needed (LTC services are  
            increasingly provided at home and in non-institutional  
            settings) and ever increasing premiums that are unaffordable  
            for retirees with fixed incomes.  



            LTC insurance is an inherently difficult product for both  
            consumers and insurers.  It requires both the consumer and the  
            insurer to estimate what LTC services will be needed, how long  
            they will be needed, and when they will be needed.  This is  
            inherently difficult as it requires the consumer to answer  
            these questions based on what their physical and financial  
            condition will be 10, 20, or 30 years from now.  That inherent  
            problem is compounded by the rapid development of medical and  
            other technologies that are changing the way we age and die in  
            dramatic ways.  Even if the "what" of LTC services doesn't  
            change over that time span, we can be confident that the "how"  
            and the cost of LTC services will be very different in 20  
            years.  





           3)Combination Products  .  For the reasons noted above, and  
            others, LTC insurance has been a difficult product to sell.   
            Somewhere between 10 and 12 percent of adults have an LTC  
            policy of some kind.  Mostly these policies have been  
            purchased by more affluent women who face the reality that  
            they will need care and likely not have a spouse or partner to  
            provide it (women have longer average life spans than men) and  
            want to preserve some assets to pass on to their heirs.   
            Insurers have created products that combine life insurance and  
            LTC insurance to try and make the product appealing to a  
            broader range of consumers.  These products provide a death  
            benefit during the policyholder's working years and the  
            benefit converts to an LTC benefit later in life.  These new  








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            products are new LTC products and therefore have triggered the  
            requirement that they be offered to existing LTC insurance  
            policyholders.  



            Insurers indicate that this is problematic because the  
            requirement to offer new products to existing policyholders  
            was enacted with standalone LTC insurance products in mind.    
            Combination products (also referred to as hybrid products)  
            have a financial structure particular to the specific type of  
            life insurance product upon which it is based (whole life,  
            universal life, variable life, etc.) and within each type  
            there are different methods of allocating premiums and  
            earnings.  The diversity of products in this new market may  
            well be at odds with the underlying requirement to offer  
            policyholders new products as they become available.  


          REGISTERED SUPPORT / OPPOSITION:




          Support


          Association of California Life and Health Insurance Companies




          Opposition


          None received











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          Analysis Prepared by:Paul Riches / INS. / (916) 319-2086