BILL NUMBER: SB 898 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY AUGUST 26, 1999
AMENDED IN ASSEMBLY JULY 7, 1999
AMENDED IN ASSEMBLY JUNE 24, 1999
AMENDED IN SENATE JUNE 2, 1999
AMENDED IN SENATE APRIL 14, 1999
INTRODUCED BY Senator Dunn
(Coauthor: Senator Sher)
FEBRUARY 25, 1999
An act to amend Sections 10235.22 and 10236 of, and to add Section
10236.1 to, the Insurance Code, relating to long-term care
insurance.
LEGISLATIVE COUNSEL'S DIGEST
SB 898, as amended, Dunn. Long-term care renewal provisions.
Existing law provides that every individual long-term care
insurance policy shall contain a renewal provision that is either
guaranteed renewable or noncancelable.
This bill would also require group long-term care policies and
certificates to be either guaranteed renewable or noncancelable.
This bill would require approval of the Insurance Commissioner
before individual or group long-term care insurance may be offered,
sold, issued, or delivered in this state, and would specify the
duties of insurers and the commissioner in this regard. This bill
would limit premium increases for these policies, as specified, and
would provide for a contingent nonforfeiture benefit. The bill would
enact other related provisions.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. It is the intent of the Legislature that certain
premiums and conditions for long-term care insurance shall be subject
to the prior approval of the Insurance Commissioner.
SEC. 2. Section 10235.22 of the Insurance Code is amended to read:
10235.22. (a) Benefits under individual long-term care insurance
policies and certificates 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. 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.
(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.
(b) Relative to premiums increased pursuant to subdivision (b) of
Section 10236.1, benefits under individual long-term care insurance
policies and certificates shall be deemed reasonable in relation to
increased premiums if the lifetime loss ratio is at least 60 percent
of the initial premium schedule plus 80 percent of all additions to
the initial premium schedule, calculated in a manner that provides
for adequate reserving of the long-term care insurance risk. In
evaluating the lifetime loss ratio, due consideration shall be given
to all relevant factors, including those listed in paragraphs (1) to
(13), inclusive, of subdivision (a).
(c)
10235.22. (a) (1) Relative to premiums increased pursuant to
subdivision (b) of Section 10236.1, benefits under individual
long-term care insurance policies and certificates shall be deemed
reasonable if the sum of the accumulated value of actual incurred
claims and the present value of anticipated incurred claims will not
be less than the sum of:
(A) Sixty percent of the sum of the accumulated value of initial
earned premiums and the present value of anticipated future initial
premiums.
(B) Eighty percent of the sum of the accumulated value of prior
increased premiums and the present value of future anticipated
increased premiums.
(2) The interest rate used shall be the statutory valuation
interest rate for the first issue year of the group of policies or
certificates under consideration.
(3) In evaluating reasonableness, due consideration shall be given
to all relevant factors, including all of the following:
(A) Statistical credibility of incurred claims experience and
earned premiums.
(B) The period for which rates are computed to provide coverage.
(C) Experienced and projected trends.
(D) Concentration of experience within early policy duration.
(E) Expected claim fluctuation.
(F) Experience refunds, adjustments, or dividends.
(G) Renewability features.
(H) All appropriate expense factors.
(I) Interest.
(J) Experimental nature of the coverage.
(K) Policy reserves.
(L) Mix of business by risk classification.
(M) Product features, such as long elimination periods, high
deductibles, and high maximum limits.
(b) The insurer shall file lifetime projections of earned
premiums and incurred claims based on the filed rate increase.
Annual values for the five years preceding and the three years
following the valuation date shall be provided separately. If the
filed rate increase is implemented, the insurer shall file updated
projections annually for the next three years and include a
comparison of actual results to projected values. The commissioner
may extend the period to more than three years if actual results are
not consistent with the projected values from prior projections. If
the commissioner determines that the actual experience does not
adequately match the projected experience and that the incurred
claims will not exceed proportions of premiums specified in this
section, the commissioner may require the insurer to implement any of
the following:
(1) Benefit modifications.
(2) Premium rate schedule adjustments.
(3) Other measures to reduce the difference between the projected
and actual experience.
SEC. 3. Section 10236 of the Insurance Code is amended to read:
10236. Every long-term care policy and certificate shall be
either guaranteed renewable or noncancelable.
(a) "Guaranteed renewable" means that the insured has the right to
continue coverage in force if premiums are timely paid during which
period the insurer may not unilaterally change the terms of coverage
or decline to renew, except that the insurer may, in accordance with
provisions in the policy, and in accordance with Section 10236.1,
change the premium rates to all insureds in the same class. The
"class" is determined by the insurer for the purpose of setting rates
at the time the policy is issued.
(b) "Noncancelable" means the insured has the right to continue
the coverage in force if premiums are timely paid during which period
the insurer may not unilaterally change the terms of coverage,
decline to renew, or change the premium rate.
(c) Every long-term care policy and certificate shall contain an
appropriately captioned renewability provision on page one, which
shall clearly describe the initial term of coverage, the conditions
for renewal and, if guaranteed renewable, a description of the class
and of each circumstance under which the insurer may change the
premium amount.
SEC. 4. Section 10236.1 is added to the Insurance Code, to read:
10236.1. (a) (1) No individual or group long-term care insurance
coverage may be offered, sold, issued, or delivered to a resident of
this state without the prior approval of the commissioner pursuant to
the provisions of this chapter. The commissioner shall review and
approve individual and group policy forms and certificates, outlines
of coverage, all notices and documents that are required to be given
to an applicant at the time of solicitation, advertising materials to
be used in this state, and rates and premiums for policies and
certificates.
(2) The insurer shall submit to the commissioner an initial rate
filing that discloses the assumptions the insurer has used to develop
its premium schedule. No approval for a premium schedule shall be
granted unless the commissioner certifies that the assumptions the
insurer has submitted are reasonable, and that, based upon the
assumptions contained in the rate filing and relevant experience
data, no rate increase for that policy form will be required. The
commissioner, prior to certification, shall utilize an
independent actuarial consultant a contracted actuary
or a department actuary pursuant to subdivision (c) to review
the assumptions the insurer has used to develop its premium schedule.
Group policy forms as defined in subdivisions (a), (b), and (c) of
Section 10231.6 shall not be subject to the pooling of experience
required by paragraph (2) of subdivision (b).
(3) Any insurer offering long-term care insurance for sale in
California on a "guaranteed renewable" basis shall also offer for
sale and actively market in this state at least one plan of long-term
care insurance on a "noncancelable basis." Insurers are not
required to offer for sale a "noncancelable" version of every
"guaranteed renewable" policy offered for sale by the insurer.
However, at a minimum, insurers shall offer for sale a "noncancelable"
version of the most recent and best selling "guaranteed renewable"
policy that they offer for sale in this state. The requirements of
Section 10235.22 shall not apply to noncancelable plans.
(b) No insurer may increase the premium for a 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, as follows:
(1) The premium schedule may be subject to one increase upon a
determination by the commissioner that the increase is necessary
based on the experience of the insurer with the individuals in the
class. No approval for an increase shall be granted unless the
commissioner certifies that no further rate increase will be
required. The insurer may not file for an increase unless the
initial premium schedule and the new premium schedule together
produce a lifetime loss ratio consistent with Section 10235.22. The
insurer shall provide a contingent nonforfeiture benefit upon lapse
that shall be available not less than 90 days following any increase
in premium rates. The nonforfeiture benefit shall be triggered each
time an insurer increases the premium rates. The nonforfeiture
benefit shall be a fully paid-up shortened benefit period, and shall
be no less than 100 percent of the cumulative premium paid plus no
less than 5 percent compounded interest to the date of lapse. The
type of nonforfeiture benefit provided shall be the same as benefits
purchased under the lapsed contract. Unless otherwise required,
policyholders shall be notified at least 30 days prior to the due
date of the premium reflecting the rate increase. The notice shall
include a referral to the local Health Insurance Counseling and
Advocacy Program or to the toll-free telephone number (
(800)-434-0222) ((800) 434-0222) of the Health
Insurance Counseling and Advocacy Program.
(2) After the premium has been increased in accordance with
paragraph (1), or after any premium increase that occurs
after has been filed with the department on or after
February 25, 1999, and before January 1, 2001, further premium
increases are subject to a determination by the commissioner that the
increase satisfies the requirements of paragraph (1), that the
increase is necessary based on a review of the relevant experience of
the insurer, and that the relevant experience is reflected in the
assumptions for policy forms currently being marketed. The relevant
experience of the insurer shall consist of all of the insurer's
individual long-term care policies issued in this state for purposes
of developing future morbidity assumptions.
(3) Beginning on January 1, 2002, the commissioner shall only
approve a premium increase in the same percentage amount as the
increase in the index compiled pursuant to subdivision (e). An
insurer may choose to increase its loss ratio instead, if that
results in a premium increase that is less than the indexed
percentage.
(4)
(3) If the commissioner demonstrates, based upon credible
evidence, that an insurer has engaged in a persistent practice of
filing inadequate initial premium schedules, the commissioner may, in
addition to any other authority of the commissioner under this
chapter, and after the insurer is afforded proper notice and due
process, prohibit the insurer from filing and marketing comparable
coverage for a period of up to five years or from offering all other
similar policy forms, and may limit marketing of new applications to
each policy form subject to recent rate increases.
(c) All actuaries used by the commissioner to review rate
applications submitted by insurers pursuant to this section, whether
employed by the department or secured by contract, shall be members
of the American Academy of Actuaries with at least five years'
experience in long-term care insurance industry pricing, and shall be
or shall have been an active participant in long-term care insurance
actuarial task forces within the last five years. If the department
does not have actuaries with the experience required by this
subdivision, the commissioner shall contract with
independent actuarial consultants actuaries to
review all rate applications submitted by insurers pursuant to this
chapter.
If the department has actuaries that have experience required by
this subdivision, but not enough of those experienced actuaries to
perform the volume of work required by this subdivision, the
commissioner may contract with independent actuaries, as necessary.
The department shall randomly select from the actuarial
consultants contracted actuaries secured by the
commissioner a consultant contracted actuary
to review a rate application submitted by an insurer pursuant
to this section. No actuarial consultant
contracted actuary randomly selected shall have been involved
in any prior consulting and shall not be involved in any concurrent
consulting on any actuarial work of any filings of the company whose
policies have been submitted for rate review. If that is the case,
the department shall randomly select another actuarial
consultant contracted actuary to perform the
rate review. No actuarial consultant actuary
with whom the commissioner has secured a contract may enter
into a consulting relationship with the company whose policies it has
reviewed pursuant to this section for two years after the
termination of the contract issued by the commissioner. The insurer'
s identity shall not be revealed to the actuarial consultant
contracted actuary selected to perform the rate
review. All communications between the actuarial
consultant contracted actuary and the insurer
shall be conducted through the department to ensure confidentiality.
The commissioner shall develop standard filing requirements and
forms so that all filing information among insurers is consistent.
(d) The filings required by this section shall be kept
confidential by the commissioner, staff of the department, and any
contract personnel.
(e) The commissioner shall collect the experience for all
companies selling long-term care insurance in California reported to
the National Association of Insurance Commissioners since 1991, and
annually after January 1, 2000. The commissioner in consultation
with the American Academy of Actuaries shall develop an index to be
used to limit premium increases.
(e) The commissioner shall annually collect the experience for all
companies selling long-term care insurance in California. The
Senate Office of Research shall conduct a feasibility study of
granting rate increases based on a long-term care utilization index
(or indices) of the insured population. The study shall include all
of the following:
(1) The index formula.
(2) Specific data requirements from companies for the index
calculation.
(3) Consideration for indices based on plan and demographic
differences.
(4) The relationship between the index and the amount of the rate
increase to be granted.
The Senate Office of Research shall provide a written report to
the Legislature by June 31, 2000.
(f) (1) The provisions of this section are applicable to all
policies and certificates issued on or after January 1, 2000.
(2) With respect to forms approved prior to January 1, 2000, only
those rules in effect prior to January 1, 2000, shall apply, except
as provided in paragraph (2) of subdivision (b). However, beginning
January 1, 2001, the provisions of this section shall also apply to
the forms approved prior to January 1, 2000.
(g) This section shall not apply to life insurance policies and
certificates that accelerate benefits for long-term care.