BILL NUMBER: AB 389 AMENDED
BILL TEXT
AMENDED IN SENATE JUNE 15, 2009
AMENDED IN ASSEMBLY MAY 18, 2009
AMENDED IN ASSEMBLY APRIL 30, 2009
AMENDED IN ASSEMBLY APRIL 15, 2009
AMENDED IN ASSEMBLY APRIL 13, 2009
INTRODUCED BY Assembly Member Saldana
FEBRUARY 23, 2009
An act to amend Sections 10236.1 and 10236.13 of, and to repeal
and add Section 10236.12 of, the Insurance Code, relating to
insurance.
LEGISLATIVE COUNSEL'S DIGEST
AB 389, as amended, Saldana. Long-term care insurance.
Existing law provides for regulation of insurers, including
insurers issuing policies of long-term care insurance, by the
Insurance Commissioner. Existing law requires benefits under
individual long-term care insurance policies issued before new
premium rate schedules are approved to be deemed reasonable in
relation to premiums if the expected loss ratio is at least 60%,
calculated in a manner that provides for adequate reserving of the
risk.
This bill, for policies issued before new premium rate schedules
are approved and for which rate revisions are filed on or after
January 1, 2010, would deem 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. The bill would, notwithstanding these provisions, authorize 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 an insurer can demonstrate that
the rates are necessary to protect the financial condition of the
insurer.
Existing law requires actuaries used by the commissioner to
review rate applications submitted by insurers relative to long-term
care insurance, whether by employment or by contract, to be members
of the American Academy of Actuaries with at least 5 years' relevant
experience.
This bill would revise these qualifications, as specified, and
would make other technical changes.
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. 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.
(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.
(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) 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 further reductions in capital and
surplus.
SEC. 2. Section 10236.12 of the Insurance Code is repealed.
SEC. 3. Section 10236.12 is added to the Insurance Code, to read:
10236.12. All actuaries used by the commissioner to review rate
applications submitted by insurers pursuant to this chapter who are
employees of the department shall be members of the American Academy
of Actuaries, with at least five years' relevant experience in
long-term care insurance industry pricing or alternatively
who shall meet the professional requirements to issue a
"statement of actuarial opinion" on health insurance rates
as required by subdivision (a) of Section 10236.13
.
If the department does not have sufficient employees who are
actuaries meeting the requirements of this section to perform the
volume of work required by this chapter, the commissioner may
contract, as necessary, with independent actuaries who shall be
members of the American Academy of Actuaries with at least five years'
relevant experience in long-term care insurance industry pricing.
If the department has employees who are actuaries, and independent
actuaries under contract to the department, both meeting the
requirements of this section to review rate applications, an insurer
may generally choose between having the rate application reviewed by
either employees or independent actuaries under contract to the
department. The costs and expenses of reviews by independent
actuaries under contract to the department shall be charged to the
insurer. However, the department shall have the discretion to require
a review by independent actuaries.
Employees of the department who are actuaries and who are
otherwise qualified to review rate applications but who do not meet
the requirements of this section may assist an independent actuary
under contract to the department.
If the commissioner contracts with independent actuaries for
purposes of this section, the commissioner shall promulgate
regulations to maintain the confidentiality of rate filings and
proprietary insurer information and to avoid conflicts of interest.
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) 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.