BILL ANALYSIS
AB 389
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Date of Hearing: April 22, 2009
ASSEMBLY COMMITTEE ON INSURANCE
Joe Coto, Chair
AB 389 (Saldana) - As Amended: April 15, 2009
SUBJECT : Long-term care insurance
SUMMARY : Modifies the "reasonable" expected loss ratio of
previously issued long-term care insurance policies if the
insurer files a rate revision after January 1, 2010
Specifically, this bill :
1)Provides that for individual long-term care insurance policies
issued before January 1, 2003, 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)Provides, however, that for rate revisions filed on or after
January 1, 2010, the Insurance Commissioner (IC) may approve
an application for a rate revision based on less than a 70
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.
3)Requires all actuaries who are employees of the California
Department of Insurance (CDI) and who review rate applications
submitted by insurers selling long-term care insurance to be
members of the American Academy of Actuaries, with at least 5
years experience in long-term care insurance pricing or who
meet the professional requirements to issue a "prescribed
statement of actuarial opinion."
4)Provides that if CDI does not have sufficient employees who
are actuaries meeting the requirements specified in #3, the IC
may contract with independent actuaries who shall be members
of the American Academy of Actuaries with at least 5 years of
experience in long-term care insurance industry pricing.
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5)Requires the costs of reviews by independent actuaries under
contract to CDI to be charged to the insurer.
EXISTING LAW :
1)Requires the IC to regulate the sale of long-term care
insurance.
2)Specifies that benefits under individual long-term care
insurance policies issued prior to January 1, 2003, shall be
deemed reasonable in relation to premiums if the expected loss
ratio is at least 60 percent, calculated in a manner providing
for adequate reserving of the long-term care insurance risk.
3)Requires all actuaries used by the IC to review rate
applications submitted by insurers selling long-term care
insurance to be members of the American Academy of Actuaries
with at least 5 years of experience in long-term care
insurance industry pricing.
4)Requires the IC to contract with actuaries to review all rate
applications submitted by insurers if CDI does not have
actuaries on staff with at least 5 years of experience in
long-term care insurance industry pricing.
FISCAL EFFECT : Undetermined.
COMMENTS :
1)Purpose. According the author, the purposes of this bill are
to:
a) allow the CDI to monitor the rate increases of older
long-term care policies and assure that adequate premium
dollars are going to benefits rather than the insurance
company, and
b) provide flexibility to CDI to use its own qualified
actuaries in addition to contracted outside professionals
to review long-term care rates.
2)Background information. The following information is provided
by the author:
Prior to 2002, many long-term care policies were under-priced,
resulting in an influx of policyholders but inadequate funds
AB 389
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to assure long-term solvency for the insurers. The
Legislature addressed that problem in 2002 for new policies,
but the law leaves open the possibility that insurers could
impose rate increases for existing older policies that keep
too much of each premium dollar in the increase for the
insurer's expenses, rather than for benefits to policyholders.
Current law assures that only qualified actuaries can review
rate applications submitted by long-term care insurers.
However, due to an oversight, the statute can prohibit CDI
actuaries who are qualified to review rates from playing any
role. This adds both time and expense to approving new rates.
In addition, while it is normal practice to bill long-term
care insurers for the hours spent reviewing rates, the statute
is not clear about this authority, which is standard in most
other lines of insurance.
3)Amendment to consider. The bill proposes, in connection with
rate revisions on older policies filed after January 1, 2010,
to allow the IC to approve an application for a rate revision
based on less than 70 percent 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. Should a minimum standard
be added to the proposed new authority, so that the IC cannot
approve a rate revision that is less than a specified loss
ratio? The minimum standard in existing law is 60 percent.
REGISTERED SUPPORT / OPPOSITION :
Support
California Department of Insurance (Sponsor)
Peace Officers Research Association of California (PORAC)
Opposition
None received.
Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086