BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 389
                                                                  Page  1

          Date of Hearing:   May 13, 2009 

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                Kevin De Leon, Chair

                   AB 389 (Saldana) - As Amended:  April 30, 2009  

          Policy Committee:                               
          InsuranceVote:10-0

          Urgency:     No                   State Mandated Local Program:  
          No     Reimbursable:              

           SUMMARY  

          This bill modifies the level at which long-term care (LTC)  
          insurance premium rates are determined by the California  
          Department of Insurance (CDI) to be reasonable for the purposes  
          of rate renewals. Specifically, this bill raises the lifetime  
          expected loss ratio from 60% to 70%. A loss ratio expresses the  
          present value relative to expected future payouts of an  
          insurance policy. In addition, this bill authorizes CDI to use  
          in-house actuaries to review LTC rate filings. 

           FISCAL EFFECT  

          Minor absorbable workload to CDI to continue oversight of  
          financial requirements for LTC insurance. 

           COMMENTS  

           1)Rationale  . This bill is sponsored by CDI to ensure adequate  
            premium dollars are being collected to fund benefits. Under  
            current law, the standard for rate review is whether the  
            combination of rates and benefits is expected to result in a  
            loss ratio of 60% or more over the life of the policy. This  
            bill increases the loss ratio standard to 70% to provide  
            stability in rates over time and to ensure adequate benefit  
            payouts to beneficiaries. A 70% loss ratio means an insurer  
            pays out $70 in claims for every $100 in collected premiums.  
            This bill reduces the number of insurers who may sell LTC  
            coverage at initial low rates, only to later raise rates  
            unexpectedly. In addition, this bill provides CDI with greater  
            authority to use CDI actuaries to review financial  
            requirements for LTC insurers. 








                                                                  AB 389
                                                                  Page  2


           2)A Proposed Technical Amendment  clarifies a term used by the  
            American Academy of Actuaries in specifying qualification  
            standards.   
           
          3)       Related Legislation  . SB 898 (Dunn), Chapter 812,  
            Statutes of 2000, specified that LTC insurance rates are  
            reasonable if the expected loss ratio is 60% over the life of  
            the policy.


           Analysis Prepared by  :    Mary Ader / APPR. / (916) 319-2081