BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Ronald Calderon, Chair
AB 389 (Saldana) Hearing Date: June 22, 2009
As Amended: June 15, 2009
Fiscal: yes
Urgency: no
SUMMARY Modifies California long-term care insurance rate
oversight law to allow the California Department of Insurance
(CDI) to monitor the rate increases of older long-term care
policies and to assure that adequate premium dollars are going
to benefits rather than the insurance company. Furthermore,
this bill would provide flexibility to CDI to use its own
qualified actuaries in addition to contracted outside
professionals to review long-term care rates. Finally, it makes
other non-substantive technical changes.
DIGEST
Existing law
1. Makes the sale of long term care insurance subject to
Department of Insurance oversight.
2. Benefits in relation to premiums paid is subject to
regulation and for individual long-term care insurance
policies issued prior to January 1, 2003, benefits are
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 Department to review
long term care rate applications to be members of the
American Academy of Actuaries with at least 5 years of
experience in long-term care insurance industry pricing.
4. If the Department does not have sufficient actuaries on
staff with at least 5 years of experience in long-term care
insurance industry pricing, the Department is required to
AB 389, Page 2
contract with actuaries to review all rate applications
submitted by insurers.
This bill
1. For individual long-term care insurance policies issued
before new premium rate schedules are approved, and for
which rate revisions are filed on or after January 1, 2010,
benefits provided by the policy shall be deemed reasonable
by the Department of Insurance 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 that of 70 percent of the premium
increases filed on and after January 1, 2010, calculated in
a manner for adequate reserving.
2. Notwithstanding the specific rate authority provided
above, The Insurance Commissioner, for rate revisions filed
on or after January 1, 2010, is authorized to approve a
rate change application based on less than a 70 percent
loss ratio, but not less than a 60 percent loss ratio, for
the part 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. The measure clarifies the authority of the Department to
retain outside actuarial consultants and makes minor
technical changes to other provisions of law
COMMENTS
1. According to the Sponsor, the Department of Insurance,
AB 389 will allow it 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. Furthermore, this bill would provide flexibility
to CDI to use its own qualified actuaries in addition to
contracted outside professionals to review long-term care
rates. Finally, it makes other non-substantive technical
changes the baby-boomer generation ages, the number of
elderly Americans and the demand for services and long-term
AB 389, Page 3
care are increasing. As a result, long-term care
insurance, with more than eight million customers, has a
particular appeal to Californians reaching retirement age.
2. Background Information provided by the sponsor, the
California Department of Insurance states:
a. As the baby-boomer generation ages, the number
of elderly Americans and the demand for services and
long-term care is increasing. As a result, long-term
care insurance, with more than eight million
customers, has a particular appeal to Californians
reaching retirement age.
b. Prior to 2002, too many long-term care
policies were under priced, resulting in an influx of
policyholders but inadequate funds to assure long-term
solvency for the insurers. The Legislature addressed
that problem in 2002 for new policies in particular,
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 the policyholder.
c. In addition, 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. According to the author, AB 389 ensures that increases
for pre-2002 long-term care policies will provide at least
70 cents of each premium dollar to benefits for the
policyholder. The bill allows qualified CDI actuaries to
review long-term care rates as well as outside actuaries,
and clarifies that CDI can bill insurers for reviews. The
bill also makes technical changes.
4. According to the Peace Officers Research Association of
AB 389, Page 4
California, which indicates full support for this bill, AB
389 will assist in stabilizing the rates for long term
care.
5. Questions None
6. Suggested Amendments None
7. Prior Legislation None
POSITIONS
Support
California Department of Insurance
Peace Officers Research Association of California
Oppose
None
Consultant: Kenneth Cooley (916) 651-4102