BILL ANALYSIS
AB 389
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CONCURRENCE IN SENATE AMENDMENTS
AB 389 (Saldana)
As Amended June 15, 2009
Majority vote
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|ASSEMBLY: |77-0 |(May 21, 2009) |SENATE: |34-0 |(July 9, 2009) |
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Original Committee Reference: INS.
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.
The Senate amendment requires the actuaries who are employees of
the California Department of Insurance (CDI) and who review rate
applications regarding long-term care insurance to be members in
good standing of the American Society of Actuaries.
EXISTING LAW :
1)Requires the Insurance Commissioner (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%, 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 five 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 five years of experience in
long-term care insurance industry pricing.
AS PASSED BY THE ASSEMBLY , this bill:
1)Provided that for individual long-term care insurance policies
AB 389
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issued before January 1, 2003, and for which rate revisions
are filed on or after January 1, 2010, benefits would be
deemed reasonable in relation to the premium 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,
calculated in a manner that provides for adequate reserving of
the long-term care insurance risk.
2)Provided, however, that for rate revisions filed on or after
January 1, 2010, the IC could 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, including further reductions in capital and surplus.
3)Required all actuaries who are employees of the 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 five years experience in long-term
care insurance pricing or who meet the professional
requirements to issue a statement of actuarial opinion on
health insurance rates.
4)Provided that if CDI does not have sufficient employees who
are actuaries meeting the requirements specified in 3), the IC
could contract with independent actuaries who are members of
the American Academy of Actuaries with at least five years of
experience in long-term care insurance industry pricing.
5)Required the costs of reviews by independent actuaries under
contract to CDI to be charged to the insurer.
FISCAL EFFECT : According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
COMMENTS :
1)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,
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b) Provide flexibility to CDI to use its own qualified
actuaries in addition to contracted outside professionals
to review long-term care rates.
2)Prior to 2002, 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,
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.
Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086
FN: 0001668