California Assembly Bill AB999 Amended / Bill

 BILL NUMBER: AB 999AMENDED BILL TEXT AMENDED IN ASSEMBLY MARCH 31, 2011 INTRODUCED BY Assembly Member Yamada FEBRUARY 18, 2011 An act to amend  Section 10236.1 of   Sections 10234.93, 10236.1, 10236.13, and 10236.14 of, and to add Section 10236.2 to,  the Insurance Code, relating to long-term care insurance. LEGISLATIVE COUNSEL'S DIGEST AB 999, as amended, Yamada. Long-term care insurance. Existing law provides for  the  regulation of insurers  by the Department of Insurance  , including insurers issuing policies of long-term care insurance  , by the Insurance Commissioner  . Existing  law, for policies issued before new rate schedules are approved and for which rate revisions are filed on and after January 1, 2010, deems 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. Existing law, notwithstanding these provisions, authorizes 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 the insurer can demonstrate that the rates are necessary to protect the financial condition of the insurer, including further reductions in capital and surplus.   law regulates the marketing or solicitation of long-term care insurance policies and, in that regard, requires specified disclosures to prospective applicants or enrollees.   This bill would require an insurer of long-term care insurance to clearly post on its Internet Web site a specimen individual policy form or group master policy and certificate form for each policy form offered by the insurer.   Existing law requires the premium rate schedules for all individual and group long-term care insurance policies issued in this state to be filed with, and receive the prior approval of, the Insurance Commissioner before the policy may be offered, sold, issued, or delivered to a resident of this state. Existing law requires an insurer of long-term care insurance to submit to the Insurance Commissioner for approval all proposed premium rate schedule increases and to include specified information with the rate application. Approval of all premium rate schedule increases is subject to specified criteria.  This bill would  make a nonsubstantive change to these provisions   provide that if the premiums calculated pursuant to those criteria produce a lifetime expected loss ratio that is less than the highest lifetime expected loss ratio for the policy form in all previous filings, the insurer is required to reduce the premiums such that the current lifetime expected loss ratio is equal to or greater than the highest of the previously filed expected loss ratios.   With regard to individual or group long-term care insurance policies issued before the approval of premium rate schedules by the Insurance Commissioner, the bill would limit those premium rate schedule increases to once every 5 years. For those policies, the bill would also prohibit an insurer from justifying a rate increase prior to approval by the Insurance Commissioner based upon asset investment yield rate changes, and would require all of the experience on long-term care policy forms issued by an insurer and its affiliates to be pooled together. With regard to the approval of other premium rate schedule increases by the Insurance Commissioner, the bill would limit premium rate schedule increases to once every 10 years, except upon a demonstration of financial hardship, as specified.  Vote: majority. Appropriation: no. Fiscal committee:  no   yes  . State-mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:  SECTION 1.   Section 10234.93 of the   Insurance Code   is amended to read:  10234.93. (a) Every insurer of long-term care in California shall: (1) Establish marketing procedures to assure that any comparison of policies by its agents or other producers will be fair and accurate. (2) Establish marketing procedures to assure excessive insurance is not sold or issued. (3) Submit to the commissioner within six months of the effective date of this act, a list of all agents or other insurer representatives authorized to solicit individual consumers for the sale of long-term care insurance. These submissions shall be updated at least semiannually. (4) Provide the following training and require that each agent or other insurer representative authorized to solicit individual consumers for the sale of long-term care insurance shall satisfactorily complete the following training requirements that, for resident licensees, shall count toward the licensee's continuing education requirement, but may still result in completing more than the minimum number of continuing education hours set forth in this section: (A) For licensees issued a license after January 1, 1992, eight hours of training in each of the first four 12-month periods beginning from the date of original license issuance and thereafter eight hours of training prior to each license renewal. (B) For licensees issued a license before January 1, 1992, eight hours of training prior to each license renewal. (C) For nonresident licensees that are not otherwise subject to the continuing education requirements set forth in Section 1749.3, the evidence of training required by this section shall be filed with and approved by the commissioner as provided in subdivision (g) of Section 1749.4. Licensees shall complete the initial training requirements of this section prior to being authorized to solicit individual consumers for the sale of long-term care insurance. The training required by this section shall consist of topics related to long-term care services and long-term care insurance, including, but not limited to, California regulations and requirements, available long-term care services and facilities, changes or improvements in services or facilities, and alternatives to the purchase of private long-term care insurance. On or before July 1, 1998, the following additional training topics shall be required: differences in eligibility for benefits and tax treatment between policies intended to be federally qualified and those not intended to be federally qualified, the effect of inflation in eroding the value of benefits and the importance of inflation protection, and NAIC consumer suitability standards and guidelines. (5) Display prominently on page one of the policy or certificate and the outline of coverage: "Notice to buyer: This policy may not cover all of the costs associated with long-term care incurred by the buyer during the period of coverage. The buyer is advised to review carefully all policy limitations." (6) Inquire and otherwise make every reasonable effort to identify whether a prospective applicant or enrollee for long-term care insurance already has accident and sickness or long-term care insurance and the types and amounts of any such insurance. (7) Every insurer or entity marketing long-term care insurance shall establish auditable procedures for verifying compliance with this subdivision. (8) Every insurer shall provide to a prospective applicant, at the time of solicitation, written notice that the Health Insurance Counseling and Advocacy Program (HICAP) provides health insurance counseling to senior California residents free of charge. Every agent shall provide the name, address, and telephone number of the local HICAP program and the statewide HICAP number, 1-800-434-0222. (9) Provide a copy of the long-term care insurance shoppers guide developed by the California Department of Aging to each prospective applicant prior to the presentation of an application or enrollment form for insurance.  (10) Clearly post on its Internet Web site a specimen individual policy form or group master policy and certificate form for each policy form offered by the insurer.  (b) In addition to other unfair trade practices, including those identified in this code, the following acts and practices are prohibited: (1) Twisting. Knowingly making any misleading representation or incomplete or fraudulent comparison of any insurance policies or insurers for the purpose of inducing, or tending to induce, any person to lapse, forfeit, surrender, terminate, retain, pledge, assign, borrow on, or convert any insurance policy or to take out a policy of insurance with another insurer. (2) High pressure tactics. Employing any method of marketing having the effect of or tending to induce the purchase of insurance through force, fright, threat, whether explicit or implied, or undue pressure to purchase or recommend the purchase of insurance. (3) Cold lead advertising. Making use directly or indirectly of any method of marketing which fails to disclose in a conspicuous manner that a purpose of the method of marketing is solicitation of insurance and that contact will be made by an insurance agent or insurance company.  SECTION 1.   SEC. 2.  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.  However, if the premiums calculated in this manner produce a lifetime expected loss ratio that is less than the highest lifetime expected loss ratio for this policy form in all previous filings, the insurer shall reduce the premiums such that the current lifetime expected loss ratio is equal to or greater than the highest of the previously filed lifetime expected loss ratios.  (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   The discount   rate used in the calculation of lifetime expected loss ratios  . (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) Asset investment yield rate changes may not be used to justify a rate increase.   (e) All of the experience on long-term care policy forms issued in this state by an insurer and its affiliates, approved either prior to approval under, or pursuant to, Section 10236.11, shall be pooled together.   (f) Approval of all premium rate schedule increases filed on or after January 1, 2012, shall be limited to no more than once every five years.   (d)   (g)  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 avoidance of further reductions in capital and surplus.  (h) This section applies only to long-term care insurance policies issued before the approval of rate schedules under Section 10236.11.   SEC. 3.   Section 10236.2 is added to the   Insurance Code   , to read:   10236.2. The provisions of subdivisions (d), (e), and (f) of Section 10236.1 shall apply to all group long-term care insurance policies issued before the approval of premium rate schedules under Section 10236.11.   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) A statement that asset investment yield rate changes have not been used to justify the rate increase.   (5)   (6)  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.  SEC. 5.   Section 10236.14 of the   Insurance Code   is amended to read:  10236.14. Approval of all premium rate schedule increases  filed on or after January 1, 2012, shall be limited to no more than once every 10 years, and  shall be subject to the following requirements: (a)  (1)    Premium rate schedule increases shall demonstrate that the sum of the accumulated value of incurred claims, without the inclusion of active life reserves, and the present value of future projected incurred claims, without the inclusion of active life reserves, will not be less than the sum of the following:  (1)   (A)  The accumulated value of the initial earned premium times 58 percent.  (2)   (B)  Eighty-five percent of the accumulated value of prior premium rate schedule increases on an earned basis.  (3)   (C)  The present value of future projected initial earned premiums times 58 percent.  (4)   (D)  Eighty-five percent of the present value of future projected premiums not in  paragraph (3)   subparagraph (C)  on an earned basis.  (2) However, if the premiums calculated in this manner produce an expected lifetime loss ratio that is less than the highest expected lifetime loss ratio for this policy form in all previous filings, the insurer shall reduce the premiums such that the current expected lifetime loss ratio is equal to or greater than the highest of the previously filed expected lifetime loss ratios.  (b) In the event 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, a premium rate schedule increase may be approved if the increase provides that 70 percent of the present value of projected additional premiums shall be returned to policyholders in benefits and the other requirements applicable to other premium rate schedule increases are met. (c) All present and accumulated values used to determine rate increases should use the maximum valuation interest rate for contract reserves. The actuary shall disclose as part of the actuarial memorandum the use of any appropriate averages. (d)  If the requested premium rate schedule increase on any new policy form approved under Section 10236.11 exceeds 15 percent or if the requested premium rate schedule increase on any policy form approved under Section 10236.11 plus all increases occurring after July 1, 2002, in the premium rate schedule for the same policy form exceed 15 percent, no   No  request for a rate increase on any policy form  approved under Section 10236.11  shall be approved by the commissioner except as follows: all  of  the  insurer's individual  experience on long-term care policy forms issued in this state  by the insurer and its affiliates  that have been approved  either prior to approval under, or  pursuant to  ,  Section 10236.11  are   shall be  pooled together  to project future claims experience  and the combined experience  satisfies   shall satisfy  the requirements in subdivision (a). An insurer is not precluded from filing requests for premium rate schedule increases on all of its policy forms if the combined experiences after pooling all applicable policy forms satisfies the requirements of subdivision (a). (e) No approval for an increase in the premium schedule shall be granted unless the actuary performing the review for the commissioner certifies that 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. The certification may rely on supporting data in the filing.  (f) Notwithstanding any other provision of this section, for applications for rate revisions filed on or after January 1, 2012, the commissioner may approve the application if an insurer demonstrates that the rates are necessary to protect the financial condition of the insurer, including avoidance of further reductions in capital and surplus.   (f)   (g)  The provisions of this section are applicable to all individual and group policies issued in this state on or after July 1, 2002.