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California May Make LTCI Issuers Help Pay for Financial Monitoring

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California lawmakers are trying to help the state’s insurance regulators pay more attention to long-term care insurance (LTCI) issuers.

(Related: How State Guarantees Work For Current LTCI Claimants)

Members of the California Senate last week passed Assembly Bill 1104 — the California Life and Health Insurance Guarantee Association bill — by a 39-0 vote.

AB 1104 Provisions

AB 1104 would let the state insurance commissioner charge an LTCI issuer a financial surveillance assessment of up to $1 million per year. The commissioner could use the money to pay for tracking LTCI issuers’ finances.

The actual size of the financial surveillance assessment would depend on how much the California Department of Insurance actually spends on analyzing LTCI issuers’ financial reports.

AB 1104 would also require any issuer that’s providing LTCI coverage for more than 10,000 people to file detailed LTCI performance disclosure reports with the insurance commissioner every year. The reports would be based on the National Association of Insurance Commissioners’ new Actuarial Guideline 51 standard.

AG 51 requires affected LTCI issuers to report on how many of the insureds need long-term care services, how many have died, and how many have dropped their policies.

A third provision in AB 1104 would add two members of the public to the board of the California Life and Health Insurance Guarantee Association, or CLHIGA. The insurance commissioner would appoint the two public members.

The History

AB 1104 was introduced by state Assembly Majority Leader Ian Calderon, D-Whittier.

Members of the California Assembly approved the bill by a 77-0 vote in May.

The bill has the support of CLHIGA, the Association of California Life and Health Insurance Companies, and the California chapter of the National Association of Insurance Financial Advisors. It appears likely that California Gov. Gavin Newsom, D, will sign the bill.

The Analysis

CLHIGA is supposed to use cash from life and health insurers that are still business to pay the claims of life and health insurers that fail.

Brian Flemmer, an analyst at the California Office of Senate Floor Analyses, wrote in July that Calderon wants to expand the CLHIGA board because, today, the CLHIGA board is made up entirely of people from the insurance industry.

Adding two public members “will ensure that the interests of the public at large, not just the insurance industry, are part of deliberations at CLHIGA,” according to Flemmer.

AB 1104 includes the financial surveillance assessment provision to help the California Department of Insurance better understand the financial position of LTCI issuers, “and hopefully act early enough to head off potential insolvencies,” Flemmer writes .

CLHIGA has paid $1.1 billion for claims in connection with 39 insolvencies since it was organized, in 1991.

California residents will have to pay about $400 million in surcharges to help 8,000 policyholders affected by the insolvency of just one LTCI issuer, Penn Treaty, Flemmer says. That works out to an average of $50,000 in surcharges per affected Penn Treaty policyholder.


Links to information about California Assembly Bill 1104 are available here.

— Read Life Insurers, Health Insurers Clash Over Penn Treaty Coverage, on ThinkAdvisor.

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