State of Illinois
92nd General Assembly
Legislation

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92_SB0592

 
                                               LRB9207773JSpc

 1        AN ACT concerning long-term care insurance.

 2        Be it enacted by the People of  the  State  of  Illinois,
 3    represented in the General Assembly:

 4        Section  5.  The  Illinois  Insurance  Code is amended by
 5    adding Sections 351A-12, 351A-13, 351A-14, 351A-15,  351A-16,
 6    351A-17, and 351A-18 as follows:

 7        (215 ILCS 5/351A-12 new)
 8        Sec.    351A-12.  Policies    guaranteed   renewable   or
 9    noncancelable.
10        (a)  An individual and group long-term  care  policy  and
11    certificate  under  a  group  long-term  care policy shall be
12    either guaranteed renewable or noncancelable.
13        (b)  "Guaranteed renewable" means that  the  insured  has
14    the  right  to  continue  coverage  in  force if premiums are
15    timely  paid  during  which  period  the  insurer   may   not
16    unilaterally  change  the  terms  of  coverage  or decline to
17    renew, except  that  the  insurer  may,  in  accordance  with
18    provisions  in  the  policy,  and  in accordance with Section
19    351A-13, change the premium rates to all insureds in the same
20    class.  The "class" is determined  by  the  insurer  for  the
21    purpose of setting rates at the time the policy is issued.
22        "Noncancelable"  means  the  insured  has  the  right  to
23    continue  the  coverage  in force if premiums are timely paid
24    during which period the insurer may not  unilaterally  change
25    the  terms  of  coverage,  decline  to  renew,  or change the
26    premium rate.
27        (c)  A long-term care policy and certificate must contain
28    on page one an appropriately captioned renewability provision
29    that clearly describes the  initial  term  of  coverage,  the
30    conditions  for  renewal  and,  if  guaranteed  renewable,  a
31    description of the class and of each circumstance under which
 
                            -2-                LRB9207773JSpc
 1    the insurer may change the premium amount.

 2        (215 ILCS 5/351A-13 new)
 3        Sec.  351A-13.  Relationship  of  benefits  to  premiums.
 4    Benefits  under  individual long-term care insurance policies
 5    issued before new premium rate schedules are  approved  under
 6    Section  351A-14  shall  be  deemed reasonable in relation to
 7    premiums  if  the  expected  loss  ratio  is  at  least   6%,
 8    calculated  in  a manner that provides for adequate reserving
 9    of the long-term care  insurance  risk.   In  evaluating  the
10    expected  loss  ratio, due consideration must be given to all
11    relevant factors, including the following:
12             (1)  statistical  credibility  of  incurred   claims
13        experience and earned premiums;
14             (2)  the  period  for  which  rates  are computed to
15        provide coverage;
16             (3)  experienced and projected trends;
17             (4)  concentration of experience within early policy
18        duration;
19             (5)  expected claim fluctuation;
20             (6)  experience refunds, adjustments, or dividends;
21             (7)  renewability features;
22             (8)  all appropriate expense factors;
23             (9)  interest;
24             (10)  experimental nature of the coverage;
25             (11)  policy reserves;
26             (12)  mix of business by risk classification; and
27             (13)  product features,  such  as  long  elimination
28        periods, high deductibles, and high maximum limits.

29        (215 ILCS 5/351A-14 new)
30        Sec. 351A-14.  Rate schedules.
31        (a)  The  premium  rate  schedules for all individual and
32    group long-term care insurance policies issued in this  State
 
                            -3-                LRB9207773JSpc
 1    shall  be  filed  with  and receive the prior approval of the
 2    Director before the policy may be offered, sold,  issued,  or
 3    delivered  to  a  resident  of  this  State. All initial rate
 4    filings shall be subject to the requirements of this Section.
 5        (b)  An approval for an initial premium schedule may  not
 6    be  granted  unless the actuary performing the review for the
 7    Director certifies that the initial premium rate schedule  is
 8    sufficient   to  cover  anticipated  costs  under  moderately
 9    adverse experience and that  the  premium  rate  schedule  is
10    reasonably  expected  to  be sustainable over the life of the
11    form  with  no  future  premium  increases  anticipated.  The
12    certification may rely on supporting data in the filing.  The
13    actuary  performing  the  review  may  request  an  actuarial
14    demonstration  that  the assumptions the insurer has used are
15    reasonable.  The actuarial demonstration must include  either
16    premium   and  claim  experience  on  similar  policy  forms,
17    adjusted for any premium or benefit differences, relevant and
18    credible data from other studies, or both.
19        (c)  The insurer must submit to the Director for approval
20    a rate filing for each policy form that includes at least all
21    of the following information:
22             (1)  An  actuarial  memorandum  that  describes  the
23        assumptions the insurer used to develop the premium  rate
24        schedule.   The  actuarial  assumptions must include, but
25        not be limited to, a sufficiently detailed description of
26        morbidity assumptions, voluntary lapse  rates,  mortality
27        assumptions,  asset investment yield rates, a description
28        of all  expense  components,  and  plan  and  option  mix
29        assumptions.    The  memorandum  must  also  include  the
30        expected lifetime loss ratio and  projections  of  yearly
31        earned  premiums,  incurred  claims,  incurred claim loss
32        ratios, and changes in contract reserves.
33             (2)  An actuarial  certification  consisting  of  at
34        least all of the following:
 
                            -4-                LRB9207773JSpc
 1                  (A)  A  statement that the initial premium rate
 2             schedule is sufficient to  cover  anticipated  costs
 3             under  moderately  adverse  experience  and that the
 4             premium rate schedule is reasonably expected  to  be
 5             sustainable over the life of the form with no future
 6             premium increases anticipated.
 7                  (B)  A  statement  that  the  policy design and
 8             coverage provided have been reviewed and taken  into
 9             consideration.
10                  (C)  A  statement  that  the  underwriting  and
11             claims adjudication processes have been reviewed and
12             taken into consideration.
13                  (D)  A  complete  description  of the basis for
14             contract reserves that are anticipated  to  be  held
15             under the form, to include all of the following:
16                       (i)  Sufficient     detail    or    sample
17                  calculations provided so as to have a  complete
18                  depiction of the reserve amounts to be held.
19                       (ii)  A  statement  that  the  assumptions
20                  used  for  reserves  contain reasonable margins
21                  for adverse experience.
22                       (iii)  A statement that the net  valuation
23                  premium  for  renewal  years  does not increase
24                  (except   for   attained-age    rating    where
25                  permitted).
26                       (iv)  A   statement  that  the  difference
27                  between the gross premium and the net valuation
28                  premium for  renewal  years  is  sufficient  to
29                  cover  expected  renewal  expenses,  or if that
30                  statement   cannot   be   made,   a    complete
31                  description  of  the  situations  in which this
32                  does not occur and the type and level of change
33                  in  the  reserve  assumptions  that  would   be
34                  necessary  for the difference to be sufficient.
 
                            -5-                LRB9207773JSpc
 1                  An aggregate distribution of anticipated issues
 2                  may be used as long  as  the  underlying  gross
 3                  premiums   maintain   a  reasonably  consistent
 4                  relationship.   If  the  gross   premiums   for
 5                  certain  age  groups  appear to be inconsistent
 6                  with this requirement, the Director may request
 7                  a demonstration under subsection (b) based on a
 8                  standard age  distribution.
 9                  (E)  A statement that the premium rate schedule
10             is not less  than  the  premium  rate  schedule  for
11             existing  similar  policy  forms also available from
12             the  insurer  except  for   reasonable   differences
13             attributable  to  benefits  or  a  comparison of the
14             premium schedules for similar policy forms that  are
15             currently   available   from  the  insurer  with  an
16             explanation of the differences.
17        (d)  Premium rate schedules and new policy forms must  be
18    filed  by July 1, 2002 for all group long-term care insurance
19    policies that an insurer will offer, sell, issue, or  deliver
20    on  or  after January 1, 2003 and for all previously approved
21    individual long-term care insurance policies that an  insurer
22    will  offer,  sell,  issue, or deliver on or after January 1,
23    2003, unless the July 1, 2002, deadline is  extended  by  the
24    Director.    Insurers   may  continue  to  offer  and  market
25    long-term care insurance policies approved prior to  July  1,
26    2002, until the earlier of (1) 90 days after approval of both
27    the  premium  rate  schedules  and  new  policy  forms  filed
28    pursuant to this Section or (2) January 1, 2003.

29        (215 ILCS 5/351A-15 new)
30        Sec. 351A-15.  Actuary qualifications. All actuaries used
31    by  the  Director  to  review  rate applications submitted by
32    insurers pursuant to this Article, whether  employed  by  the
33    Department  or  secured  by  contract, must be members of the
 
                            -6-                LRB9207773JSpc
 1    American Academy of Actuaries with at least 5 years' relevant
 2    experience in long-term care insurance industry pricing.   If
 3    the  Department  does  not have actuaries with the experience
 4    required by this Section, the Director  shall  contract  with
 5    actuaries  to  review  all  rate  applications  submitted  by
 6    insurers  pursuant  to  this  Article.  If the Department has
 7    actuaries that have experience required by this Section,  but
 8    not  enough  of  those  experienced actuaries to  perform the
 9    volume of work required by this  Article,  the  Director  may
10    contract with independent actuaries, as necessary.
11        If the Director contracts with independent actuaries, the
12    Director  shall  promulgate rules no later than July 1, 2002,
13    to  maintain  the  confidentiality  of   rate   filings   and
14    proprietary  insurer  information  and  to avoid conflicts of
15    interest.

16        (215 ILCS 5/351A-16 new)
17        Sec. 351A-16.  No premium increase without approval.
18        (a)  An insurer may  not  increase  the  premium  for  an
19    individual  or  group  long-term  care  insurance  policy  or
20    certificate  approved  for sale under this Article unless the
21    insurer has received prior approval for the increase from the
22    Director.  The  insurer  must  submit  to  the  Director  for
23    approval  all  proposed  premium  rate  schedule   increases,
24    including  at  least  all of the information required by this
25    Section.
26        (b)  An  insurer  must  submit  a  certification  by   an
27    actuary,  who  is  a  member in good standing of the American
28    Society of Actuaries, that:
29             (1)  if the requested premium rate schedule increase
30        is implemented  and  the  underlying  assumptions,  which
31        reflect  moderately  adverse conditions, are realized, no
32        further premium rate schedule increases are  anticipated;
33        and
 
                            -7-                LRB9207773JSpc
 1             (2)  the  premium  rate filing is in compliance with
 2        the provisions of this Section.
 3        (c)  An  insurer  must  submit  an  actuarial  memorandum
 4    justifying the rate schedule change request that includes all
 5    of the following:
 6             (1)  Lifetime projections  of  earned  premiums  and
 7        incurred  claims based on the filed premium rate schedule
 8        increase,  and  the  method  and  assumptions   used   in
 9        determining the projected values, including reflection of
10        any  assumptions that deviate from those used for pricing
11        other forms currently available for sale.
12                  (A)  Annual values for the  5  years  preceding
13             and  the  3 years following the valuation date shall
14             be provided separately.
15                  (B)  The   projections   must    include    the
16             development of the lifetime loss ratio.
17                  (C)  For  policies  issued  with  premium  rate
18             schedules   approved   under  Section  351A-14,  the
19             projections   must   demonstrate   compliance   with
20             subsection (b) of Section  351A-17.  For  all  other
21             policies,    the    projections   must   demonstrate
22             compliance with Section 351A-13.
23                  (D)  If the Director determines that a  premium
24             rate increase is justified due to changes in laws or
25             regulations  that  are  retroactively  applicable to
26             long-term care insurance  previously  sold  in  this
27             State, then:
28                       (i)  the  projected  experience  should be
29                  limited to the  increases  in  claims  expenses
30                  attributable   to   the   changes   in  law  or
31                  regulations; and
32                       (ii)  if  the  Director  determines   that
33                  potential  offsets  to  higher claims costs may
34                  exist, the insurer  must  be  required  to  use
 
                            -8-                LRB9207773JSpc
 1                  appropriate net projected experience.
 2             (2)  Disclosure    of   how   reserves   have   been
 3        incorporated in this rate increase.
 4             (3)  Disclosure  of  the   analysis   performed   to
 5        determine  why  a  rate  adjustment  is  necessary, which
 6        pricing assumptions were not realized and why,  and  what
 7        other actions taken by the company have been relied on by
 8        the actuary.
 9             (4)  A  statement  that policy design, underwriting,
10        and claims adjudication practices have  been  taken  into
11        consideration.
12             (5)  If  it  is  necessary  to  maintain  consistent
13        premium  rates  for  new  certificates  and  certificates
14        receiving   a   rate  increase,  the  insurer  must  file
15        composite   rates   reflecting   projections    of    new
16        certificates.
17        (d)  An  insurer  must  submit  a  statement that renewal
18    premium rate schedules are  not  greater  than  new  business
19    premium rate schedules except for differences attributable to
20    benefits,  unless sufficient justification is provided to the
21    Director.
22        (e)  An insurer must submit  sufficient  information  for
23    approval  of  the  premium  rate  schedule  increase  by  the
24    Director.
25        (f)  The provisions of this Section are applicable to all
26    individual  and  group  policies  issued  in this State on or
27    after January 1, 2003.

28        (215 ILCS 5/351A-17 new)
29        Sec. 351A-17.  Requirements for rate approval.
30        (a)  Approval of all premium rate schedule increases  are
31    subject to the requirements of this Section.
32        (b)  Premium  rate  schedule  increases  must demonstrate
33    that the sum of the accumulated  value  of  incurred  claims,
 
                            -9-                LRB9207773JSpc
 1    without  the  inclusion  of  active  life  reserves,  and the
 2    present value of future projected  incurred  claims,  without
 3    the  inclusion of active life reserves, will not be less than
 4    the sum of the all of the following:
 5             (1)  The accumulated value  of  the  initial  earned
 6        premium times 58%.
 7             (2)  85%  of  the accumulated value of prior premium
 8        rate schedule increases on an earned basis.
 9             (3)  The present value of future  projected  initial
10        earned premiums times 58%.
11             (4)  85%  of  the  present value of future projected
12        premiums not in item (3) on an earned basis.
13        (c)  If the  Director  determines  that  a  premium  rate
14    increase  is  justified  due to changes in laws or rules that
15    are retroactively  applicable  to  long-term  care  insurance
16    previously  sold  in  this  State,  a  premium  rate schedule
17    increase may be approved if the increase provides that 70% of
18    the present value of projected additional premiums  shall  be
19    returned   to   policyholders   in  benefits  and  the  other
20    requirements  applicable  to  other  premium  rate   schedule
21    increases are met.
22        (d)  All present and accumulated values used to determine
23    rate  increases  must use the maximum valuation interest rate
24    for contract reserves.  The actuary must disclose as part  of
25    the actuarial memorandum the use of any appropriate averages.
26        (e)  If  the  requested premium rate schedule increase on
27    any new policy form approved under  Section  351A-14  exceeds
28    15% or if the requested premium rate schedule increase on any
29    policy form approved under Section 351A-14 plus all increases
30    occurring after January 1, 2003, in the premium rate schedule
31    for  the  same  policy form exceed 15%, no request for a rate
32    increase on any policy form may be approved by  the  Director
33    except as follows: all the insurer's individual experience on
34    long-term  care  policy  forms issued in this State that have
 
                            -10-               LRB9207773JSpc
 1    been approved pursuant to Section 351A-14 are pooled together
 2    to  project  future  claims  experience  and   the   combined
 3    experience  satisfies  the requirements in subsection (b). An
 4    insurer is not precluded from  filing  requests  for  premium
 5    rate  schedule  increases  on  all of its policy forms if the
 6    combined experiences  after  pooling  all  applicable  policy
 7    forms satisfies the requirements of subsection (b).
 8        (f)  An  approval for an increase in the premium schedule
 9    may not be granted unless the actuary performing  the  review
10    for the Director certifies that if the requested premium rate
11    schedule   increase   is   implemented   and  the  underlying
12    assumptions, which reflect moderately adverse conditions, are
13    realized, no further  premium  rate  schedule  increases  are
14    anticipated.   The  certification may rely on supporting data
15    in the filing.
16        (g)  The provisions of this Section are applicable to all
17    individual and group policies issued  in  this  State  on  or
18    after January 1, 2003.

19        (215 ILCS 5/351A-18 new)
20        Sec.  351A-18.  Requirements  with  respect  to  approved
21    increases.
22        (a)  Premium  rate  schedule  increases  that  have  been
23    approved are subject to the requirements of this Section.
24        (b)  For  each  rate  increase  that  is implemented, the
25    insurer must  file  for  approval  by  the  Director  updated
26    projections, as defined in paragraph (1) of subsection (c) of
27    Section  351A-16, annually for the next 3 years and include a
28    comparison  of  actual  results  to  projected  values.   The
29    Director may extend the period to greater than 3 years.
30        (c)  If  the  Director   determines   that   the   actual
31    experience  following  a  rate  increase  does not adequately
32    match  the  projected  experience  and   that   the   current
33    projections  under  moderately adverse conditions demonstrate
 
                            -11-               LRB9207773JSpc
 1    that incurred claims will not exceed proportions of  premiums
 2    specified  in  subsection  (b),  the Director may require the
 3    insurer to implement any of the following:
 4             (1)  Premium rate schedule adjustments.
 5             (2)  Other measures to reduce the difference between
 6        the projected and actual experience.
 7        In determining whether the actual  experience  adequately
 8    matches the projected experience, consideration must be given
 9    to  paragraph  (5)  of  subsection (c) of Section 351A-16, if
10    applicable.
11        (d)  If the Director demonstrates,  based  upon  credible
12    evidence,  that  an  insurer  has  engaged  in  a  persistent
13    practice of filing inadequate premium schedules, the Director
14    may, in addition to any other authority of the Director under
15    this  Code,  and  after the insurer is afforded proper notice
16    and  due  process,  prohibit  the  insurer  from  filing  and
17    marketing comparable coverage for a period of up to  5  years
18    or  from  offering all other similar coverages, and may limit
19    marketing of new applications  to  the  products  subject  to
20    recent premium rate schedule increases.
21        (e)  This  Section  does  not  apply  to  life  insurance
22    policies   and  certificates  that  accelerate  benefits  for
23    long-term care.
24        (f)  The provisions of this Section are applicable to all
25    individual and group policies issued  in  this  State  on  or
26    after January 1, 2003.

27        Section 99. Effective date. This Act takes effect January
28    1, 2002.

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