Actuarial Services

Minimum Standards for Specified Disease and Critical Illness Coverages

Loss Ratio Standards

Proposed Amendments: N.J.A.C. 11:4-53.6 and 11:4-53 Appendix Exhibit A

Authorized By: Karen L. Suter, Commissioner, Department of Banking and Insurance.

Authority: N.J.S.A. 17:1-8.1, 17:1-15e, 17B:26-1h, 17B:26-45, 17B:30-1 et seq. and 17B:27-49.

Calendar Reference: See Summary below for explanation of exception to calendar requirements.

Proposal Number: PRN 2001-396.

Submit comments by Novemvber 30, 2001 to:

Karen Garfing, Assistant Commissioner
Department of Banking and Insurance
Regulatory Affairs
20 West State Street
PO Box 325
Trenton, NJ 08625-0325

Fax: (609) 292-0896


The agency proposal follows:


On February 5, 2001, the Department of Banking and Insurance (Department) proposed new rules (N.J.A.C. 11:4-53) to permit the sale of specified disease and critical illness policies in New Jersey and to establish standards applicable to the sale of such policies (see 33 N.J.R. 361(a)). N.J.A.C. 11:4-53.6 addressed the loss ratio standards for these policies. As proposed, N.J.A.C. 11:4-53.6 would require at least a 75 percent loss ratio for group policies, and at least a 65 percent loss ratio for individual policies.

The Department received several comments from the industry objecting to the proposed minimum individual loss ratio requirements, and requesting that they be lowered. These comments appear in the Department's adoption of N.J.A.C. 11:4-53, which is published elsewhere in this issue of the New Jersey Register. The Department reviewed the individual loss ratio requirements in light of the comments received. The Department determined that the 65 percent individual loss ratio is disproportionately high when compared to the loss ratios of other states with comparable regulatory frameworks. While the Department emphasizes its consumer protection role in the sale of specified disease coverage, it does not believe that a slight reduction of the proposed 65 percent loss ratio requirement for individual policies would diminish that protection. Moreover, a slightly lower loss ratio would improve insurers' ability to offer these products to New Jersey consumers.

The Department maintains its position, however, that the minimum loss ratio should be higher than New Jersey's 55 percent standard for other supplemental health products. Accordingly, the Department is hereby proposing to reduce the loss ratio standards for individual specified disease and critical illness coverages from 65 percent to 60 percent by amending N.J.A.C. 11:4-53.6(a)2. Additionally, the Department is hereby proposing to amend the outline of coverage form to reflect this change, which appears in the Appendix to N.J.A.C. 11:4-53 as Exhibit A.

As the Department has provided a 60-day comment period on this notice of proposal, this notice is excepted from the rulemaking calendar requirement pursuant to N.J.A.C. 1:30-3.3(a)5.

Social Impact

The proposed amendments will have a slightly negative impact on the public because the protection afforded them by the previously higher minimum loss ratio requirement will have been reduced. The proposed amendments will have a positive impact on insurers because it will permit them to allocate an additional five percent of premium dollars to payment of expenses rather than to payment of claims.

Economic Impact

The proposed amendments will have a negative impact on policyholders because by lowering the individual minimum loss ratio requirement from 65 percent to 60 percent, five percent less of policyholders' premium will be required to be returned to them in paid claims. The proposed amendmesnt will have a positive impact on insurers because they will be permitted to allocate an additional five percent of premium dollars to payment of expenses rather than to payment of claims.

Federal Standards Statement

A Federal standards analysis is not required because the Department's proposed amendments are not subject to any Federal standards or requirements.

Jobs Impact

The Department does not anticipate that the proposed amendments will result in the generation or loss of jobs.

Agriculture Industry Impact

Pursuant to N.J.S.A. 4:1C-10.3, the Right to Farm Act, and N.J.S.A. 52:14B-4(a)(2) of the Administrative Procedure Act, the Department does not expect any agriculture impact from the proposed amendments.

Regulatory Flexibility Statement

A regulatory flexibility analysis is not necessary because the insurers subject to the requirements of the proposed amendments do not employ fewer than 100 fulltime employees, and therefore are not "small businesses" as that term is defined by the Regulatory Flexibility Act, N.J.S.A. 52:14B-16 et seq.

Full text of the proposal follows (additions indicated in boldface thus; deletions indicated in brackets [thus]):

11:4-53.6 Loss ratio standards

(a) In order to assure that benefits are reasonable in relation to the premium charged, the minimum loss ratio for specified disease and critical illness policies shall be as follows:

1. For group policies, at least 75 percent;

2. For individual policies, at least [65] 60 percent.


Exhibit A

(a) To comply with N.J.A.C. 11:4-53.3(b)5, specified disease and critical illness policies meeting the definitions of those terms contained in N.J.A.C. 11:4-53.2 shall use the following statements only, except that appropriate policy identification may be included:




This policy or certificate is (an individual policy of insurance) (a group policy or certificate). This policy or certificate provides specified disease coverage (critical illness coverage) ONLY. This policy or certificate does NOT provide comprehensive medical or hospital insurance, Medicare supplement insurance, long-term care insurance, nursing home insurance only, home health care insurance only, or nursing home and home care insurance. You may also contact your local social security office or this company and obtain a copy of the Guide to Health Insurance for People with Medicare.

(Accurately list benefits, exclusions, reductions and limitations of the policy or certificate in a manner which does not misrepresent the actual coverage provided.)

This outline of coverage is a very brief summary of your policy or certificate.

The policy or certificate itself sets forth the rights and obligations of both you and the insurance company. It is therefore imperative that you READ YOUR POLICY OR CERTIFICATE carefully.

The anticipated loss ratio for this policy or certificate is (indicate either 75 percent for group policies, or [65 percent] 60 percent for individual policies). This ratio is the portion of future premiums which the company expects to return as benefits, when averaged over all people with this policy or certificate.