BILL ANALYSIS Ó
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Date of Hearing: April 23, 2014
ASSEMBLY COMMITTEE ON INSURANCE
Henry T. Perea, Chair
AB 1804 (Perea) - As Amended: April 10, 2014
SUBJECT : Insurance policies: notice of lapse
SUMMARY : Provides that policyholders of most individual
insurance policies are entitled to designate a third-party who
will be sent a notice if the policy is about to lapse for
nonpayment of premium. Specifically, this bill :
1)Provides that an individual policy shall not be issued until
the applicant has been given the right to designate at least
one person, in addition to the applicant, to receive a notice
of lapse, termination, expiration, cancellation or nonrenewal
of the policy for nonpayment of premium
2)Provides that an applicant has 30 days after the insurer sends
the notice to submit to the insurer the name, address and
phone number of the person or persons designated by the
applicant, or to submit a signed form waiving the right.
3)Contains a statutory waiver form that insurers would be
required to send to applicants with the notice of the right to
designate.
4)Allows an insurer to deem the right to designate waived by the
applicant if no response is received within 30 days after the
notice and waiver form was sent.
5)Requires insurers to maintain records of the designee
information for the life of the policy, and allow the
policyholder to update the information upon the policyholder's
request.
6)Provides that insurers shall notify the policyholder every two
years of the right to either update designee information, or
the right to make a designation, as the case may be.
7)Provides that no policy subject to the bill's requirements can
be cancelled for nonpayment of premium, unless the designated
third party has been notified at least 10 days prior to the
cancellation date.
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8)Provides that the bill's requirements apply to:
a) Policies covering real property used for residential
purposes that consist of 4 units or less;
b) Personal liability policies and policies covering
liability from or damage to personal property;
c) Disability and health insurance policies.
9)Provides that the bill does not apply to policies that take
effect prior to July 1, 2015.
EXISTING LAW :
1)Establishes, with various time frames depending on the type of
insurance policy, that a policy cannot be cancelled for
nonpayment of premium unless the named insured is provided a
notice that the policy will be cancelled on a date certain.
2)Provides that an individual life insurance policy shall not be
issued or delivered in California unless the policyholder has
been afforded the right to designate at least one person in
addition to the policyholder to receive a notice that the
policy is going to lapse for nonpayment of premium.
3)Provides that no individual policy or certificate under a
group policy of Long Term Care (LTC) insurance shall be issued
in California unless the policyholder has been afforded the
right to designate at least one person in addition to the
policyholder to receive a notice that the policy is going to
lapse for nonpayment of premium.
FISCAL EFFECT : Undetermined
COMMENTS :
1)Purpose . According to the sponsor, the California Department
of Insurance (DOI), the bill is an important consumer benefit
for people who have difficulty managing their insurance
responsibilities either due to heath or residency issues. DOI
notes that policyholders of all ages can find themselves in
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situations that might cause important insurance protections to
lapse due to a failure to pay the premium. In addition to
older policyholders who might want a relative or close family
friend to keep an eye on their insurance protections, others
who might have prolonged separations from their primary
residence, such as college students, members of the military,
or people who work for extended periods away from home will
find the bill's proposal a great benefit.
2)Opt in . The bill is a consumer opt-in proposal. Insurers
would be required to make the policyholders aware of the right
to designate third parties, and the policyholders would have
the right to accept or waive the right. In this regard,
insurers that oppose the bill point out that existing law
relating to life and LTC insurance provides more flexibility
to the insurer in implementing what is, essentially, the same
right that this bill would create for other types of
insurance.
3)"At least one" designee . Both the life insurance and LTC
provisions of existing law specify that an insurer must allow
those policyholders to designate "at least one" other person
to receive lapse notices. The bill has followed the life
insurance/LTC model in this respect. However, because the
volume of homeowners', automobile, and other insurance
policies subject to the bill is much larger than life and LTC,
insurers opposed to the bill believe the administrative burden
and costs associated with the right would be too high if
multiple designees are required. The author has agreed to
amend the bill to clarify that the right created by the bill
is to designate 1 person to receive lapse notices.
4)Additional insureds . In addition to the named insured person
on an insurance policy, there are often "additional insureds"
named who, for specified reasons or limited purposes, are also
covered by the policy. The insurers who are opposed to the
bill have expressed concern that a third-party lapse designee
might be confused, and believe they have coverage protections
of the policy as an additional insured. The author has agreed
to amend the bill to clarify that the designee has no
additional insured rights, and no role in the policy other
than receiving notices as designated by the policyholder.
5)Military personnel . United Services Automobile Association
(USAA), an insurer that covers active and retired military and
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their families, believes that the bill has possible benefits
for the military personnel who are forced to leave their homes
with very short notice in order to be deployed for long
periods of time. The opportunity to plan ahead with an opt-in
provision provides the clarity needed when putting personal
business in order, and allows our military to have faith that
a policy that is critical to their family well-being is
responsibly handled. While sharing some workability concerns
with other insurers, USAA has expressed a Support If Amended
position on the bill.
6)Records retention . Insurers opposed to the bill object to the
statutory waiver and records retention provisions in the bill.
They argue that the life insurance and LTC provisions are
preferable. Those provisions simply direct the insurer to
make the opt-in right available to the policyholder ("No
policy shall be issued unless . . . . ."), but do not express
how the insurer is supposed to be able to prove that it has
done so.
7)Scope of bill . With respect to the life insurance and LTC
laws, it is clear to which policies the right to designate
attaches. Insurers opposed to the bill have argued that the
language describing the policies to which the bill applies is
not adequately precise. DOI has committed to working on
language that will clarify the scope of the bill better than
the current language.
8)Health insurance . Insurers opposed to the bill have objected
to inclusion of health insurance policies because recent
legislation, and regulations adopted by the DOI and the
Department of managed Health Care have adequately addressed
the bill's purposes. DOI has agreed to evaluate this concern
in connection with providing greater clarity in defining the
scope of policies to which the bill applies.
9)Age threshold . Insurers opposed to the bill suggest that
other states limit similar lapse rules to senior citizens, and
seek that limitation in this bill. As noted above, the author
and sponsor believe that there are sound reasons why the
bill's benefits will be valuable to non-seniors, notably to
military personnel, students, and others who frequently work
away from their principal residence, among others.
REGISTERED SUPPORT / OPPOSITION :
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Support
Department of Insurance (Sponsor)
California Advocates for Nursing Home Reform (CANHR)
California Retired County Employees Association (CRCEA)
California Senior Legislature (CSL)
Consumer Federation of California
United Services Automobile Association (if Amended)
Opposition
American Insurance Association
Association of California Insurance Companies
Association of California Life and Health Insurance Companies
Independent Insurance Agents and Brokers of California
National Association of Mutual Insurance Companies
Pacific Association of Domestic Insurance Companies
Personal Insurance Federation of California
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086