BILL ANALYSIS Ó
SENATE COMMITTEE ON INSURANCE
Senator Richard Roth, Chair
2015 - 2016 Regular
Bill No: AB 387 Hearing Date: July 8,
2015
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|Author: |McCarty |
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|Version: |June 29, 2015 Amended |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Hugh Slayden |
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Subject: Insurance: life and disability policies.
SUMMARY Extends the period of time allowed for the Insurance
Commissioner (IC) to review disability insurance policies from
30 to 120 days, requires the IC to submit a report to the Senate
and Assembly Insurance Committees that compares California
insurance standards with those developed by the Interstate
Insurance Product Regulation Commission (IIPRC), and authorizes
the IC to publish specified documents and information intended
to streamline the review process for life and disability
insurance forms.
DIGEST
Existing law
1. Establishes standards for life and disability insurance
policies.
2. Requires an insurer to file a disability insurance policy
with the IC prior to selling the policy.
3. Permits the insurer to sell a policy when either the policy
is approved by the IC or 30 days have elapsed since the
policy was filed, whichever is sooner.
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4. Prohibits the IC from approving a disability policy that
contains a provision that is vague or misleading or fails to
meet specified standards.
5. Prohibits an insurer from selling a disapproved policy.
This bill
1. Extends the period of time for the IC to review disability
insurance policies from 30 to 120 days.
2. Requires the IC to commission a study and submit a report
no later than January 1, 2017, to the Senate and Assembly
Insurance Committees that compares California insurance
standards with those developed by the IIPRC.
3. Prohibits the use of General or Insurance Fund moneys for
the purpose of commissioning the report.
4. Repeals the provisions relating to the report on January 1,
2021.
5. Authorizes the IC to publish specified documents and
information intended to streamline the review process for
life and disability insurance forms.
COMMENTS
1. Purpose of the bill According to the author, this bill
codifies an agreement between the California Department of
Insurance (CDI) and the disability insurance industry and
clarifies what constitutes "acceptance" of a new disability
insurance policy by CDI. A recent court decision, Ellena v.
Department of Insurance, found ambiguity in current state
AB 387 (McCarty) Page 3
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law as to when the IC is deemed to have approved a
disability policy. The language of this bill, created
through negotiations between CDI and industry, will clarify
when a disability policy is approved.
2. Background The IC and the insurance industry have been
working together to streamline the process for approval of
disability insurance products that require approval by CDI.
In that spirit, this bill takes a multi-prong approach to
address immediate challenges and consider future options.
Disability Form Review. Disability and life insurance
policies remain subject to statutory standards. Insurers
must submit documents that contain the contractual
provisions and other items integral to the transaction such
as required disclosures (collectively referred to as
"forms") to the IC before issuing policies based on those
forms. For some types of insurance, the IC must
affirmatively approve the forms before the insurer issues
contracts based on those forms. For other types of
insurance, the insurer must submit the form but may issue
policies after a waiting period without affirmative approval
by the IC. In either case, the insurer must stop issuing
policies based on that form if the IC subsequently
disapproves the form.
Insurers must file forms for disability insurance. If the
IC notifies the insurer that the form does not comply with
required standards, the insurer must fix the form and get
approval before issuing policies. However, if and when the
IC affirmatively approves the form, or 30 days passes
without notice, the insurer may issue policies under that
form.
A 2014 decision by the California Court of Appeal challenged
the traditional understanding of that disability insurance
approval process. In Ellena v. Department of Insurance, CDI
argued that the Insurance Code provided discretionary
authority to review filed disability policies and that
insurers were free to market a policy if the IC did not act
on a policy within 30 days of filing. However, the court
held that the IC has a mandatory duty to review each
disability insurance policy. This decision creates
substantial new workload in CDI's policy review process.
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This bill extends the review period from 30 to 120 days in
order to allow CDI to accommodate the additional workload.
Interstate Insurance Product Regulation Commission (IIPRC).
The Interstate Insurance Compact ("Compact") is an
inter-jurisdiction agreement that establishes uniform
product standards with a consolidated product approval
process for U.S. state and territory members. The Compact
established the IIPRC, a multi-state public entity which
serves as a central point of electronic filing for certain
insurance products, including life insurance, annuities,
disability income, and long-term care insurance, and to
develop uniform product standards. Today, the IIPRC has 44
members representing approximately two-thirds of the U.S.
premium volume, but not including California, North Dakota,
South Dakota, Florida, New York, and Delaware.
Some industry groups and the Federal Insurance Office
recommend that every state join the IIPRC. However, others
argue that joining the IIPRC would undermine California's
regulatory authority and likely result in lower quality
products with fewer consumer protections. This bill
requires the IC to commission an independent study to
compare IIPRC standards to California standards.
Streamlining Form Approval. This bill would authorize CDI
to publish on its website information designed to expedite
approval of policy forms, including, instructions,
guidelines, checklists, and examples of previously approved
language. The documents and information referred to in this
bill are intended to be informational and not subject to the
Administrative Procedure Act (APA). This information should
operate under preexisting APA exceptions governing the
publication of forms and instructions, as well as documents
related to the internal management of an agency. (Govt.
Code § 11340.9(c) and (d).) According to the Office of
Administrative Law, a regulation is not needed if a form's
content consists only of existing, specific legal
requirements. Any instruction, sample, guidance, etc. that
would otherwise create new legal requirements would be
unenforceable. For example, the IC could not disapprove a
filing, nor could an insurer demand that CDI approve a form,
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based on any of the directions or information published
under this bill if not otherwise adopted under the APA or
supported by other valid grounds.
3. Support
CDI explains that providing standards to expedite the policy
approval process coupled with increasing the amount of time
provided to review and approve policies may help to improve
the process and reduce confusion for consumers and industry.
The Association of California Life and Health Insurance
Companies supports this bill because it reflects their
continued work with CDI to explore way to expedite product
filings while ensuring all important consumer protections
remain in place.
4. Opposition
None received
1. Question The bill prohibits the use of public funds for
the commission of the IIPRC study and requires the use of
solicited, nonpublic funds. What are the likely sources of
these funds?
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POSITIONS
Support
Department of Insurance (sponsor)
Association of California Life and Health Insurance Companies
Oppose
None received
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