BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 387|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
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THIRD READING
Bill No: AB 387
Author: McCarty (D)
Amended: 8/31/15 in Senate
Vote: 21
SENATE INSURANCE COMMITTEE: 8-0, 7/8/15
AYES: Roth, Gaines, Berryhill, Glazer, Hall, Hernandez, Liu,
Wieckowski
NO VOTE RECORDED: Mitchell
SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/27/15
AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen
ASSEMBLY FLOOR: 78-0, 5/14/15 (Consent) - See last page for
vote
SUBJECT: Insurance: life and disability policies
SOURCE: California Department of Insurance
DIGEST: This bill 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 present
recommendations to a multistate regulatory support organization
in regards to commissioning a report 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.
ANALYSIS:
AB 387
Page 2
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.
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 recommend to a multistate regulatory
support organization that it commission a study that compares
California insurance standards with those developed by the
IIPRC.
a) Requires that the study be commissioned and paid for by
the multistate regulatory support organization and
prohibits the use of General or Insurance Fund moneys for
the purpose of commissioning the report.
b) Requires the IC to submit a report no later than January
1, 2017, to the Senate and Assembly Insurance Committees.
c) Repeals the provisions relating to the report on January
1, 2021.
1)Authorizes the IC to publish specified documents and
information intended to streamline the review process for life
and disability insurance forms.
AB 387
Page 3
Background
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. If the IC affirmatively approves the form, or
30 days passes without notice, the insurer may issue policies
under that form. Traditionally, the statute has been read so
that the IC would have discretion to review a policy or not.
The California Court of Appeal in the case Ellena v. Department
of Insurance (2014) held that the IC has a mandatory duty to
review each disability insurance policy. That opinion has
created a substantial new workload in the California Department
of Insurance's (CDI) policy review process. This bill addresses
the additional workload by it extending the review period to 120
days.
AB 387 also authorizes CDI to publish on its website information
designed to expedite approval of policy forms, including,
instructions, guidelines, checklists, and examples of previously
approved language. It does not, however, alter or expand CDI's
regulatory authority or obligations to comply with the
Administrative Procedure Act.
Additionally, this bill calls for a comparison of California
standards to the uniform standards established by the IIPRC, a
multi-state public entity which serves as a central point for
the filing and approval of some types of insurance products,
including life, disability income, and long-term care insurance.
The IIPRC has 44 members representing approximately 70% of the
premium nationwide, but not including California, Florida, and
AB 387
Page 4
New York. Some industry groups and the Federal Insurance Office
recommend that every state join the IIPRC. However, concerns
have been raised that joining the IIPRC would undermine
California's regulatory authority and result in with fewer
consumer protections. This bill requires the IC to recommend to
a multistate regulatory support organization, such as the
National Association of Insurance Commissioners, that it
commission an independent study to compare IIPRC and California
standards.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
According to the Senate Appropriations Committee:
One-time costs of about $400,000 to develop procedures for
reviewing disability insurance policies and developing and
publishing procedural requirements and guidelines for use by
insurance companies when making filings by CDI (Insurance
Fund).
Unknown costs to prepare a report comparing California
insurance standards to those developed by the IIPRC (private
funds). This bill requires the report to be commissioned and
paid for by a non-state entity and specifically prohibits the
use of General Fund or Insurance Fund monies for
implementation of that section of the bill (which would
indicate that donated funds would also be used for any
significant internal costs associated with the report incurred
by CDI).
SUPPORT: (Verified8/28/15)
California Department of Insurance (source)
Association of California Life and Health Insurance Companies
OPPOSITION: (Verified8/28/15)
None received
AB 387
Page 5
ARGUMENTS IN SUPPORT: According to the author, this bill
codifies an agreement between CDI and the disability insurance
industry and clarifies what constitutes "acceptance" of a new
disability insurance policy by CDI. 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.
ASSEMBLY FLOOR: 78-0, 5/14/15
AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,
Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang,
Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle,
Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina
Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez,
Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden,
Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Lopez, Low,
Maienschein, Mathis, Mayes, McCarty, Melendez, Mullin,
Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea,
Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago,
Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,
Wilk, Williams, Wood, Atkins
NO VOTE RECORDED: Linder, Medina
Prepared by:Hugh Slayden / INS. / (916) 651-4110
8/30/15 19:42:07
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