BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                        AB 387|
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                                   THIRD READING 


          Bill No:  AB 387
          Author:   McCarty (D)
          Amended:  9/2/15 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 request that a  
          multistate regulatory support organization to commission 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.  

          Senate Floor Amendments of 9/2/15 (1) clarify the duties  
          applicable to the Insurance Commissioner when requesting that a  








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          multistate regulatory support organization commission a study  
          comparing California's insurance standards to uniform standards  
          adopted by the IIPRC; (2) remove the sunset date; and (3)  
          eliminate unenforceable provisions applicable to the support  
          organization.

          ANALYSIS:
          
          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 request that a multistate regulatory  
            support organization commission a study comparing California  
            insurance standards with those developed by the IIPRC and that  
            the study be completed by January 1, 2017. 

             a)   Authorizes the IC to review the study and to prepare  
               written comments to include with the study, and requires  
               the IC to submit the study to the Chairpersons of the  
               Assembly and Senate Committees on Insurance.

             b)   Prohibits the use of General or Insurance Fund moneys  
               for the purpose of commissioning the report.

          1)Authorizes the IC to publish specified documents and  







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            information intended to streamline the review process for life  
            and disability insurance forms.  

          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 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.   
          The IIPRC is a multi-state public entity which serves as a  
          central point for developing uniform product standards for life,  







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          disability income, and long-term care insurance products.   
          Products are submitted to the IIPRC for the review and, if  
          approved, may be sold in member jurisdictions.  The IIPRC has 44  
          members representing approximately 70% of the premium  
          nationwide, but not including California, Florida, and 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 request that a  
          multistate regulatory support organization, such as the National  
          Association of Insurance Commissioners, commission a study  
          comparing 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 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:   (Verified9/3/15)


          California Department of Insurance (source)  
          American Council of Life Insurers
          Association of California Life and Health Insurance Companies


          OPPOSITION:   (Verified9/2/15)








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          None received


          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
          9/3/15 14:30:06


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