BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 387| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- 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 AB 387 Page 2 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 AB 387 Page 3 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, AB 387 Page 4 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) AB 387 Page 5 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 **** END **** AB 387 Page 6