BILL ANALYSIS Ó SENATE COMMITTEE ON INSURANCE Senator Richard Roth, Chair 2015 - 2016 Regular Bill No: AB 1512 Hearing Date: June 10, 2015 ----------------------------------------------------------------- |Author: |Committee on Insurance | |-----------+-----------------------------------------------------| |Version: |June 1, 2015 Amended | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |No | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant:|Hugh Slayden | | | | ----------------------------------------------------------------- Subject: Insurance: notice of lapse. SUMMARY Clarifies the rules related to an insurer's obligation to provide a policyholder with the opportunity to designate a third-party recipient to receive an additional lapse notice in connection with employer-provided individual disability income insurance. DIGEST Existing law 1.Requires an insurer, commencing January 1, 2016, to maintain a process that allows policyholders of individual disability income insurance policies (insurance that partially replaces lost income due to disability) to designate one additional person to receive a notice of pending termination of the policy for nonpayment of premium ("designation process"). 2.Requires an insurer to notify policyholders of the designation process within 30 days of the inception date of a policy and at least every two years thereafter. 3.Suspends the designation process requirement when the premium is paid through a payroll or pension deduction plan until 60 AB 1512 (Committee on Insurance) Page 2 of ? days after the policyholder is no longer on the deduction plan. 4.Requires the application form for an insurance policy to clearly indicate the deduction plan selected by the applicant. This bill 1.Clarifies that policies of individual disability income insurance are not subject to the designation process requirement when payments are made entirely by an employer. 2.Eliminates the requirement that the application form clearly indicate the deduction plan selected by the applicant. AB 1512 (Committee on Insurance) Page 3 of ? COMMENTS 1. Purpose of the bill AB 1512 is a cleanup measure to AB 1804 (Perea), Chapter 380, Statutes 2014. 2. Background Beginning January 1, 2016, AB 1804 requires carriers of auto, homeowner's, or individual disability income insurance to provide policyholders with the opportunity to designate a third party to receive an additional notice when the policy will terminate due to nonpayment. The extra notice is intended to provide a failsafe against unintentional lapse, including circumstances when a policyholder may be unable to manage or monitor his or her own affairs due to cognitive impairment, travel, etc. However, some individual disability income policies are paid by or through the insured's employer, so the designation would serve little, if any, purpose. Last year, the author of AB 1804 included an exemption for policies paid through a payroll or pension deduction but some stakeholders remained concerned that the existing language could still cause unwarranted problems. This bill reflects an agreement to clarify that language before AB 1804 takes effect. Support The Association of California Life and Health Insurance Companies and the American Council of Life Insurers explain that this bill represents a minor clarification needed to ensure that additional lapse notifications are not required in a group context where the premiums are entirely paid by the employer. 3. Opposition None received. POSITIONS Support Association of California Life and Health Insurance Companies AB 1512 (Committee on Insurance) Page 4 of ? (Sponsor) American Council of Life Insurers Oppose None received -- END --