BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 1804|
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THIRD READING
Bill No: AB 1804
Author: Perea (D)
Amended: 7/1/14 in Senate
Vote: 21
SENATE INSURANCE COMMITTEE : 10-0, 6/25/14
AYES: Monning, Corbett, Correa, DeSaulnier, Lieu, Mitchell,
Nielsen, Roth, Torres, Vidak
NO VOTE RECORDED: Gaines
ASSEMBLY FLOOR : 76-2, 5/29/14 - See last page for vote
SUBJECT : Insurance: notice of lapse
SOURCE : Department of Insurance
DIGEST : This bill provides that policyholders of private
passenger automobile, owner-occupied homeowners, and individual
disability income insurance policies are entitled to designate a
third-party who will be sent a notice if the policy is about to
lapse for nonpayment of premium.
ANALYSIS : Existing law:
1.Establishes, with various time frames depending on the type of
insurance policy, that a policy cannot be cancelled for
nonpayment of premium unless the named insured is provided a
notice so many days before the effective date of cancelation,
including:
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A. Auto Insurance: 10 days.
B. Homeowners Insurance: 20 days.
1.Requires disability income insurance policies to contain a
provision providing a specified grace period depending on how
frequently premiums are due. Grace periods must be at least
seven days for premiums paid on a weekly basis, 10 days for
premiums paid monthly, and 31 days for all other policies.
This bill:
1.Provides that an insurer must maintain a process that allows a
policyholder to designate in writing or electronic
transmission one additional person to receive notice of lapse,
termination, expiration, nonrenewal, or cancelation of a
policy for nonpayment of premium.
2.Requires the insurer to notify the insured in writing or by
electronic transmission of that right at the time of
application or within 30 days after the inception date and at
least every two years thereafter.
3.Requires the insurer to follow a prescribed process described
below, if it fails to maintain the process described above:
A. Within 30 days of the effective date of the policy,
notify the policyholder of the right to designate one
third-party to receive a notice of lapse, termination,
expiration, cancellation or nonrenewal of the policy for
nonpayment of premium.
B. The insurer may conclusively presume that the
policyholder has waived the right to designate a third
party if no response is received within 30 days.
C. Insurers must maintain records of the designee
information for the life of the policy, and allow the
policyholder to update the information upon the
policyholder's request.
D. The insurer must notify the policyholder every two years
of the right to either update designee information, or the
right to make a designation.
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1.Does not apply to insurance policies paid for through a
payroll or pension deduction until 60 days after the
policyholder is no longer on that payment plan.
2.Prohibits a policy subject to the bill's requirements from
being cancelled for nonpayment of premium, unless the
designated third party has been notified by first-class mail
at least 10 days prior to the cancellation date.
3.Provides that the bill's requirements apply to:
A. Policies covering owner-occupied homes;
B. Private passenger automobile insurance policies of at
least six months duration; and
C. Individual disability income policies.
1.Specifies that a person designated to receive notices pursuant
to the bill does not acquire any substantive rights under the
policy.
2.Provides that the bill does not apply to policies that take
effect prior to January 1, 2016.
Background
This bill is based on AB 1747 (Feuer, Chapter 315, Statutes of
2012), that prohibits a life insurer from terminating a policy
for nonpayment until 30 days after a notice of nonpayment has
been mailed to the insured and a designee (if named) and other
person having an interest in the policy (such as an assignee).
The insurer would have to notify the insured annually of the
right to designate or change the designation of the additional
recipient.
That bill was is based on a long-term care insurance statute
originally added by SB 1052 (Vasconcellos, Chapter 699, Statutes
of 1997). That provision was based on Section 7 of the
Long-term Care Insurance Model Regulation (1993) adopted by the
National Association of Insurance Commissioners.
Life insurance and long-term care policies represent life-long
investments and estate management tool. Getting a new policy
after lapse places the consumer in an extremely disadvantaged
position because, in part, the new policy may require additional
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underwriting and much higher premiums - especially for seniors.
Consumers that suffer from poor health may have trouble getting
a policy at all. A lapse for a life or long-term care policy
will have immediate and permanent consequences (sometimes
drastic). Additionally, the very conditions covered under a
long-term care policy, such as incapacity or cognitive
impairment, may be the cause of the lapse.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local:
No
SUPPORT : (Verified 6/25/14) (per Senate Insurance Committee
analysis - unable to reverify at time of writing)
Department of Insurance (source)
California Advocates for Nursing Home Reform
California Commission on Aging
California Retired County Employees Association
California Senior Legislature
Consumer Attorneys of California
Consumer Federation of California
OPPOSITION : (Verified 6/25/14) (per Senate Insurance
Committee analysis - unable to reverify at time of writing)
Association of California Life and Health Insurance Companies
American Council of Life Insurers
ARGUMENTS IN SUPPORT : According to the Department of
Insurance, the bill is an important consumer benefit for people
who have difficulty managing their insurance responsibilities
either due to health or residency issues. DOI notes that
policyholders of all ages can find themselves in situations that
might cause important insurance protections to lapse due to a
failure to pay the premium. In addition to older policyholders
who might want a relative or close family friend to keep an eye
on their insurance protections, others who might have prolonged
separations from their primary residence, such as college
students, members of the military, or people who work for
extended periods away from home will find the bill's proposal a
great benefit.
ARGUMENTS IN OPPOSITION : ACLHIC argues that the data
available suggests that unintentional lapses for individual
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disability income insurance are virtually nonexistent.
Disability income or "wage loss" insurance is typically provided
to highly skilled professional and generally lapses when it is
no longer needed (such as when a person retires). The average
lapse rate is 6.5% with the highest portion occurring in the
latest policy years as a result of policyholders nearing
retirement age and deciding they no longer need protection.
ACLHIC also writes that compliance with AB 1804 would cause
insurers to incur significant expense in system improvements to
automatically generate new and multiple notices to only
California insureds, and continuously track their designated
individuals.
ASSEMBLY FLOOR : 76-2, 5/29/14
AYES: Alejo, Allen, Ammiano, Bigelow, Bloom, Bocanegra, Bonilla,
Bonta, Bradford, Brown, Buchanan, Ian Calderon, Campos, Chau,
Ch�vez, Chesbro, Conway, Cooley, Dababneh, Dahle, Daly,
Dickinson, Eggman, Fong, Fox, Frazier, Beth Gaines, Garcia,
Gatto, Gomez, Gonzalez, Gordon, Gorell, Gray, Grove, Hagman,
Hall, Harkey, Roger Hern�ndez, Holden, Jones, Jones-Sawyer,
Levine, Logue, Lowenthal, Maienschein, Mansoor, Medina,
Melendez, Mullin, Muratsuchi, Nazarian, Nestande, Olsen, Pan,
Patterson, Perea, John A. P�rez, V. Manuel P�rez, Quirk,
Quirk-Silva, Rendon, Ridley-Thomas, Rodriguez, Salas, Skinner,
Stone, Ting, Wagner, Waldron, Weber, Wieckowski, Wilk,
Williams, Yamada, Atkins
NOES: Achadjian, Donnelly
NO VOTE RECORDED: Linder, Vacancy
AL:nl 7/2/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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