Existing law provides for the regulation of life and disability insurance by the Department of Insurance. Existing law authorizes the Insurance Commissioner, in order to streamline the departments file review process for life and disability insurance forms, to develop and publish procedural requirements for file submission, guidelines and checklists that list and interpret applicable required and optional insurance statutes and regulations, and standard insurance contract language previously approved by the department.

This bill would state the intent of the Legislature to authorize the department to provide, when applicable, an expedited policy approval process, as specified. additionally authorize the commissioner to develop and publish an expedited policy form approval application.

Existing law provides for the regulation of life and disability insurance by the Department of Insurance. Existing law authorizes the Insurance Commissioner, in order to streamline the departments file review process for life and disability insurance forms, to develop and publish procedural requirements for file submission, guidelines and checklists that list and interpret applicable required and optional insurance statutes and regulations, and standard insurance contract language previously approved by the department.

This bill would state the intent of the Legislature to authorize the department to provide, when applicable, an expedited policy approval process, as specified.

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2017 - 2018 Regular Session

SB 425 (Mendoza) - Insurance: life and disability file review

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

SB 425 would authorize the California Department of Insurance (CDI) to develop and publish an expedited life and disability policy form approval process.

Fiscal Impact:

Significant, ongoing cost pressure to CDI, likely in the hundreds of thousands for additional workload to develop and publish an expedited policy approval application, implement the application, and review those filings submitted for an expedited review. (Insurance Fund)

Background:

Disability and life insurers must submit documents that contain the contractual provisions and other items to the Insurance Commissioner (IC) before issuing policies based on those forms. For some types of insurance, the IC must approve the forms before the insurer issues contracts based on those forms.

In Ellena v. Department of Insurance, CDI argued that the Insurance Code did not impose a mandatory duty on the IC to review each policy filed, but rather provided the IC with the discretionary authority to review each policy filed, and that insurers were free to market a policy if the IC did not act on a policy within 30 days of filing. However, the court found that the commissioner has a mandatory duty to review each disability insurance policy. AB 387 (McCarty, 2015) extended CDI’s review timeline for disability insurance policy to 120 days.

The life insurance industry has complained that compared to other states, CDI is slow in approving new life and disability insurance policies. CDI has agreed to review its policy approval process to determine whether there are ways to expedite the process.

Proposed Law:

This bill would authorize the IC to develop and publish an expedited policy form approval application in order to streamline CDI’s file review process for life and disability insurance forms.

Related Legislation:

AB 387 (McCarty, Chapter 691, Statutes of 2015) authorized CDI to publish on its website, information designed to facilitate approval of life and disability insurance policy forms, including instructions, guidelines, checklists, and examples of previously approved language. This bill also extended CDI’s review timelines to 120 days. In addition, this bill also required a comparison of California policy approval standards to the uniform standards established by the Interstate Insurance Compact Regulation Commission

Staff Comments:

Though this bill would authorize CDI to develop and publish an expedited life and disability policy form approval process, it would create cost pressure to implement such an approval process. Additional workload would be needed to develop the process. Depending on the expedited timeline, staff would also be needed to implement the approval process in the allotted time and to avoid a backlog.

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SENATE COMMITTEE ON INSURANCE

Senator Tony Mendoza, Chair

2017 - 2018 Regular

Bill No: SB 425 Hearing Date: April 26, 2017

Subject: Insurance: life and disability file review

SUMMARY

Gives the California Department of Insurance (CDI) authority to develop and publish an expedited life and disability policy form approval process.

DIGEST

Existing law

1. Requires an insurer to file a life or disability insurance policy form with the Insurance Commissioner (IC) prior to selling the policy;
2. Permits the insurer to sell a policy when either the policy is explicitly approved by the IC or 30 days (for life) or 120 days (for disability) has elapsed since the policy was filed, whichever is sooner, as specified;
3. Allows the IC to undertake specified actions to streamline the CDI’s file review process of life and disability insurance forms;
4. Requires the IC to request that a multistate regulatory support organization commission a study comparing California insurance standards with the Interstate Insurance Product Regulation Commission (IIPRC), and that the study be completed by January 1, 2017.
   

This bill

1. Allows the CDI to develop and publish an expedited life and disability policy form approval process.
   

COMMENTS

1. Purpose of the bill To provide the CDI authority to develop an expedited life and disability form approval process and provide a vehicle for any further changes that can be agreed to between CDI and life insurers upon release of an overdue comparison of California policy approval standards to the uniform standards established by the Interstate Insurance Compact Regulation Commission (IIPRC).
   
   
2. Background Disability and life insurance policies are 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.

A 2014 decision by the California Court of Appeal challenged the traditional understanding that the IC does not have to actually review each policy form prior to use. In Ellena v. Department of Insurance, CDI argued that the Insurance Code provided discretionary authority to review filed disability policies and that insurers were free to market a policy if the IC did not act on a policy within 30 days of filing. However, the court held that the IC has a mandatory duty to review each disability insurance policy. This decision creates substantial new workload in CDI’s policy review process.

The life insurance industry has long complained that the CDI is too slow in approving new life and disability insurance policies compared to other states, and has urged California to join the IIPRC. The IIPRC is a multi-state public entity which serves as a central point for developing uniform product standards for life, disability income, and long-term care insurance products. The IIPRC has 44 members representing approximately 70% of the premium nationwide, but notably not including three of the nation’s largest markets--California, Florida, and New York.

Some industry groups have pushed for all states to join the IIPRC. However, others argue that joining the IIPRC would undermine California’s regulatory authority and likely result in lower quality products with fewer consumer protections. As a leader in consumer protection, the legislature has rejected joining—and being bound by decisions made by—the IIPRC, preferring to set its own product standards. At the same time, the CDI has agreed to look at its policy approval process to see if there are some ways to expedite the process.

AB 387 (McCarty, Chap. 691, Statutes of 2015) authorized CDI to publish on its website information designed to facilitate approval of life and disability insurance policy forms, including instructions, guidelines, checklists, and examples of previously approved language, and also extended the CDI’s review timeline to 120 days. It also required a comparison of California policy approval standards to the uniform standards established by the IIPRC.

The CDI was supposed to complete the comparison of California and IIPRC standards and issue a report by January 1, 2017, but it was not allowed to use any General Fund or Insurance Fund money to conduct the study. In November 2016 the IC reported to the Legislature that he was able to engage the National Association of Insurance Commissioners (NAIC) to actually carry out the comparison, and the NAIC has said it would have the study completed in “early 2017.” CDI has not yet released the results of that study. SB 425 is intended to serve as a vehicle for any changes to California law that can be agreed to between CDI and insurers to expedite the policy approval process as a result of that study.

1. Support The Association of Life and Health Insurance Companies and the National Association of Insurance and Financial Advisors of California support SB 425 because it would authorize the CDI to develop and publish an expedited policy form approval application for certain new products and help alleviate some of the backlog in product approvals experienced at the Department. This would allow insurers to get their products to the market in a timelier manner, giving consumers access to more products that meet their insurance and retirement planning needs, without sacrificing consumer protections.
2. Opposition None
   
3. Prior and Related Legislation

AB 387 (McCarty, Chap. 691, Statutes of 2015) authorized CDI to publish on its website information designed to facilitate approval of life and disability insurance policy forms, including instructions, guidelines, checklists, and examples of previously approved language, and also extended the CDI’s review timeline to 120 days. It also required a comparison of California policy approval standards to the uniform standards established by the IIPRC.

POSITIONS

Support

Association of California Life and Health Insurance Companies (Sponsor)

National Association of Insurance and Financial Advisors (Sponsor)

New York Life Insurance Company

Oppose

None received

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