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Groups Will Probably Sue California Over Unilateral DI Contract Changes

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Trade groups representing disability insurers are contemplating legal action if the California Insurance Department decides to unilaterally change key provisions of existing disability insurance contracts.

Industry sources said such a suit would be contingent on what happens at a private meeting scheduled after press time on Nov. 17 between industry representatives and California Insurance Department officials.

If the department, as expected, notifies the industry at the meeting that it will go ahead with plans to rescind key components of existing disability contracts, such a suit will be filed, two industry officials said.

Industry support for such legal action was sought in a memo sent by America’s Health Insurance Plans to its members on Nov. 16.

“The Department has scheduled a meeting on the proposed changes for Thursday, Nov. 17,” the memo said. “While AHIP will appear at this meeting, along with members with disability business in California, the hearing appears to be pro forma and unlikely to result in any changes in the Department’s likely insistence that substantial changes be made in disability policies,” the memo said.

While details still are being worked out, such litigation could be filed in state court, seeking an injunction to prevent enforcement of the policy changes until a court can assess whether the department has complied with California law, including notification and comment requirements, the memo said.

The American Council of Life Insurers confirmed that it will join the suit, if filed, and the Association of California Life & Health Insurance Companies is also expected to join, according to Larry Akey, executive director of strategic communications for AHIP.

Akey said the legal action is being contemplated based on the department’s proposed unilateral action and a study on the issue commissioned by AHIP and conducted by Milliman Inc., an actuarial consulting firm.

“We remain concerned about the unintended consequences arising from the department’s unprecedented action, particularly given results of the actuarial study, which shows the potential significant premium increases resulting from such action on California employers and consumers,” Akey said.

The study by Milliman showed that the proposed changes in the regulation of disability income insurance in California could significantly increase the cost of coverage and discourage some injured employees from returning to work.

“The purchasers of group and individual disability income (DI) insurance, both employers and individuals, will be the ones most affected by the Department’s proposed policy language changes,” the study concluded.

Specifically, the Milliman analysis finds the proposed changes would significantly increase the cost of DI insurance by as much as 46% for group products and 33% for individual products; limit the range of DI insurance products available to California consumers; reduce the total amount of DI protection per life that Californians may access; and discourage some DI claimants from returning to work.

A study finds the proposed changes would increase the cost of DI insurance by as much as 46% for group products and 33% for individual products


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