State insists that it can unilaterally revoke approval of policies
California Department of Insurance officials say the agency has the authority to unilaterally revoke its approval of policies that do not meet new specifications–and plans to exercise that authority.
It will do so even though industry officials are making it clear they will take the issue to court if the department acts because the industry doesn’t believe the department has the authority to act unilaterally, which is to say, without a notice-and-comment process.
Larry Akey, senior director of strategic communications with America’s Health Insurance Plans, Washington, said that as far as the industry is concerned the “situation remains fluid.”
Akey said AHIP continues to talk with its members and other trade groups representing disability insurers “as to our course of action. All options remain on the table, including legal action,” Akey said.
The current developments are prompted by a groundbreaking settlement between California and UnumProvident in October that required changes in the company’s disability insurance practices in the state. It covered areas such as the use of discretionary clauses, self-reported conditions, definition of ‘total disability’ and mandatory participation in rehabilitation programs, among others. (See NU, Oct. 10.)
The department took the position that the new rules applying to UnumProvident also applied to all insurers that sell long-term disability insurance in California.
Gary Cohen, chief counsel for the state Department of Insurance, said that based on a meeting Nov. 17 with disability industry officials, “We’re going to go back and take another look at what we had discussed and see if we want to do anything differently.”
Department officials implied that an imminent crisis in the sale of disability insurance products in the state of California likely has been averted.
Cohen made his comments in a telephone interview on Nov. 22 with National Underwriter.
He explained that the reason the department is acting in the near term “is actually about keeping the market fair and everyone on equal standing.
“If somebody wanted to come into California now, as a new disability insurer, they would be at a significant disadvantage,” Cohen said.
“They’re [the industry] acting like we are changing the law or making new law, and we’re not” he added.
Additionally, he said that in the time since many of these policies were approved, there have been court decisions that have changed various aspects of disability. He used the example of the definition of “total disability” that old policies don’t take into account.
“We want to bring everybody up to a level playing field,” he said.
Even if the department went through the rulemaking process, “we’d still have to go through these proceedings,” Cohen said.
Withdrawal of approvals is the “most efficient” way of dealing with the issue and leveling the playing field, according to Cohen.
Regarding the meeting with insurance industry representatives, Cohen said it was “helpful.” He said he explained to industry representatives that, although he knows a lot about it from the regulatory perspective, he “doesn’t know how to run a company,” and he used the meeting to hear what companies see as the possible effects of their proposals as having.
Cohen said the department will hold similar meetings with plaintiffs’ lawyers and also with employers.
Although it is “less formal” than the rulemaking process, it is “in many ways more helpful,” Cohen said. In the formal process, the written statements “tend to be very legalistic,” he said, and generally state “a position rather than helping the department understand the full effects of a regulation.”
Regarding the industry’s legal contentions, Cohen said the department is considering unilateral action because it believes it has such authority, and always has had it.
“There’s a provision in the law that allows for the Commissioner to issue a ‘withdrawal of approval’ for products,” Cohen said. “The department has found various provisions in filed policies that it no longer approves of, and although the commissioner can deny approval for new policies, he said, “we have in existence a large number of policies approved in the past, in the early 90s, the 80s and even the 70s in some cases.”
In these cases, Cohen said, the commissioner can issue a notice of withdrawal of approval, and the company has the right to a hearing, and eventually, can appeal to the courts.
“The due process of going through a regulation is served,” by this provision allowing the company to make its case, and there is, in fact, one company going through the process in Superior Court at the moment,” Cohen said.
These developments should not have surprised anyone, Cohen said. “These are positions we’ve taken for a long time now.”
State says the commissioner can issue a notice of withdrawal of approval, and the company has the right to a hearing, and eventually, can appeal to the courts