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Milliman%3A California Disability Rules Will Increase Policy Costs

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Residents of California should be prepared to see disability insurance costs skyrocket if new requirements proposed by the California Department of Insurance take effect.[@@]

Actuaries at Milliman, Seattle, make that prediction in a report sponsored by America’s Health Insurance Plans, Washington, a health insurance trade group that strongly opposes the California regulators’ proposal.

California regulators have ordered UnumProvident Corp., Chattanooga, Tenn., to respond to waves of complaints about its disability insurance claims-handling practices to respond by taking steps to change its contracts.

Recently, California insurance regulators told insurers that they want all group disability carriers operating in the state to take steps such as eliminating contract clauses that appear to give companies unlimited discretion over claim decisions; adopting a more liberal definition of “total disability”; and cutting mandatory rehabilitation requirements.

California regulators want individual disability insurers to adopt a more liberal definition of total disability; eliminate requirements that certain claimants be receiving specific types of medical care; and eliminate requirements that certain claimants not be engaged in any form of work.

Because California is known for high disability claim rates, its residents already pay about 10% more than the national average for group disability coverage and about 20% to 70% more for individual disability insurance, the Milliman actuaries write.

Adopting the California regulators’ current proposals probably would increase individual disability insurance costs by 21% to 33%, and it might increase group disability insurance costs 28% to 46%, the actuaries write.

The shift to a new, more liberal definition of total disability would probably be the most expensive change, and that change alone could increase California disability premium rates by 10% to 15%, the Milliman actuaries write.


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