California Issues Regulations Concerning Cost of Insurance Increases on Life Insurance
Almost exactly a year ago, we wrote about a new regulation implemented by the New York State Department of Financial Services to “govern life insurance company practices related to increases in the premiums” of life insurance and annuity policies. That regulation required carriers raising rates on policies to notify the department “at least 120 days prior to an adverse change in non-guaranteed elements of an in-force life insurance policy.” Carriers also had to notify consumers “at least 60 days prior to an adverse change in non-guaranteed elements of an in-force life insurance or annuity policy.”
Last week, California Governor Jerry Brown signed into law Assembly Bill 2634, which aims to protect consumers affected by cost increases in their life insurance policies. Current California law requires a carrier to provide notice “upon an increase of premium if that policy provides for premium changes.” The new law, for all policies in effect after April 1, 2019, requires carriers to provide a “summary notice” to a policy owner of a “flexible premium policy” 90 days before any cost of insurance increases. This notice must include:
- The name and definition of “each nonguaranteed element in the current scale of nonguaranteed elements that is subject to an adverse change.”
- A statement identifying the current rate or charge, the new rate or charge, and the percentage change.
- An “explanation” that the “adverse change” is “based on expectations of the future cost of providing the benefits under the policy, and that the adverse change to the current scale of nonguaranteed elements will reduce the accumulation value and may increase the risk of policy lapse based on continued payment of current premiums.”
- The date the adverse change will take effect.
The carrier will have to notify the insured that they have options, including:
- Taking no action
- Paying the additional premium
- Reducing the face amount of the policy
- Surrendering the policy
- Converting the policy (if available)
No mention of a life settlement option was made part of the bill’s requirements.
The bill does require carriers to provide “an inforce illustration of current and future benefits and values whenever the policy is subject to an adverse change in the current scale of nonguaranteed elements” and to alert the insured to call their agent or the carrier’s customer service line if there are questions. The bill also requires the carrier to include a toll-free number and a listing of hours of service.
Whether this type of legislation will spread is unknown. New York and California are known as two of the most aggressive states when dealing with consumer protection and life insurance.
We will keep an eye on related legislation going forward and report back if further states enact similar laws or regulations.