Insurance and Real Estate Committee

JOINT FAVORABLE REPORT

Bill No.:

SB-1031

Title:

AN ACT CONCERNING THE INSURANCE DEPARTMENT'S AUTHORITY TO PROTECT CONSUMERS.

Vote Date:

3/14/2013

Vote Action:

Joint Favorable Substitute

PH Date:

3/7/2013

File No.:

SPONSORS OF BILL:

Insurance and Real Estate Committee

REASONS FOR BILL:

The bill implements new consumer protection provisions.

SUBSTITUTE LANGAUGE:

Substitute language broadens the scope of the penalty the Insurance Commissioner can impose for violation of Section 38a-702k of state statute.

RESPONSE FROM ADMINISTRATION/AGENCY:

The Connecticut Insurance Department submitted written testimony in support of the bill stating that the bill is designed to protect consumers by requiring “life insurers to retain proof of the date and manner of the delivery of the policy to their individual policyholders, for seven years. The Department has had complaints from consumers about not receiving the policy at all… and complaints about the exact day of delivery which starts the running of the 10 day free look period.” It stated that another aspect of the bill will “give the Commissioner the authority to order the producer to make restitution in specified situations to the individual harmed by the producer's fraudulent or other improper activity.” The Department also stated “We believe the rules [in Sections 38a-816(15) and 38a-477] are less clear where the claimant is submitting the claim [rather than a medical provider]. We want to ensure that claimants get the full benefit of interest on late payments, on the same basis as medical providers.” The Department stated that it also “recommends a new statute prohibiting the use of discretionary clauses in health insurance policies. … We understand that such clauses have been misused in other states to improperly delay claims payment. We want to be proactive and prevent a problem from developing here.” It concluded its testimony by requesting that the Committee amend the language of the bill in Line 68 to “ensure that any producer who misappropriates insurance premiums and fails to place coverage is responsible to the insured for any amount of a loss that would have been covered by the policy, not just to give back the amount misappropriated.”

NATURE AND SOURCES OF SUPPORT:

None expressed.

NATURE AND SOURCES OF OPPOSITION:

Bob Kehmna on behalf of the Insurance Association of Connecticut, testified in opposition to the bill stating “I'm here to express some concerns …section three amends subdivision 15 of 38-816. That's the Connecticut Unfair Insurance Practices. To make changes to apply that particular subdivision to claimants, right now it's applicable to healthcare providers, by adding claimant in subparagraph B, it appears however, that the subdivision which is intended to apply to payment requirements for health claims could be interpreted to apply to all other types of insurance. The subparagraph now refers to a payment to a claimant pursuant to insurance policy subject to the section. Section 38-816 is applicable to all types of insurance. I don't think that was the intent. I think this is intended to apply to health situations.” He also stated “Section four would prohibit any health insurance policy from containing language that "reserves discretion to such an insurer to interpret the terms of the policy." Because of the prohibition this could actually prevent, in the case of a long-term care or disability income, the ability of the insurer to use discretion in deciding whether to pay a claim or not.” He concluded his testimony by stating “Everything is not black and white. When comparing the facts of the claim to the specifics of the contract, some discretion is inevitably necessary. So we would question whether this bill in its current form is overly broad. And actually could cause some problems that are unintended.”

The CT Association of Health Plans submitted written testimony stating that they “would like to respectfully note for the record that there are some technical issues with [the bill] and we hope we can work with the Department and the legislature as the [bill moves] forward to address our concerns. At the moment we are still in the process of reviewing the proposals and need to vet our comments with our members.”

America's Health Insurance Plans, submitted written testimony in opposition to the bill stating with regard to the introduction of Section 4 of the bill “We believe this would be a mistake, as it is based on a misunderstanding of the role of discretionary clauses. … Bills that prohibit the use of discretionary clauses are based on the incorrect assumption that discretionary clauses allow insurers to exercise unfettered discretion. This statement is simply not accurate. If an insurance contract contains a discretionary clause, insurers do not have unfettered discretion in making claim determinations, as both federal and state law place limitations on an insurer's discretion and ensure that policyholder rights are protected.”

They concluded their testimony by stating “Finally, prohibitions on discretionary clauses my disproportionately impact small and medium-sized employers. As self-funded plans under ERISA are specifically exempt from any state regulation (including bans on discretionary clauses) those states that enact such bans may find employers choosing to self-fund. … Small and medium-sized employers rarely have the resources to self-fund, those these employers are more likely to bear the brunt of higher costs caused by the inefficiencies of a discretionary clause ban.”

Reported by: Sheila McCreven

Date: March 27, 2013