Regulations to prevent illegal insurance recissions

Currently, health insurers may only rescind policies under very specific, limited circumstances defined by law and regulations. In the past, some insurers have exploited vagueness in these laws to improperly rescind health insurance policies, according to the Department of Insurance. The new regulations clarify the law to protect consumers from these illicit practices and set out specific steps insurers must take before they can legally rescind. All insurers must file revised health history questionnaires that comply with the new regulations and receive Department approval.

The regulations do the following:

• Prohibit insurers from rescinding policies when they are not in compliance with specified underwriting practices regulations.
• Restrict health condition and history questions on applications to those that are necessary for medical underwriting.
• Require all questions on health insurance applications be clear, specific and understandable.
• Require use of new and improved health history questionnaires approved by the Department before an insurer can rescind.
• Allow consumers to indicate that they are unsure of or cannot remember the answer to a particular health history question.
• Require that agents attest if they help applicants with a health insurance application.
• Prohibit confusing phrasing of application questions like double-negatives and certain compound questions.
• Require that consumers be given a copy of their application to check for discrepancies.
• Require that insurers not rely solely on self-reported health history when possible.
• Prohibit insurers from conducting certain rescission-focused investigations long after becoming aware of a possible misrepresentation or omission by the applicant. Also prohibits insurers from seeking information outside the scope of such an investigation.
• Require that insurers give consumers the opportunity to respond during rescission investigations, and that insurers must listen to consumer-provided information.
• Require that insurers identify and resolve any reasonable questions arising from the application. Insurers must document their effort to resolve these issues and make those documents available to the Commissioner.

The regulations were approved by the Office of Administrative Law on July 19, 2010. A copy of the regulations may be viewed at http://www.insurance.ca.gov/0400-news/0100-press-releases/2010/upload/nr112rescissionregs.pdf.