BILL ANALYSIS
AB 328
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Date of Hearing: April 22, 2009
ASSEMBLY COMMITTEE ON INSURANCE
Joe Coto, Chair
AB 328 (Charles Calderon) - As Amended: April 13, 2009
SUBJECT : Electronic transactions and insurance.
SUMMARY : Authorizes property and casualty insurance companies
to conduct certain insurance transactions electronically,
including denial, cancellation, and nonrenewal in specified
instances if agreed upon by each party. Specifically, this
bill :
1)Repeals the prohibition on sending 16 insurance notices under
the existing Uniform Electronic Transactions Act. By
repealing this prohibition, insurance companies would be
authorized, subject to other laws, to send an electronic
message to consumers instead of mailing or personally
delivering a notice when:
a) Denying automobile insurance after the individual
applied to purchase a good driver discount;
b) Sending a notice of cancellation of an automobile
insurance policy;
c) Sending a written notice of nonrenewal of an automobile
insurance policy.
d) Sending a notice of cancellation or of intention to not
renew insurance;
e) Specifying a reason for cancelling insurance;
f) Sending a notice of cancellation or change in an
insurance policy;
g) Sending a notice of cancellation when an insurance
policy is premium financed;
h) Sending a notice of cancellation of insurance and
stating the grounds for the cancellation;
i) Delivering the offer of renewal or nonrenewal of
insurance;
j) Sending the notice of nonrenewal or conditional renewal
of commercial insurance;
aa) Sending the notice of the offer of earthquake insurance;
bb) Sending the notice of reduced earthquake insurance
coverage at the time of renewal;
cc) Demonstrating proof that an offer of earthquake
insurance was made;
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dd) Sending the residential property insurance disclosure
statement;
ee) Sending notice of a defect in a certificate of
eligibility for insurance under an assigned risk plan; and
ff) Mailing an insurance policy to an insured upon
assignment by an assigned risk plan.
2)Allows any notice required to be sent by casualty insurance
companies to be provided by electronic transmission if each
party has agreed to this means. Casualty insurance companies
are insurers that sell homeowners', automobile, and liability
insurance, as well as other less common lines of casualty
insurance.
3)Specifies that, in connection with notices sent by casualty
insurance companies, the affidavit of the person who initiated
the electronic transmission, stating the facts of that
transmission, shall be prima facie evidence that the notice
was transmitted.
EXISTING LAW :
1)Establishes the Uniform Electronic Transactions Act which
authorizes the transaction of business, commerce, contracts,
and governmental affairs by electronic means.
2)Specifies that certain transactions are not authorized to be
conducted by electronic means. Transactions that are not
subject to being conducted electronically include:
a) The written statement from an automobile insurer to the
applicant denying insurance coverage when the individual
applied to purchase a good driver discount policy.
b) A notice of cancellation of an automobile insurance
policy.
c) A written notice of nonrenewal of an automobile
insurance policy.
d) Proof of mailing of a notice of cancellation or of
intention to not renew insurance.
e) A series of other notices of insurance cancellations and
nonrenewals listed on page 1.
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FISCAL EFFECT : Undetermined.
COMMENTS :
1)Purpose of bill. According to the author, this bill will
allow for more insurance transactions to be conducted
electronically while still providing two important consumer
protections: a consumer must agree to have the transaction
conducted electronically and cannot be compelled by the
insurer to accept the notices by electronic means.
2)Background . In 1999, the Legislature approved SB 820 to enact
the Uniform Electronic Transactions Act which establishes
uniform standards for conducting business electronically.
That act specifies that it applies only to transactions
between parties that have agreed to transact business by
electronic means. The act also provides that a party that
agrees to conduct a transaction by electronic means may refuse
to conduct other transactions by electronic means. The act
generally authorized the transaction of business by electronic
means but set forth a series of transactions that could not be
conducted by electronic means including certain
insurance-related transactions that are affected by the
present bill (AB 328).
3)Scope of Proposed Changes . This bill does not repeal the
prohibition on all insurance transactions from being conducted
electronically. The bill retains the existing law (enacted by
the Uniform Electronic Transactions Act) that prohibits the
electronic transmission of disability insurance and life
insurance for individuals who are 65 years or older, or a
notice of a premium increase in connection with an individual
life insurance policy, or a notice of a change in the premium
rate or coverage of an individual health insurance policy.
The bill also retains a few other instances when insurance
related transactions cannot be made by electronic means.
4)Arguments in support. The author and the sponsor, the
Association of California Insurance Companies (ACIC), state
that since 1999 more than 40 states have adopted laws similar
to California to facilitate "E-commerce." The author and
sponsor point out that since 1999, consumers have grown more
and more comfortable conducting business on the Internet and
through e-mail. Also, when the initial legislation was
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passed, the legislation prohibited several insurance
transactions from being conducted on the Internet or email.
With consumers able to shop for and purchase insurance on the
Internet, it is time to review the prohibitions imposed 10
years ago.
5)Arguments in opposition. The Consumer Watchdog (CW) states
this bill would rescind a series of consumer protections that
ensure key financial documents are mailed to policyholders
and, instead, allow insurers to send essential policyholder
information, including auto insurance cancellation, via email
as long as at some point the policyholder agreed to receive
information electronically. CW states that unfortunately,
electronic mail is subject to many delivery problems,
including SPAM blockers that filter out receiving many
messages, changes in email addresses when people change
addresses or service providers (and may forget to notify the
insurance company of their new email address), a server is
down when the important email is sent, consumer hesitancy to
open emails from entities they don't know personally (as a
result of so many scams and online rip-offs), and a different
person in the family or business starts to handle insurance
matters.
Consumer Watchdog states that, under the terms of this bill,
failure to receive key documents could leave a motorist,
homeowner or business unwittingly uninsured. CW also states
that when people agree to receive information about their
policy online, they do not necessarily appreciate that the
insurance company could cancel their insurance via email. CW
proposes a compromise to address those concerns, as follows:
The legislation should require that in order to communicate this
information electronically, consumers who have opted into the
system must be required to confirm receipt of the email.
These communications should be sent at least 3 days prior to
any impending deadline for providing notice. If electronic
receipt is confirmed, insurers will have met their statutory
obligation. If, however, after 72 hours the policyholder has
not confirmed receipt of the email, then the insurer shall be
required to send a paper copy by mail, subject to the existing
deadlines and standards. Any email with covered documents
would contain a simple link stating: " You Must Click Here To
Confirm Receipt of This Important Insurance Document."
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6)Clarify that casualty insurers must provide opportunity for
consumers to return to mail or personal delivery. The Uniform
Electronic Transactions Act requires that a person who agrees
to transact business by electronic means may refuse to conduct
other transactions by electronic means. The amendments made
to that act will contain that right for insurance consumers.
However, Section 2 of the bill adds a section to the Insurance
Code, which falls outside the protections of the Uniform
Electronic Transaction Act. Thus, an insurance consumer who
at one time elects to transact business electronically is not
automatically allowed to refuse to conduct future transactions
by electronic means. It is recommended that the following
sentence be added to Section 2 of the bill:
A party that agrees to conduct a transaction by electronic means
may refuse to conduct other or further transactions by
electronic means.
7)Further safeguard to consider. The bill proposes to modernize
delivery of a series of important insurance notices sent to
insured individuals and applicants for insurance.
Consideration could be given as to whether a periodic inquiry
and response from insured individuals should be required in
order to continue to transact business by electronic means.
8)Set of amendments regarding electronic funds transfers. The
author is expected to offer a set of amendments in Committee
that will allow insurers to make an electronics funds transfer
payment to:
a) auto repairers when agreed to by the insured person and
the repairer;
b) licensed contractors who repair or conduct other
construction work on commercial, industrial, or residential
property, when agreed to by the insured person and the
contractor;
c) pay claims on any loss, when agreed to by the insured
person; and
d) settle claims in which an administrator (the person who
collects claims in connection with life or health insurance
coverage) has collected funds from an insurer.
REGISTERED SUPPORT / OPPOSITION :
Support
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Association of California Insurance Companies
National Association of Mutual Insurance Companies (NAMIC)
Pacific Association of Domestic Insurance Companies (PADIC)
Opposition
Consumer Attorneys of California
Consumer Watchdog
United Policyholders
Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086