BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 2404
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          CONCURRENCE IN SENATE AMENDMENTS
          AB 2404 (Hill)
          As Amended  August 18, 2010
          Majority vote
           
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          |ASSEMBLY:  |72-0 |(May 20, 2010)  |SENATE: |26-10|(August 23,    |
          |           |     |                |        |     |2010)          |
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           Original Committee Reference:    INS.
           
           SUMMARY  :  Requires insurance policies that will refund premiums on  
          other than a pro rata basis to disclose that fact in writing, and  
          authorizes the Insurance Commissioner (IC) to postpone a market  
          conduct examination of an insurer up to an additional three years  
          if certain conditions are met.

           The Senate amendments  :  

           1)Specify that the disclosure requirements of the bill are  
            prospective and apply only to policies issued or renewed after  
            January 1, 2012.
           
           2)Require any maximum fees to be disclosed in connection with an  
            insurance policy that includes a provision to refund premium  
            other than on a pro rata basis.
           
           3)Provides that the disclosure shall not be required if the policy  
            provision permits but does not require the insurer to refund  
            premium other than on a pro rata basis, and the insurer refunds  
            premium on a pro rata basis.  
           
           EXISTING LAW  :

          1)Provides that an insured person is entitled to a return of his  
            or her premium if the policy is canceled, rejected, surrendered,  
            or rescinded, unless the insurance contract specifies otherwise.  


          2)Prohibits any contract for individual automobile liability or  
            homeowners' multi-peril insurance from containing a provision  
            which mandates that the premium for the policy shall be fully  
            earned upon the happening of any contingency except the  
            expiration of the policy itself. 








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          3)Provides that the IC, whenever he or she deems it necessary,  
            shall examine the business and affairs of an insurer, or when  
            requested by petition by 25 shareholders, policyholders, or  
            creditors. 

          4)Requires the IC to conduct an examination of every insurer  
            admitted in this state at least once every five years.  In  
            connection with this examination, the IC may examine or  
            investigate any person or the business of any person, insofar as  
            the examination or investigation is necessary or material to the  
            examination of the insurer.

           AS PASSED BY THE ASSEMBLY  , this bill:

          1)Required any insurance policy that includes a provision to  
            refund premium other than on a pro rata basis, including the  
            assessment of cancellation fees, to separately disclose that  
            fact in writing.  The writing would be required to include a  
            description of the cancellation process and the actual fees or  
            penalties to be applied.

          2)Required the above noted disclosure to be provided prior to, or  
            concurrent with, the application and prior to each renewal.

          3)Authorized the IC to postpone a market conduct examination for  
            up to an additional three years if information derived from a  
            market analysis indicates the prior examination of the insurer  
            resulted in no significant negative findings, the number of  
            consumer complaints regarding the insurer is in the lowest  
            quartile of complaints for insurers in that line of business,  
            and the market analysis identifies no other issues of  
            significant concern.

           FISCAL EFFECT  :  Minor absorbable workload to the California  
          Department of Insurance (CDI) to continue oversight of California  
          insurers with regard to premium refunds and market conduct  
          examinations.

           COMMENTS  :  The purposes of this bill are to require the disclosure  
          of cancellation assessments or fees at insurance policy inception  
          or renewal, and to allow the IC to postpone the conduct of a  
          market conduct examination of any insurer for an additional three  
          years if certain conditions are met.

          Current law requires the disclosure of the cancellation fees  
          within the terms of the policy.  Current law requires the CDI to  







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          conduct market examinations of licensed insurers at least once  
          every five years.  This latter requirement is the same regardless  
          of a company's premium volume, number of consumer complaints, or  
          the findings of previous market conduct examinations.

          The author and the CDI, the bill's sponsor, state that based on  
          the number of consumers contacting CDI annually to complain about  
          unknown penalties/fees for canceling a policy, the existing  
          disclosure method for some lines of insurance appears inadequate.   


          The recent Budget reductions and spending authority limitations  
          mean that departmental resources are more limited.  On-site market  
          conduct examinations serve an important purpose, and help protect  
          consumers.  With limited resources, consumers would be better  
          protected if resources were directed to the state's largest  
          insurers and places where consumer complaints exist.  A risk-based  
          approach to the examination process would enhance CDI's regulatory  
          oversight activities by enabling CDI to focus limited staff  
          resources on problematic insurers and those that have the highest  
          market shares.  The bill would not affect CDI's authority to  
          conduct a market conduct examination at any time the Department  
          has reason to believe any insurer is engaging in unlawful  
          behavior.


           Analysis Prepared by  :    Manny Hernandez / INS. / (916) 319-2086    
                                  


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