BILL ANALYSIS SENATE COMMITTEE ON BANKING, FINANCE, AND INSURANCE Senator Ronald Calderon, Chair AB 2717 (Skinner) Hearing Date: June 30, 2010 As Amended: June 3, 2010 Fiscal: Yes Urgency: No VOTES: Asm. Floor.(05/20/10)72-0/Pass Asm. Appr. (05/12/10)16-0/Pass Asm. Ins. (04/21/10)12-0/Pass Asm. RLS. (04/12/10)10-0/Pass SUMMARY Would revise standards and procedures that apply to Commissioner approval of special "senior designations" (used by insurance producers in connection with sales of financial and insurance products to seniors) to 1) enhance their credibility, 2) allow strengthened oversight by the Commissioner, and 3) to make designation rules easier for producers to comply with. DIGEST Existing law 1.Prohibits the use of a "senior designation" in connection with the sale of insurance to senior citizens, unless the designation has been approved by the Insurance Commissioner. 2.Defines "senior designation" as any degree, title, credential, certificate, certification, accreditation, or approval that expresses or implies that an insurance agent or broker possesses expertise, training, competence, honesty, or reliability with regard to advising seniors on finance, insurance, or risk management. 3.Requires that an agent or broker have been licensed in a United States jurisdiction for at least four years before using a senior designation. This bill AB 2717 (Skinner), Page 2 Would recast and clarifyprocedures and criteria that determine the titles or designations that insurance agents and brokers may use to describe themselves in connection with the sale of insurance products to senior citizens. Specifically, this bill : 1.Would specify the Insurance Commissioner may only approve use of a "senior designation" if the organization that issues it satisfies all of the following requirements : a. The organization applies for the designation on a form approved by the Commissioner, provides such supplementary documents and declarations as the Commissioner deems necessary, and complies with a duty to notify the Insurance Commissioner within 45 days of any material changes to the information that was provided in the organization's application for an a senior designation; b. Clarifies the accreditation requirements for private entities that issue designations. 2.Would require the designation to be accredited by the National Commission for Certifying Agencies, or the organization or the designation is accredited by an agency that is on the United States Department of Education's list entitled "Accrediting Agencies Recognized for Title IV Purposes" and the agency is clearly and convincingly qualified to accredit an organization or designation involved with financial services provided to seniors. 3.Would specify the organization must require California candidates for designation to demonstrate superior expertise in advising seniors in finance, insurance, or risk management through examinations which are based on testing of applicants who, with no prior insurance education or experience, have completed at least 75 hours of study on: a. Aspects of aging; b. Health care coverage; c. Long-term care insurance; d. Financial planning for retirement; AB 2717 (Skinner), Page 3 e. Investments, estate planning; and f. Ethics. The act specifies textbooks or other study materials may use chapter and subchapter titles that differ from those general topics as long as the essential content is the same. 4.Would specify the organization must maintain a code of ethics for its California designees and must meet minimum standards and procedures for discipline of designees, including, at a minimum: a. A written procedure to receive, log, and conduct a preliminary review of complaints alleging improper, illegal, or unethical conduct. b. Written standards for determining when a complaint warrants further investigation into the merits of the allegations contained therein. c. Written standards and procedures to ensure that, once a complaint is determined to warrant further investigation, the investigation is diligently conducted. d. Written standards for determining when to file disciplinary charges based on the results of an investigation. e. Written standards and procedures to ensure due process in the adjudication of disciplinary charges by adjudicators who are fair, knowledgeable, and otherwise qualified. f. Written standards and procedures for the imposition of appropriate sanctions, including, when warranted, revocation of the designation. 5.Would specify the Act's provisions regarding senior designations shall apply to all types of insurance covered by the Article in which this measure will reside, and also to the lines of lines of Medicare supplement insurance, as defined, and long-term care insurance, to which would otherwise be excepted. AB 2717 (Skinner), Page 4 6.Would authorize the Insurance Commissioner to confirm by a letter in writing that an organization's designation is exempt from this act, following the receipt by the Commissioner of a petition requesting such a confirmation, where the designation, according to its title or curriculum, or in its actual use, concerns almost exclusively subject matters other than insurance or financial services sold to seniors in particular. 7.Would provide the Commissioner may rescind approval of a designation whenever there has been a material change in the management or operation of the organization that issues the designation, or in the procedures or criteria for issuance of the designation, such that if the organization were to apply for approval of the designation subsequent to the change, approval would be denied and provides any rescission shall be after notice and a hearing conducted in accordance with existing law applicable to loss of a license. 8.Would repeal redundant continuing education requirements. 9.Would also repeal provisions inconsistent with the redrafted and clarified rules, above. 10. Would repeal obsolete language relevant only during the initial phase-in of the senior designation law. COMMENTS 1. Purpose of the bill To clarify the laws that govern the procedures and criteria that determine the titles or designations that insurance agents and brokers may use to describe themselves in connection with the sale of insurance products to senior citizens to make them easier for the Commissioner to implement and for insurance agents and brokers to comply with. It does appear the bill provides appropriate and needed clean-up to the existing statutory scheme. 2. Background According to the author, this bill is intended to modify the senior designation statute to address practical issues encountered as the Insurance Commissioner implemented current law. The bill makes extensive changes to the existing statute, and adds significant new provisions. According to the Department and NAIFA, which AB 2717 (Skinner), Page 5 has contributed its expertise to deliberations on this measure, current law fails to provide sufficient detail to enable the Commissioner to efficiently and effectively implement the senior designations law in an efficient and non-burdensome manner. 3. Support National Association of Insurance and Financial Advisors (NAIFA) is not a sponsor but has worked with the author and Department as a subject matter expert. states AB 2717 is a clean-up bill for AB 2150 (Berg) from 2008. NAIFA notes that while working on implementing the senior designation approval process, the Department of Insurance discovered a few issues that needed to be addressed in law. Therefore NAIFA agreed to work with the DOI on this bill so the statute reflects the approval process that was originally envisioned. 4. Opposition None 5. Questions On page 4, lines 8 and 9, where the bill addresses how an organization will be determined to be "qualified" to issue a designation, the measure refers to determining whether an entity is " clearly and convincingly qualified " to accredit an organization or designation " involved with financial services provided to seniors " . In this specialized "seniors designation" context, these phrases are distinctively weak, as explained below, for the purpose of giving guidance to the Insurance Commissioner. While the phrase " clearly and convincingly qualified " sounds as if it might be an evidentiary standard, it actually is not a phrase in common parlance. Staff has identified no occurrence of it -- either in California law or for that matter on the Internet - other than within this bill. So whatever the phrase means, it does not rise to that of a known and recognized standard, and yet that is how it is being used. Similarly, the phrase" involved with financial services provided to seniors " does sound on point for the training of persons to assist seniors with their financial affairs - until it is recognized in many jurisdictions, entities whose training centers on sales and marketing to seniors are excluded from receiving the distinction of a senior designation. Against that backdrop, to permit designation of AB 2717 (Skinner), Page 6 organizations " involved with financial services provided to seniors " appears too broad. To provide greater clarity in this bill as to the basis on which a senior designation can be conferred, and also to exclude training with an emphasis on sales and marketing, AB 2717 can be amended as indicated below. 6. Suggested Amendments To 1) vest in the Commissioner determinations of whether an organization is qualified to issue a senior designation and 2) to exclude designation for training which is focused on sales and marketing of finance, insurance, or risk management services or products, amend AB 2717 as follows: a. On page 4, line 8, after the first "and", insert: "it is established to the satisfaction of the Insurance Commissioner that" b. On page 4, line 8, strike the phrase: "clearly and convincingly" c. And on page 4, line 21, after the "." (period), insert: "No part of the exam, textbooks or other study materials may concern techniques on how to increase the amount' of insurance or financial products one sells, nor recommend the selling of products offered by specific companies." Prior Legislation AB 2150 (Berg) of 2008 (Statutes 2008, chapter 327) enacted the law that restricts the use of senior designations. According to the Assembly Insurance Committee analysis of AB 2150, former Assemblymember Berg introduced the bill to address "unscrupulous sales people who convince older adults to obtain annuities or other financial products inappropriate to their circumstances often using misleading designations as a way of gaining trust, and giving the impression that they have special knowledge that will allow them to help protect assets that they actually intend to plunder." AB 2717 (Skinner), Page 7 POSITIONS Support Department of Insurance National Association of Insurance and Financial Advisors (NAIFA) Oppose None Consultant: (916) 651-4102