BILL ANALYSIS SENATE COMMITTEE ON BANKING, FINANCE, AND INSURANCE Senator Ronald Calderon, Chair AB 2782 (Committee on Insurance) Hearing Date: June 16, 2010 As Amended: May 28, 2010 Fiscal: Yes Urgency: No VOTES: Asm. Floor(05/13/10)76-0/Pass Asm. Appr. (05/05/10)17-0/Pass Asm. Ins. (04/21/10)12-0/Pass SUMMARY Would make various changes, including technical revisions to investment law and licensing-related changes, including changes to conform California law with the National Association of Insurance Commissioners (NAIC) Producer Licensing Model Act (PLMA). DIGEST Existing law 1. Imposes a limit on the amount of foreign investments that domestic insurers may make of 20 percent and sets forth requirements related to mutual funds that invest in foreign securities; 2. Prevents fire and casualty broker-agents from transacting life insurance, but permits these agents to transact disability insurance; 3. Provides that the combined fire and casualty broker-agent license requires a pre-licensing education requirement of 40 hour, and 25 hours of continued education annually for the first four years of licensure and 24 hours every two years thereafter as a condition for license renewal; 4. Requires insurance licensees to immediately notify the AB 2782 (Committee on Insurance), Page 2 Insurance Commissioner of changes to their mailing address; 5. Requires an administrative hearing to be conducted to consider a business entity license application when one of its officers or controlling persons holds a restricted license; 6. Provides that the insurance that may be sold in connection with the sale of, or incidental to a loan for, real property may include, under specified conditions, credit life, credit disability, credit involuntary unemployment or credit loss of income, and credit property insurance; 7. Specifies that bail licenses are for a one year term expiring on June 30 and insurance adjusters licenses are for a two-year term expiring on May 31 of even-numbered years; 8. Specifies the continuing education for bail agent and solicitor license renewal is 6 hours; 9. Authorizes DOI to summarily revoke a license, including a bail license, if the licensee is convicted of a felony. However, Insurance Code Section 1807.5 specifies that a hearing is required prior to the suspension of a bail agent license; 10. Requires independent and public insurance adjusters to complete 24 hours of continued education as a condition of license renewal, but does not specify the number of hours that must involve ethics training; 11. Authorizes DOI to intervene in "qui tam" cases, but sunsets those provisions on December 31, 2010. This bill 1.Would make technical changes in current law to enable insurers to invest in mutual funds that make investments in foreign securities without the requirement that such a fund must have arrangements to hold all assets in the United States; 2.Would require a person to be licensed as an accident and AB 2782 (Committee on Insurance), Page 3 health agent in order to transact disability insurance; 3.Would separate current fire and casualty broker-agent licenses into two separate licenses - property broker-agent license and casualty broker-agent license. Would also adjust the pre-licensing education requirement to 20 hours for each respective license so there is no net change resulting from the bifurcation, and would modify the continuing education requirement for individuals licensed less than four years to 24 hours every two years; 4.Would clarify that the obligation under current law for an insurance licensee to immediately notify the Insurance Commissioner of their change of address includes changes of address to either their residence or their principal business. 5.Would provide to the Department of Insurance (DOI) authority to summarily issue a restricted license to a business entity when an officer or controlling person of the entity holds a restricted individual license, but maintains the business entity's right to request DOI to reconsider the restricted license decision; 6.Would align the definition of "Credit Insurance Agent" in the Insurance Code with the definition used in the NAIC Producer Licensing Model Act (PLMA). The PLMA definition permits these credit insurance agents to transact Guaranteed Automobile Protection (GAP) insurance (GAP insurance is insurance which protects a car buyer/lessee with a promise to indemnify the purchaser or lessee for any of the difference between the actual cash value of the insured's vehicle at the time of an unrecovered theft or total loss and the amount owed on the vehicle pursuant to the terms of a loan, lease agreement, or installment sales contract used to purchase or lease the vehicle) ; 7.Would change the bail agent and solicitor license from a one-year term to a two-year term, and would modify the continuing education requirement to 12 hours biennially so there is a no net change from current requirements; 8.Would specify that the expiration date on new bail and insurance adjuster licenses issued after December 31, 2010 is the last day of the month in which the original license was issued; AB 2782 (Committee on Insurance), Page 4 9.Would clarify the DOI's authority to summarily revoke a bail license if the licensee is convicted of a felony; 10.Would specify that three of the 24 hours of continued education that independent public insurance adjusters must complete as a condition of license renewal must be in ethics training; 11.Would repeal the sunset date of December 31, 2010 for the law authorizing the Insurance Commissioner to receive attorney fees and costs as part of a judgment in "qui tam" cases (suits brought in the state's name by private parties) in which the department intervenes. The cases impacted by this provision involve insurance fraud and the department's involvement in such cases serves as a significant fraud deterrent; 12.Would make other minor, conforming, and related changes and deletes obsolete provisions. COMMENTS 1. Purpose of the bill To clarify California Department of Insurance (DOI) responsibilities and authorities and to make various licensing-related-changes, including several to align California law with the NAIC Producer Licensing Model Act (PLMA). 2. Background The business of insurance is principally regulated at the state level. Because certain issues of insurance law and trends transcend state boundaries, insurance regulators have a long history of collaboration on matters of common concern, a process which is undertaken under the auspices of the National Association of Insurance Commissioners (NAIC). 3. In the effort to promote commonality among the states so as to support a seamless oversight system built on the platform of 50 independently sovereign states, the NAIC has undertaken various initiatives. Some of these fit within NAIC accreditation program where the ability of a state to receive accreditation is dependent on its adoption of statutes and regulations that bear a substantial similarity to models promulgated by the NAIC. AB 2782 (Committee on Insurance), Page 5 4. In other areas, commonality is advanced by the formulation of suggested model laws which are intended to serve as a resource and a framework to further important regulatory ends as well as support the national system of state-based regulation. 5. The NAIC's Producer Licensing Model Act is a suggested or advisory model which has gained support among various groups, including insurance agent groups, who believe it supports achieving a modern, nationwide insurance producer licensing system. 6. Generally speaking, the PLMA Changes proposed by this act are non-controversial as are the non-PLMA changes proposed by the Department to facilitate improved management and regulatory oversight. 7. The one change that has drawn an objection is the change to a two year licensing cycle for bail agents with expiration dates tied to the month of issuance, rather than renewal for all licensees based on a June 30th expiration date. While this change is supported by the Department of Insurance for purposes of improved workload management and administration and two statewide associations of bail agents, a continuing education provider for bail agents has expressed opposition to this change as approved by the Assembly for the added burden it may impose on continuing education providers and their practices. 8. Questions None 9. Suggested Amendments None 10. Prior and Related Legislation a. AB 2203 (DeLeon, Ch. 129, Statutes of 2008), increased the limit on the amount of foreign investments that domestic insurers may make from 4 to 20 percent. The bill also clarified the requirements related to mutual funds that invested in foreign securities but the issue of how a mutual fund holds its assets relating to foreign investments was inadvertently not addressed. b. AB 800 (Duvall, Ch. 254, Statutes of 2009) provided for applicants and licensees to notify CDI of address changes through an electronic means but did not specify AB 2782 (Committee on Insurance), Page 6 that such notification include changes to the licensees residence and principal business. POSITIONS Support California Department of Insurance (Sponsor) Association of California Insurance Companies Golden States Bail Agents Association California Bail Agents Association Oppose Mr. J.F. Schneider, CEO, CE3000.com, a bail agent continuing education provider Consultant: Kenneth Cooley (916) 651-4102