BILL ANALYSIS Ó AB 53 Page 1 Date of Hearing: April 13, 2011 ASSEMBLY COMMITTEE ON INSURANCE Jose Solorio, Chair AB 53 (Solorio) - As Amended: March 21, 2011 SUBJECT : Insurers and supplier diversity SUMMARY : Requires major California insurers to submit a plan for increasing procurement from women, minority, and disabled veteran business enterprises (WMDVBEs); requires these insurers to conduct outreach to these targeted groups; and requires these insurers to furnish an annual report to the Insurance Commissioner (IC) regarding the implementation of their efforts. Specifically, this bill : 1)Declares it the policy of this state to aid the interests of WMDVBEs in order to preserve reasonable and just prices and a free competitive enterprise, to ensure that a fair proportion of the total purchases and contracts or subcontracts for commodities, supplies, technology, property, and services for regulated insurance providers are awarded to WMDVBEs, and to maintain and strengthen the overall stability and growth of the state's economy. 2)Requires each admitted insurer, with California written premiums of $100 million or more, to annually submit to the IC a detailed and verifiable plan for increasing procurement from WMDVBEs. 3)Requires these annual plans to include short and long-term goals and timetables, but not quotas, and shall include methods for encouraging contractors to engage WMDVBEs in subcontracts. 4)Defines these businesses as ones that are least 51 percent owned by women, minorities, or disabled veterans. 5)Requires the IC to establish guidelines for the insurers to utilize in the programs to increase procurement from WMDVBEs. 6)Requires each of the insurers subject to this bill to furnish an annual report to the IC regarding the implementation of the programs. AB 53 Page 2 7)Requires the IC to annually report on the Department of Insurance's website, and report to the Legislature on the progress of activities undertaken by insurers, to recommend a program to carry out the policy of this bill, and recommend legislation the IC deems necessary or desirable to further that policy. 8)Authorizes the IC, in connection with admitted insurers with less than $100 million in California written premium, to publicize the participants and nonparticipants in the program, and encourages these insurers to voluntarily adopt a plan for increasing WMDVBE procurement. 9)Requires the IC, by regulation, to adopt criteria for verifying and determining the eligibility of WMDVBEs for procurement contracts. 10)Requires the IC to adopt the Department of General Services disabled veteran business enterprise certification eligibility requirements for verifying and determining the eligibility of disabled veteran business enterprises for procurement contracts. 11)Requires the IC, to the extent possible, to coordinate with the Public Utilities Commission (PUC) for the sharing of WMDVBE identification and verification information. 12)Requires the IC to develop and require each insurer to implement an outreach program to inform and recruit WMDVBEs to apply for procurement contracts. 13)Provides that any person, corporation, or other organization that falsely represents a business as a WMDVBE in the procurement of a contract from a pertinent insurer shall be barred from participating in the program for up to three years. EXISTING LAW : 1)Requires admitted insurers to provide information to the IC on community development investments in California. A "community development investment" is defined as one in which all or a portion of the investment has the primary purpose of community development or that it directly benefits low-income or moderate-income people in California. AB 53 Page 3 2)Requires each admitted insurer that writes $100 million or more in premium annually to develop and file with the Insurance Commissioner a policy statement on community development investments that expresses the insurer's goals for these investments during the current and following year. 3)Requires the Public Utilities Commission (PUC) to require each electrical, gas, water, wireless telecommunications service provider, and telephone corporation with gross annual revenues exceeding $25 million, and their PUC-regulated subsidiaries, to annually submit a detailed and verifiable plan for increasing procurement from WMDVBEs including renewable energy, wireless telecommunications, broadband, smart grid, and rail projects. 4)Requires these plans, submitted to the PUC, to include short and long-term goals and timetables, but not quotas, and include methods for encouraging both prime contractors and grantees to engage WMDVBEs in subcontracts. 5)Requires the PUC to develop, and require each of these electrical, gas, water, wireless telecommunications service providers, and telephone corporations to implement an outreach program to inform and recruit WMDVBEs to apply for procurement contracts. 6)Requires these electrical, gas, and telephone corporations to furnish an annual report to the PUC regarding the implementation of the programs. 7)Provides that any person or corporation which falsely represents a business as a women or minority business enterprise in the procurement of contracts from these service providers or corporations shall be punishable by a fine of up to $5,000 or by imprisonment in jail for up to one year or in the state prison, or both. If any person or corporation falsely represents a business as a disabled veteran business in these procurements, the punishment may be up to a $30,000 fine for the first offense or up to $50,000 fine for the second or subsequent offense, plus up to six months in the county jail, or both. FISCAL EFFECT : Undetermined. AB 53 Page 4 COMMENTS : 1)Purpose of bill. The bill specifies its purposes: a) To encourage greater economic opportunity for WMDVBEs in the $90 billion California insurance market. b) To promote competition among the suppliers of regulated insurance providers in order to enhance economic efficiency in the procurement of insurance industry contracts. c) To clarify and expand the program for the procurement by regulated insurance providers of technology, equipment, supplies, services, materials, and construction work from WMDVBEs. 1)Background. This bill is patterned on a state law enacted 25 years ago that established a similar program for utility, wireless, and phone companies that is administered by the Public Utilities Commission (PUC). That legislation was enacted by AB 3678 (Moore) in 1986 (Chapter 1259, Statutes of 1986), and amended by SB 2398 (Dills), Chapter 516, Statutes of 1990). These existing laws require each utility with an annual revenue exceeding $25 million to submit to the PUC an annual verifiable plan for increasing procurement from WMDVBEs. The PUC is responsible for verifying the status of WMDVBE applicants, reporting the results of the program, and making recommendations to achieve maximum results in implementing the legislative policy. State law requires these utilities, when submitting their plans to the PUC, to include goals and timetables, but not quotas, for increasing procurement from WMDVBEs. PUC General Order 156 requires these utilities to prepare goals for purchases of services, goods, and fuel as a percentage of total procurement from WMDVBEs. In 2009, the goals were 15 percent for minority-owned businesses, 5 percent for women-owned businesses, and 1.5 percent for disabled veteran-owned businesses. The PUC reports that utility spending on WMDVBE procurement increased from $3.47 billion in 2008 to $4.27 billion in 2009. AB 53 Page 5 2)Support. The Greenlining Institute, which is the lead proponent of the bill, states that the success of the PUC's supplier diversity program depends on consistent reporting requirements, goal setting, hearings, and strong regulatory leadership. Greenlining recommends this framework for the insurance industry. The proponents, including multiple ethnic chambers of commerce, state that insurance products are purchased out of necessity by most Californians and insurance is already closely regulated by the Department of Insurance to address consumer protection issues. The Consumer Federation of California states that during this economic recession, it is critical that the insurance market be cost-effective and that minority, women, and disabled veterans enterprises receive an equal opportunity to compete for business. This bill will enable the Department to examine and help to develop the industry's supplier diversity practices and replicate the success of the PUC program in another critical market. 3)Opposition. The Association of California Life and Health Insurance Companies and the American Council of Life Insurers states that this bill concerns its members because it would give the IC the authority to develop and require outreach programs, thus limiting or disrupting individual company efforts to do what is best for the insurance business, communities and policyholders. The Personal Insurance Federation of California (PIFC) states that the program used by PUC concerning contracting with vendors applies to regulated monopolies, but is not appropriate for insurance companies which are competitive businesses. Insurers are not monopolies, have no guarantee of market share, no guarantee of cost recovery, and no guaranteed rate of return. PIFC also states that major insurance companies already have procurement processes that promote diversity on a national level and, as national companies, should not be subject to state specific requirements. Also, the insurance industry already participates in several community efforts including the California Organized Investment Network (COIN) that promotes economic development and affordable housing in urban and rural areas of the state, with local and national diversity councils that certify minority and women-owned businesses to insurers, and with numerous charitable donations and volunteer efforts. AB 53 Page 6 4)Suggested amendments. The following clarifying amendments are recommended: a) Require insurers to develop their outreach program. The bill would require the IC to develop the outreach program of major insurers and require these companies to implement these programs. It is recommended that the bill be amended to clarify that insurers will be responsible for developing and implementing their outreach plans for supplier diversity. On page 6, line 39, strike out "develop and". b) Correct the latest value of the insurance market. In the findings and purpose section of the bill, it refers to an outdated value of the insurance market in California (i.e., $90 billion). In 2009, the value was $116 billion. Thus, on page 4, lines 3 -6, of the bill, it should be amended to state this most recent value. c) Insurer. The bill refers to "regulated insurance providers" on page 3, lines 14 and 35, and page 4, lines 7 to 13 but this term is not defined. It is recommended that this phrase be replaced with the word "insurer" as it is defined in the Insurance Code. REGISTERED SUPPORT / OPPOSITION : Support Greenlining Institute (Lead Proponent) Asian Business Association Bay Area Black United Fund, Inc. Black Business Association Black Economic Council Brightline Defense Project California Black Chamber of Commerce California Communities United Institute Consumer Federation of California Council of Asian American Business Associations Community Union, Inc. Domar Group, Inc. Fresno Metro Black Chamber of Commerce Greater Los Angeles African American Chamber of Commerce HCI (Vocational School) Hispanic Business, Education and Training, Inc. AB 53 Page 7 Inland Empire Latino Coalition Korea Center, Inc. Korean Churches for Community Development La Maestra Family Clinic, Inc. Latino Business Chamber of Greater Los Angeles National Asian American Coalition National Federation of Filipino American Associations, Region 8, Northern CA Our Weekly (newspaper) PEN Insurance Services San Francisco African American Chamber of Commerce TELACU Millennium The KHEIR (Korean Health Education Information & Research) Center Vietnamese-American Chamber of Commerce of Orange County Ward Economic Development Corporation Opposition American Council of Life Insurers Association of California Life and Health Insurance Companies Personal Insurance Federation of California (Oppose unless amended) Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086