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.
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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.
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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
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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
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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.
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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.
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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