BILL ANALYSIS Ó SENATE INSURANCE COMMITTEE Senator Ronald Calderon, Chair AB 690 (Solorio) Hearing Date: June 8, 2011 As Amended: May 27, 2011 Fiscal: Yes Urgency: No SUMMARY Would revise and recast the laws governing the sale of insurance in connection with portable electronic devices and their accessories and associated services. DIGEST Existing law 1.Authorizes the Insurance Commissioner to issue a communications equipment insurance agent license that authorizes the licensee to sell insurance in connection with, and incidental to, the sale of communications equipment or the sale or provision of service for communication equipment by a retail vendor. 2.Defines "communications equipment" as handsets, pagers, personal digital assistants, portable computers, cellular telephones, batteries, and other devices or their accessories used to originate or receive communications signals or service. 3.Authorizes the charging of application and renewal fees sufficient to defray the Department of Insurance's (DOI's) actual costs of processing the applications and renewals for licensure. 4.Specifies the requirements that must be met by an employee or franchisee of a communications equipment vendor in order to be an endorsee authorized to offer insurance products as a communications equipment insurance agent. These requirements include: a.The employee is 18 years of age or older. AB 690 (Solorio), Page 2 b.The communications equipment vender, at the time it submits its communications equipment agent's license application, shall establish a list of the names of endorsees to its communications equipment agent license. The list must be updated annually, retained for three years, and made available to the IC for review and inspection. c.The communications equipment vendor submits to the IC with its initial license application and annually thereafter a certification providing specified information. 5.Requires that the retraining of "endorsees" (i.e., unlicensed employees of a communications equipment insurance agent) shall be conducted whenever there is a material change in the insurance products sold that requires modification of the training materials, but in no event less frequently than every two years. 6.Authorizes the IC to impose fines and suspend or revoke the license of a communications equipment insurance agent. 7.Prohibits a communications equipment insurance agent from paying any endorsee any compensation, fee, or commission dependent on the placement of insurance under the agent's license. However, the law does not prohibit the payment of a "performance-related incentive" which is defined as money or other tangible or intangible items of value paid or given to any endorsee of the licensee which is not based solely on the offering or selling of the insurance products issued to cover the loss, theft, mechanical failure, or malfunction of or damage to communications equipment. This bill 1. Would revises and recasts existing California Insurance Code provisions applicable to "communication equipment insurance" to apply to a broadened class of portable electronic devices and related items and services under the term "portable electronics insurance". 2. Authorizes the Insurance Commissioner (IC) to issue a AB 690 (Solorio), Page 3 portable electronics insurance agent license that authorizes the licensee and its employees and authorized representatives, who are termed "endorsees", to sell insurance in connection with, and incidental to, the sale of "portable electronics" or the sale or provision of accessories or services related to the use of portable electronics. 3. Defines "portable electronics" as electronic devices that are portable in nature, and their accessories and services related to the use of the device. 4. Defines "portable electronics insurance" as insurance providing coverage for the repair or replacement of portable electronics that may cover portable electronics against loss, theft, mechanical failure, malfunction, damage, or other applicable perils. This insurance would not cover certain service contracts, an insurance policy covering a seller's or manufacturer's obligations under a warranty, or a homeowner's, renter's, automobile, commercial multi-peril, or similar insurance. 5. Modifies the requirements for an endorsee (an employee or authorized representative) of a portable electronics vendor, issued a portable electronics insurance agent license, to sell portable electronics insurance, as follows: a. The portable electronics vendor, at the time it submits its license application, shall establish a list of all locations in California at which it offers portable electronics insurance. b. Removes the requirement of this vendor to update the above list annually, but the vendor would be required to maintain the list and make it available to the IC for review and inspection upon request. c. The portable electronics vendor, at the time it submits its license application, shall state the number of locations at which the vendor offers insurance products under the portable electronics insurance agent license. 6. Requires that the retraining of employees and authorized representatives shall be conducted whenever there is a material change in the insurance products sold that AB 690 (Solorio), Page 4 requires modification of the training materials, but in no event less frequently than every three years. 7. Requires, in connection with the sale of portable electronics insurance by telephone, that if the insurance cost is included in the purchase or lease of the portable electronic product or related services, the vendor shall clearly and conspicuously disclose to the customer that the coverage is included with the purchase of the portable electronics or related services. 8. Specifies that charges for portable electronics insurance may be billed and collected by a portable electronics insurance agent licensee and provides licensees shall not be required to maintain those funds in a segregated account if the insurer represented by the licensee has provided in writing that the funds need not be segregated. The bill states all funds received by a vendor from a customer for the sale of portable electronics insurance shall be considered funds held in trust by the vendor in a fiduciary capacity for the benefit of the insurer. The act provides licensees may receive compensation for billing and collection services. 9. Prohibits a portable electronics insurance agent from paying an employee or authorized representative any compensation, fee, or commission based primarily on the number of customers electing coverage under the portable electronics insurance agent's license. However, the law would not prohibit the payment of compensation to employees and authorized representatives of a portable electronics agent for activities under the agent's license that is incidental to their overall compensation. The act states such incidental compensation shall not exceed fifteen dollars ($15) per customer who purchases portable electronics insurance coverage. COMMENTS Purpose of the bill 1.According to the Author: AB 690 (Solorio), Page 5 "Assembly Bill 690 would amend existing law applicable to the sale of insurance on portable electronics devices to bring the law into the 21st century and ensure that a quickly changing technological environment is accounted for under California's Insurance Code. The statutory definition of "communications equipment" is outdated. This bill would change that definition to "portable electronics." The proposed definition is broader and would allow new devices to be insured without having to readdress the statutory definition each time a new product or device is brought to the market. This bill would also rectify inconsistencies within the current statutory framework and clarify that employees and authorized representatives of a properly licensed vendor of portable electronics may offer the insurance product pursuant to the vendor's license. The bill also would authorize the sale of portable electronics insurance outside of a scenario where the consumer is either purchasing a portable electronics device or is enrolled or enrolling in a wireless service plan. In addition, this bill would codify how these programs are being offered today to ensure that consumers are protected and informed when making the decision to enroll for insurance coverage under one of these programs." 2.Background and Discussion: a. This bill revises and recasts California's 9 year-old Communication equipment insurance law to apply more generically to portable electronic devices and to adapt the law's requirements by very modest revisions to current practices. b. The bill expands the scope of the Commissioner's authority to approve licensing for sales of portable electronics by extending the scope of activities covered to "the sale or provision of accessories or services related to the use of portable electronics". (See Section 1758.61) AB 690 (Solorio), Page 6 c. This very broad array of services and activities which, per Section 1758.61is independent of the actual sale of a qualifying portable electronic, raises at least the possibility of consumers inadvertently buying duplicate coverage from various services and vendors applicable to the same personal portable electronics. Current law, continued under this bill, requires that a disclosure addressing this duplicate coverage potential be provided; accordingly the expansion of potential sellers may compound the problem of duplication, but a pertinent disclosure does exist (See Section 1758.66(b)(2). d. It is also unclear how the expansion of the sales of this coverage to existing portable electronics in a customer's possession is underwritten and fraudulent claims avoided. (See Section 1758.61) e. The California Department of Insurance does not currently have a position on the bill but has been active in discussing the bill with the Author and the provisions currently included reflect desired amendments sought by the Department of Insurance. f. The Department of Insurance has indicated discussions are underway at the National Association of Insurance Commissioners pertaining to possible revisions to its applicable model pertaining to limited Lines Portable Electronics insurance Standards but that is a matter that is in process. The DOI is aware of some facets of the NAIC discussion but has advised the Author's office of its belief that this bill currently provides appropriate continuity for key provisions of California law. 3.Summary of Arguments in Support: a. According to the Liberty Mutual Insurance Group, "given the rapidly developing industry and the proliferation of wireless communication devices - many consumers no longer have land lines - the model for offering wireless communications equipment insurance has changed and it is time to revise the regulatory scheme governing the offering of this product". b. According to Asurion, the updated terminology and scope AB 690 (Solorio), Page 7 of AB 690 "will allow for greater flexibility in accommodating new products as they are introduced into the marketplace." 1.Summary of Arguments in Opposition: None received. 2.Amendments: None proposed. 3.Prior and Related Legislation: AB 2856, enacted as Chapter 437, Statutes of 2002 created the underlying regulatory framework for the sale of communications equipment insurance in California which is proposed to be modified by this bill. LIST OF REGISTERED SUPPORT/OPPOSITION Support Liberty Mutual Insurance Group Asurion Opposition None Consultant: Ken Cooley (916) 651-4110