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