BILL ANALYSIS                                                                                                                                                                                                    Ó






                             SENATE INSURANCE COMMITTEE
                           Senator Ronald Calderon, Chair


          AB 1416 (Committee on Insurance)Hearing Date: June 22, 2011

          As Amended: June 14, 2011
          Fiscal:             Yes
          Urgency:       No
          

           SUMMARY    This is a DOI "Code Maintenance" bill, which updates 
          terminology to make the code consistent, delete erroneous 
          cross-references, and perform other non-controversial code 
          clean-up purposes.  
          
           DIGEST
            
          Existing law
            
            1.  Defines a "fire and casualty licensee" as a person 
              authorized to act as an insurance agent, broker, or 
              solicitor, and provides that a license to act as a fire and 
              casualty broker-agent is of the following types:

                  a.        Property, which entitles the licensee to 
                    transact insurance coverage on the loss or damage to 
                    property;

                  b.        Casualty, which entitles the licensee to 
                    transact insurance coverage against legal liability, 
                    including that for death, injury, disability, or 
                    damage to real or personal 
                  property.  ÝSec. 33.5 and 1625 of Ins Code]

            2.  Prohibits persons and firms from soliciting or procuring 
              liability insurance from a risk retention group unless the 
              person or firm is licensed as a fire and casualty 
              broker-agent.  ÝSec. 137 of Ins Code]

            3.  Provides that a producer cannot act in the capacity of 
              managing general agent (MGA) for an insurer that holds a 
              certificate of authority unless the producer is licensed as 
              a fire and casualty broker-agent or as a life agent.  ÝSec. 
              769.82 of Ins Code]





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          1416 (Committee on Insurance), Page 2



            4.  Requires that a copy of changes to filed documents in 
              connection with an insurer's certificate of authority to 
              transact business in California shall be filed with the 
              Insurance Commissioner.  ÝSec.713 of Ins Code]

            5.  Requires, in one provision of law, that a nonresident 
              applicant for an organizational license  name at least one 
              person from their home state who may exercise the power and 
              perform the duties under their license (among the licenses 
              are: a life-only agent, an accident and health agent, a 
              property broker-agent, a personal lines licensee, and a 
              credit insurance agent).  Additional persons endorsed to 
              that license may be residents of another state, but may not 
              be residents of California.  ÝSec. 1679 of Ins Code]  In 
              another provision of law, more recently amended, the 
              additional persons endorsed to that license may be residents 
              of other states, including California.  ÝSec. 1656 of Ins 
              Code]

            6.  Requires the bond of a fire and casualty broker-agent to 
              be in the amount of $10,000, as specified.  ÝSec. 1665 of 
              Ins Code]

            7.  Requires, in one provision of law, a nonresident who 
              secures a license without examination through the filing of 
              a certificate attesting the person is licensed in another 
              state, and who subsequently seeks a license as a resident, 
              to take and pass the qualifying examination for the license 
              sought.  ÝSec. 1680 of Ins Code]   In another provision of 
              law, which was amended more recently, such a licensee is not 
              required to complete an examination.  ÝSection 1675, 
              subdivision (f), of Ins Code]

            8.  Requires every fire and casualty broker-agent acting in 
              the capacity of an insurance solicitor to have filed on his 
              or her behalf with the Insurance Commissioner a notice 
              executed by an insurance agent or broker appointing and 
              agreeing to employ the solicitor as an employee.  ÝSec. 1704 
              of Ins Code]

            9.  Requires every life agent who sells annuities to 
              satisfactorily complete four hours of training every two 
              years prior to license renewal.  ÝSec. 1749.8 of Ins Code]

            10. Establishes various fees, including a fee of fifty-six 
              dollars for filing for registration as a fire casualty 




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          1416 (Committee on Insurance), Page 3



              broker-agent. ÝSec. 1750 of Ins Code]

            11. Provides that any authority to transact variable contracts 
              in connection with certain pension funds is effective only 
              while a permanent underlying life agent's license remains in 
              full force and effect.  ÝSec. 1758.2 of Ins Code]

            12. Specifies that the Insurance Commissioner shall not grant 
              authority to transact variable contracts unless the life 
              agent or applicant furnishes proof that he or she is 
              registered to sell securities in accordance with the rules 
              of the SEC or FINRA.  ÝSec. 1758.3 of Ins Code]

            13. Requires that all insurer representatives serving on the 
              advisory committee to CAARP be salaried employees.  ÝSec. 
              11623 of Ins Code]

            14. Requires insurers issuing workers' compensation insurance 
              to deposit specified assets including cash instruments, 
              approved interest-bearing securities, approved stocks 
              readily convertible into cash, investment certificates, 
              certain share accounts in savings and loan associations, and 
              certificates of deposit or savings deposits in a bank 
              licensed to do business in this state.  ÝSec. 11691 of Ins 
              Code]

            15. Requires the Insurance Commissioner, upon adopting a 
              report of an examination of unfair or deceptive practices 
              regarding an insurer, to transmit a copy of that report by 
              certified US mail to the examined insurer's designated 
              agent.  ÝSec. 12938 of Ins Code.]

            16. Allows the examined insurer 10 business days after the 
              transmittal of the above report to submit comments to the 
              Insurance Commissioner.  ÝSec. 12938 of Ins. Code]

            17. Requires the Insurance Commissioner to publish the adopted 
              report on the department's website 10 business days after 
              the transmittal of the report.  ÝSec. 12938 of Ins. Code]

           
          This bill

             1.  Revises current law throughout the Insurance Code to 
              update references from "fire and casualty broker agent" to 
              "property broker-agent" and "casualty broker-agent".




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          1416 (Committee on Insurance), Page 4




            2.  Requires that a copy of changes to filed documents in 
              connection with a domestic insurer's certificate of 
              authority to transact business in California shall be filed 
              with the Insurance Commissioner.  

            3.  Provides that, upon request, an out-of-state or foreign 
              country insurer shall file any change on its documents 
              including its articles of incorporation.

            4.  Requires a nonresident applicant for an organizational 
              license to name at least one person from a state other than 
              California who may exercise the power and perform the duties 
              under their license.  Additional persons endorsed to that 
              license may be residents of other states, including 
              California.

            5.  Revises current law to clarify that individuals and 
              organizations licensed for both property and casualty are 
              only required to obtain one $10,000 bond to act as a broker. 


            6.  Repeals the section of law that requires a nonresident who 
              secures a license without examination through the filing of 
              a certificate attesting the person is licensed in another 
              state, and who subsequently seeks a license as a resident, 
              to take and pass the qualifying examination for the license 
              sought.   Another provision of law, which is retained, 
              specifies that such a licensee is not required to complete 
              an examination.

            7.  Authorizes personal lines broker-agents and limited lines 
              automobile insurance agents to be appointed as insurance 
              solicitors, and requires organizational licensees to notify 
              the Insurance Commissioner when personal lines broker-agents 
              and limited lines automobile insurance agents are given 
              authority to transact under the organizational license.

            8.  Requires every life agent who sells annuities to 
              satisfactorily complete four hours of training prior to each 
              license renewal.

            9.  Conforms the authorized fee for the casualty broker-agent, 
              and property broker-agent as that nomenclature is revised by 
              this bill to that of the current fire casualty broker-agent 
              ($56.00 dollars) and authorizes the same fee ($56.00 




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          1416 (Committee on Insurance), Page 5



              dollars) when a single application is tendered for a joint 
              property and casualty broker-agent application.
            10. Provides that any authority to transact variable contracts 
              in connection with certain pension funds is effective only 
              while a permanent underlying life agent's license and 
              registration in accordance with the rules of the U.S. 
              Securities and Exchange Commission (SEC) or the Financial 
              Industry Regulatory Authority (FINRA) remains in full force 
              and effect. 

            11. Specifies that any authority granted to a life agent to 
              transact variable contracts shall immediately terminate upon 
              the life agent no longer being registered to sell securities 
              in accordance with the rules of the SEC or FINRA.

            12. Authorizes the insurer representative serving on the 
              advisory committee to the California Automobile Assigned 
              Risk Plan (CAARP) to be an employee of one subsidiary and 
              represent another subsidiary.  Specifically, an insurer 
              representative must be: (a) a salaried employee or officer 
              of the named insurer, (b) a salaried employee or officer of 
              another insurer from a group of insurance companies under 
              the same management as the named insurer, or (c) a salaried 
              employee or officer of the overall holding company.

            13. Requires insurers issuing workers' compensation insurance 
              to deposit specified assets including cash instruments, 
              approved interest-bearing securities, approved stocks 
              readily convertible into cash, investment certificates, 
              certain share accounts in savings and loan associations, and 
              certificates of deposit or savings deposits in a bank 
              licensed to do business in this state, or is either 
              domiciled in and has a principal place of business in this 
              state, or is a national bank association with a trust office 
              located in this state.

            14. Requires the Insurance Commissioner, upon adopting a 
              report of an examination of unfair or deceptive practices 
              regarding an insurer, to transmit a copy of that report 
              electronically or by certified US mail to the examined 
              insurer's designated agent. 

            15. Allows the examined insurer 20 business days after the 
              transmittal of the above report to submit comments to the 
              Insurance Commissioner. 





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          1416 (Committee on Insurance), Page 6



            16. Requires the Insurance Commissioner to publish the adopted 
              report on the department's Internet website 20 business days 
              after the transmittal of the report.

            
           COMMENTS

          Purpose of the bill    According to the Author, AB 1416, 
          sponsored by the DOI, repeals Insurance Code provisions that are 
          inconsistent with more recent legislation, makes technical 
          corrections, and updates the codes governing insurance.  
          Existing law contains a series of conflicting code sections 
          governing the business of insurance, and that require technical 
          amendments in order for the Insurance Code to become consistent 
          on a policy basis.

          Each year the Assembly Insurance Committee introduces a set of 
          committee bills, authored by a majority of the Committee 
          Members, to address non-controversial insurance issues.  This 
          bill is recommended by the Insurance Commissioner and the 
          Department of Insurance (DOI) to remove inconsistencies within 
          existing law governing the business of insurance, and to clarify 
          and clean-up several Insurance Code sections.              
           1.  Background and Discussion:  

               a.     The length of this bill notwithstanding, the changes 
                 are all technical in nature, revising and updating 
                 nomenclature, removing erroneous cross-references and 
                 generally functioning as a "maintenance of the code" 
                 bill.

           2.  Summary of Arguments in Support:   

               a.     AB 1416 is a needed Code maintenance bill. As stated 
                 by the DOI, this bill's sponsor "(t)his bill remedies 
                 various issues vetted by the Department of Insurance 
                 (CDI) to clarify and cleanup several code sections". 

           3.  Summary of Arguments in Opposition:    

               a.     None received
                

          4.  Amendments:  

               a.     It is suggested the author may wish to consider 




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          1416 (Committee on Insurance), Page 7



                 revisions to page 6, line 33, page 7 line 10, and page 7 
                 line 14, to delete the phrase "property-broker agent" and 
                 replace it with "property broker-agent" so as to remain 
                 consistent with the use of the hyphen in the new 
                 nomenclature added elsewhere throughout the bill.  

                b.     The Author should note that the Legislative Counsel 
                 Corrections Unit advises AB 1416 requires a corrective 
                 amendment to eliminate avoid a conflict with AB 999. 
                    
          5.  Prior and Related Legislation:   

               a.     None

               
          LIST OF REGISTERED SUPPORT/OPPOSITION
          
          Support
           
          California Department of Insurance (Sponsor)
           
          Opposition
               
          None

          Consultant: Ken Cooley  (916) 651-4110