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] AB 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 AB 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". AB 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 AB 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. AB 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 AB 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