BILL ANALYSIS Ó
SENATE INSURANCE COMMITTEE
Senator Ronald Calderon, Chair
AB 2303 (Committee on Insurance) Hearing Date: June 13, 2012
As Amended: March 15, 2012
Fiscal: Yes
Urgency: No
VOTES: Asm. Floor(04/23/12)63-0/Pass
Asm. Appr. (04/18/12)12-0/Pass
Asm. Ins. (03/18/12)09-0/Pass
SUMMARY This bill is the annual Assembly Committee on
Insurance omnibus bill which conforms state law to federal
insurance law, makes technical changes to the state insurance
code, and makes specified licensing changes.
DIGEST
Existing law
1. Regulates mortgage insurance and defines it as including
guaranteeing of the payment of the principal, interest, and
other sums agreed to be paid under the terms of any note or bond
secured by mortgage, or other sums secured under the terms of
the mortgage,
in its entirety, or of any undivided or other partial
interest in the mortgage, or in a group of mortgages, and
the guaranteeing or insuring, directly or indirectly,
against loss thereon;
2. Requires the Insurance Commissioner to publish notices of
insurer liquidation in a newspaper of general circulation,
published in the county in which the proceeding is pending,
and in the Counties of Alameda, Los Angeles, Sacramento, San
Diego, San Francisco, and Santa Clara, not less than once a
week for 4 successive weeks;
3. Authorizes the commissioner to apply by verified
application for an order for the liquidation of a domestic
corporation in the insurance business;
AB
2303 (Committee on Insurance), Page 2
4. Authorizes the commissioner to grant authority to transact
variable contracts to a person, or a natural person named on
a license of an organization licensed, as a life agent which
is appointed by an admitted insurer which is required to
register itself or to register a separate account or fund
with the United States Securities and
Exchange Commission, or to register its variable policies or
contracts with the Securities and Exchange Commission, and
has complied with that requirement;
5. Authorizes the commissioner to issue to eligible persons a
certificate of convenience, a temporary permit issued as a
matter of convenience to allow the transaction of insurance
without a permanent license, to transact certain kinds of
insurance, including, but not limited to, transacting
industrial life and industrial disability insurance, known
as certificates of convenience pending examination;
6. Requires every insurer to have an approved training program
on file with the commissioner or have filed a blanket
authorization to certify enrollment in an approved course of
instruction before appointing any certificate of convenience
holder;
7. Requires an applicant for a bail agent license, in order to
be eligible to take the examination, to have completed not
less than 12 hours of classroom education in subjects
pertinent to the duties and responsibilities of a bail
licensee;
8. Requires the commissioner to appoint a curriculum board
consisting of representatives of insurance agents, brokers,
and life agents trade associations and representatives of
insurance companies and consumer groups to develop the
prelicensing and continuing education curriculum for
property broker-agents and casualty broker-agents;
9. Requires any natural person applying for a license to act
as a surplus line broker to prove his or her competency by
showing he or she holds an existing license to act as a
property broker-agent and casualty broker-agent;
10. Requires that on or before May 1 of each year, insurers,
engaged in writing child care liability insurance coverage,
submit a report to the commissioner of their operations
regarding child care liability claims experience for the
AB
2303 (Committee on Insurance), Page 3
preceding calendar year ending on December 31 on a form
furnished by the commissioner. The commissioner is required
to annually report to the Governor, Legislature, and to the
Assembly and Senate Committees on Insurance regarding
certain court actions, such as medical malpractice, and
child care liability claims;
11. Requires insurance adjusters to be licensed by the
department. Any person who violates any provision regarding
the regulation of insurance adjusters is guilty of a
misdemeanor;
12. Requires the state to reimburse local agencies and school
districts for certain costs mandated by the state. Statutory
provisions establish procedures for making that
reimbursement.
This bill
1. Would prohibit mortgage insurance from being an insurance
product that may be offered in this state;
2. Would delete the requirement of publication in certain
cities and counties for the required period of time, and
instead would require only publication in geographic areas
pertinent to the liquidation and that the publication
reference a source, either the liquidated company's or the
liquidator's Internet Web site, where ongoing information
for creditors would be provided;
3. Would incorporate the federal Dodd-Frank Wall Street Reform
and Consumer Protection Act of 2010 by authorizing the
Federal Deposit Insurance Corporation to stand in the place
of the commissioner and file a verified application in state
court to place the insurer into liquidation under the laws
and requirements of the state;
4. Would clarify that the commissioner is authorized to grant
authority to transact variable contracts to a nonresident,
who is not a licensed life agent in California, as long as
the nonresident is licensed for both life and variable
contract authority in his or her resident state;
5. Would also impose a $64 fee on applications, renewals, or
changes for a nonresident variable contract authority
AB
2303 (Committee on Insurance), Page 4
license;
6. Would declare the fee is reasonable and reflects the true
costs incurred by the agency in providing those services;
7. Would discontinue certificates of convenience pending
examination, delete the training program and blanket
authorization to certify enrollment requirement, and make
conforming changes;
8. Would increase the bail agent license exam eligibility
qualification to a minimum of 20 hours;
9. Would expand the curriculum board to include
representatives of bail agents and insurance adjusters and
expand the curriculum being developed to include courses of
study for bail agents and insurance adjusters;
10. Would allow a natural person, who is not a resident of
California, to prove his or her competency by showing that
he or she holds an existing license for property and
casualty in his or her resident state;
11. Would delete the requirement of that the insurer child care
liability claims experience report for the preceding
calendar year ending on December 31 be submitted to the
commissioner on or before May 1 of each year, and would
instead require that the report for the preceding calendar
year be submitted at the request of the commissioner, but
not more than annually, on a form prescribed by the
commissioner;
12. Would also delete the commissioner's reports to the
Governor, Legislature, and to the Assembly and Senate
Committees on Insurance described above;
13. Would establish a category of insurance adjuster license to
be known as the crop insurance adjuster license, subject to
the same rules and regulations as an insurance adjuster,
except where otherwise specified. A person would be
prohibited from acting as a crop insurance adjuster license
would be subject to the same requirements as applicable to
obtaining an insurance adjuster license, except the
examination, and would be required to provide evidence that
he or she has satisfactorily completed the loss adjustment
training curriculum and competency testing required by the
AB
2303 (Committee on Insurance), Page 5
Federal Crop Insurance Corporation Standard
Reinsurance Agreement;
14. Would expand the scope of a crime, it would create a
state-mandated local program;
15. Would also make technical, conforming, and related changes
and delete obsolete provisions;
16. Would provide that no reimbursement is required by this act
for a specified reason.
COMMENTS
1. Purpose of this bill To remedy issues identified by the
California Department of Insurance (CDI) to clarify and
cleanup obsolete and superseded code sections. It also
aligns the California Insurance Code with various technical
aspects of the National Association of Insurance
Commissioners (NAIC) model laws.
2. Background and Discussion This insurance omnibus bills
addresses various and diverse matters that touch on the
insurance code. Specifically, the substantive portions of
this bill address the following issues.
a. Obsolete Mortgage Insurance Statutes. In 1961,
private mortgage insurance replaced mortgage insurance
and a new set of statutes was enacted. SB 2303 repeals
the statutes regulating mortgage insurance.
b. Liquidation Notices. This bill would require a
liquidation notice to be published once in newspapers of
general circulation in areas pertinent to the
liquidation. The notice must include either an address
to the liquidated company's or the liquidator's website
where claimants can receive ongoing information.
c. Appointment as Receiver of Systemically Important
Insurer under Dodd-Frank. The Dodd-Frank Wall Street
Reform and Consumer Protection Act of 2010 which, among
other things, creates a process for the conservation
AB
2303 (Committee on Insurance), Page 6
and/or liquidation of "systemically important" financial
companies by the Federal Deposit Insurance Corporation
(FDIC). Dodd-Frank contains a provision that requires
systemically important insurance companies (or their
affiliates) to be conserved or liquidated under state
law. Under California law, this conservation/liquidation
process is performed by the Insurance Commissioner
through the Conservation and Liquidation Office. This
bill permits a superior court to appoint the Insurance
Commissioner as a receiver of a systemically important
insurer based on a determination by the U.S. Secretary of
the Treasury and requires a ruling within 24 hours or the
application will be deemed granted.
d. Variable Contracts. This bill would conform
California standards to those of the National Association
of Insurance Commissioners (NAIC) by clarifying that
nonresidents must hold a life license in their resident
state prior to being issued variable contract authority.
e. Repeals Obsolete or Outdated Insurance Code Section.
Repeals Insurance Code sections related to
i. Certificates of Convenience.
Certificates of convenience are temporary licenses.
This bill limits the available certificates to estate
or military service certificates of convenience.
ii. Exemption for Notice of Cancellation for
Auto Policies in Effect 60 Days or Less. According to
CDI, this bill conforms the Insurance Code to the
CalFarm and Macky court decisions, which state that
the 60-day underwriting period specified in the
Insurance Code section 661 no longer exists per
Insurance Code section 1861.03, subdivision (c)(1),
added as part of Proposition 103 in 1998.
iii. Specific Tort Actions Reporting. This
report includes information regarding court judgments
and settlement in tort cases. According to CDI, the
AB
2303 (Committee on Insurance), Page 7
initial purpose of the report was to assist in
rate-making, but the generic nature of the data does
not provide enough insurer specific information to use
in setting rates for individual insurers today.
f. Bail Agent Licenses Pre-licensing Requirements.
This bill would increase the pre-licensing education
hours for bail agents from 12 to 20 hours based on the
recommendation of an ad hoc advisory committee made up of
representative of the bail industry and CDI. According
to the CDI, this bill would align the pre-licensing hours
for a bail agent license with all other insurance
producer licenses.
g. CDI Curriculum Board. This bill would expand the
authority of the CDI Curriculum Board to develop
pre-licensing and continuing education requirements for
agent/broker licenses to include bail agents and
insurance adjusters as well.
h. Surplus Lines Brokers. This bill would conform
California standards to those of the NAIC by specifying
that nonresident surplus lines applicants may demonstrate
competency by showing that they hold a property license
in their resident state.
i. Child Care Liability Reporting Requirement. Current
law requires that the CDI report to the Legislature on
issues relating to child care liability. According to
CDI, the availability and affordability of child care
insurance is no longer a problem. This bill eliminates
the annual requirement but maintains the Commissioner's
authority to run a data call if necessary.
j. Crop Insurance. This bill establishes a limited
lines crop insurance adjuster license. Federal crop
insurance requirements were recently changed requiring
crop insurance adjusters to have specific knowledge of
the crops at issue in a claim. If a state does not offer
a license based on a crop specific test, then adjusters
certified by the National Crop Insurance Services (NCIS)
AB
2303 (Committee on Insurance), Page 8
may adjust claims in the state without a license. This
bill establishes state licensure based on the NCIS
certification process to comply with the federal
requirements.
3. Summary of Arguments in Support
The CDI states that AB 2303 is truly technical in nature and
should be non-controversial.
4. Summary of Arguments in Opposition
None received.
5. Suggested Amendments
Amendments offered by the author are in Legislative Counsel
form. Along with a variety of technical and style changes,
the amendments:
a. Amend California Insurance Code 1035(a) to revise
the Conservation and Liquidation Office's report of new
hires (Amendment 31). The Conservation and Liquidation
Office ("CLO") provides a report on a monthly basis to
the Chair of the Joint Legislative Budget Committee
("JLBC") on the CLO's appointing or employing of special
deputy commissioners, clerks, or assistants (including
consultants). According to CDI, there has never been a
question with the reports in the past seven years. Based
on CDI's conversations with staff of the JLBC and Senate
Insurance Committee, the report is not needed as
frequently as currently provided, but there is an
interest in continuing to receive relevant CLO hiring
information. CDI recommends that the report requirement
not be eliminated entirely but instead be require for
higher-level hires only and significantly reduce the
number of reports required of the CLO.
b. Holocaust Insurance Claims Report (Amendment 63).
This report provides information on progress of the
identification and resolution of Holocaust insurance
claims. According to CDI, it has not submitted this
report in several years, because there has not been, nor
AB
2303 (Committee on Insurance), Page 9
does CDI expect any future activity to report. The
amendment is limited to the reporting requirement and
does eliminate any duty of CDI to research, investigate,
or advocate in matters involving the interests of
Holocaust survivors.
c. California State Compensation Insurance Fund
(SCIF)-related Report. Chapter 639, Statutes of 2003,
included uncodified intent language stating that the
Commissioner must review and analyze the financial
condition, underwriting practices, and rate structure of
SCIF and report to the Legislature and the Governor on
the potential of reducing rates by July 1, 2004, and
every July 1 thereafter. This bill strikes that
language. CDI explains that it:
i. CDI has only issued the report one time.
ii. The report requirement was put in place
before the statutory revisions to SCIF came about as
well as the increased transparency in their
operations.
iii. CDI currently performs financial and
underwriting exams of SCIF and eliminating the report
would not change these activities.
iv. CDI has contacted SCIF and confirmed
they would not oppose having the report eliminated.
(The Committee has not received any opposition from
SCIF.)
POSITIONS
Support
Department of Insurances/Sponsor
California Bail Agents Association (CBAA)
Golden State Bail Agents Association (GSBAA)
AB
2303 (Committee on Insurance), Page 10
Opposition
None received.
Consultant: Hugh Slayden, (916) 651-4773