BILL ANALYSIS Ó
SENATE INSURANCE COMMITTEE
Senator Ronald Calderon, Chair
AB 2406 (Buchanan) Hearing Date: June 13, 2012
As Amended: May 14, 2012
Fiscal: Yes
Urgency: No
VOTES: Asm. Floor(05/17/12)75-0/Pass
Asm. Appr. (05/09/12)17-0/Pass
Asm. Ins. (04/18/12)13-0/Pass
SUMMARY Proposition 103 (1988) established a process to allow
for public participation in the rate setting process for
casualty and car insurance rates. This process allows third
parties to intervene before the Insurance Commissioner in
representation of consumers to assist the Commissioner in making
rate-setting decisions. An intervenor is eligible to receive
advocacy and witness fees and expenses if it is able to
establish for the Commissioner that it represents the interests
of consumers and made a substantial contribution to the
proceedings. These fees and expenses are paid by the insurance
companies. This bill would require the Department of Insurance
to post on its Internet Web site, during the period of
eligibility, all requests for a finding of eligibility to seek
compensation and all findings of eligibility, as defined.
DIGEST
Existing law
1. The Insurance Rate Reduction and Reform Act (enacted by
Proposition 103, as approved by the voters at the November 8,
1988, statewide general election), prohibits a rate from being
approved or remaining in effect which is excessive, inadequate,
unfairly discriminatory, or otherwise in violation of the
applicable provisions of law. Under existing law, an insurer
that wishes to change a rate is required to file a complete rate
application with the Insurance Commissioner, for which there may
be a hearing as prescribed;
2. Authorizes any person to initiate or intervene in any
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proceeding permitted or established pursuant to these
provisions, to challenge actions of the commissioner, and to
enforce provisions of the act.
This bill
1. Would require the Department of Insurance to post on its
Internet Web site, during the period of eligibility, all
requests for a finding of eligibility to seek compensation
and all findings of eligibility, as defined;
2. Would also remove language declared unconstitutional by the
courts and would declare that this change is declaratory of
existing law.
COMMENTS
1.Purpose of this bill To increase transparency in the insurance
rate-setting process by requiring CDI to publish information
regarding intervenor eligibility on its website.
2.Background and Discussion Proposition 103 (1988) established a
process to allow for public participation in the rate setting
process for casualty and car insurance rates. This process
allows third parties to intervene before the Insurance
Commissioner in representation of consumers to assist the
Commissioner in making rate-setting decisions.
a. The Hearing and Intervenor Compensation. Any person
may intervene in a rate-setting proceeding before the
Insurance Commissioner. (Insurance Code § 1861.10.)
Intervenors may be compensated for their reasonable
advocacy and witness fees and expenses. The
corresponding regulations set forth the procedures for
making an initial finding of eligibility for compensation
and upon a positive determination, for awarding advocacy
and witness fees and expenses in specific cases. (10 CCR
2662.1, et seq.) When applying for compensation the
intervenor must show that the intervenor represents the
interests of consumers. Groups must also submit a more
detailed package of materials, including:
A copy of the group's organizational
documents;
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If the group has members, the approximate
number of current members;
Composition of the group's current Board of
Directors;
Representative sample of newsletters and/or
any other publications issued by the intervenor in
California during the previous twelve (12) months,
Annual or year-end report for the prior year;
A statement of non-profit status; and
The group's funding sources for the prior
twenty-four (24) months.
This bill would codify the requirement that the
Department publish the application materials and its
determinations on intervenor eligibility on its website
during the eligibility period.
a. Current Availability of Materials. Currently, these
materials are available through the California Department
of Insurance (CDI) offices and some general information
is already available on the CDI website including the
i. General Information on the CDI Website .
Consumers may access general information about a
hearing, name of the intervenor, the amount awarded,
and the insurer in two reports: the Proposition 103
Recoupment Fee Assessment For Fiscal Year 2011-12
Report, Exhibit G - FY 2011-12 Informational Report on
Intervenor Program Costs and the Consumers:
Informational Report on the CDI Intervenor Program.
ii. California Public Records Act (Gov. Code
§6250-6276.48) . A consumer should be able to obtain
these documents through a California Public Records
Act request and inspect the documents at the CDI
office where the records are located during its
regular office hours or request a copy. Copy requests
may take over ten days and may come with a charge.
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a. Vote Threshold. Consumer Watchdog expresses concern
that Legislative Counsel has determined the incorrect
vote threshold for this bill. Consumer Watchdog writes:
While such "intervenor" eligibility documents currently
exist and are public, there is no statute requiring these
documents. AB 2406 adds a new mandate to Prop 103 and
should be treated as an amendment to the voterapproved
measure and be tagged with a twothirds vote requirement.
Citing the 1998 case, Proposition 103 Enforcement Project
v. Quackenbush (1998) 64 Cal.App.4th 1473, 1484-85,
Consumer Watchdog argues that any change to the scope or
effect of Prop 103 would require a 2/3 vote and cites the
Court's ultimate test of the case: whether the action in
question adds to or takes away from the initiative.
Joint Rules 8.5, 8.6, and 8.7 recognize the Legislative
Counsel has the authority to prepare the digest. Joint
Rule 8.7 requires Legislative Counsel to prepare a
corrected digest if a material error has been brought to
its attention. The Committee has confirmed that the
issue has been brought to the attention of Legislative
Counsel prior to the last amendment and that Legislative
Counsel has not changed its determination.
The Committee has also confirmed that an incorrect vote
key will not invalidate a statute later if it receives
the correct number of votes for passage anyway. If AB
2406 receives 2/3 vote or more of each house, the statute
will not be vulnerable on this point.
b. Whether AB 2406 Furthers the Purposes of Prop 103.
Consumer Federation of California (CFC) questions whether
AB 2406 furthers the purposes of Proposition 103 as
required by the initiatives own terms. CFC argues the
initiative does not provide a process for intervenors to
submit requests for eligibility to seek compensation;
rather the process is determined by regulation and must
be amended by regulation.
Additionally, CFC asserts that the bill is not balanced
because it does not require insurers to post similar
information.
Alternatively, some proponents of the bill view the
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information provided as a useful tool for evaluating the
job performance of CDI and intervenors claiming to serve
the consumer interest. For example, the Greenlining
Institute contrasts intervenor proceedings at the
California Public Utilities Commission (CPUC) against
those held by CDI and writes:
The vibrant CPUC intervenor system presents quite a
contrast when compared with the intervenor activity
at CDI. At least in the last several years, the CDI
intervenor system has not engendered a wide breadth
of participation. Greenlining itself has been
challenged in a number of ways when we have tried to
intervene at CDI.
1. Summary of Arguments in Support
a. The Personal Insurance Federation of California
states that AB 2406 simply requires the information to be
made easily available to consumers via the department's
website. As intervenors represent consumers, this level
of transparency seems reasonable.
b. The Greenlining Institute argues that AB 2406 will
help consumers and the general public, understand the
role that public intervenors play at California
Department Insurance ("CDI") and engender greater
participation of intervenors.
1. Summary of Arguments in Opposition
None received.
2. Questions
a. Although it does not oppose the bill, CFC argues
that AB 2406 is unbalanced because it does not require
the same type of disclosure for insurers. Intervenors
must represent the interests of consumers (implicitly
requiring a position of public trust and confidence).
Intervenors also collect fees through the authority of
the state rather than seeking payment through a
negotiated contract. Does an application for payment as
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an intervenor justify heightened public scrutiny?
b. According to CDI's Consumers: Informational Report
on the CDI Intervenor, between 2008 through 2011
(including years prior to the current Insurance
Comissioner), CDI has paid a total of $5 million to a
single intervenor. No other person or entity has been
awarded fees during and after 2008 (although four
different individuals or entities received fees in 2007
and seven in 2006). Could information provided in the
filings and the filings of unsuccessful candidates (if
any) reveal factors responsible for this lack of
diversity?
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1. Prior and Related Legislation
Chapter 297, Statutes of 1984, provided compensation for
reasonable advocates fees, reasonable expert witness fees,
and other reasonable costs to public utilities customers of
participation or intervention in any hearing or proceeding
of the commission for the purpose of modifying a rate or
establishing a fact or rule that may influence a rate.
AB 1975 (Moore) (enacted as Chapter 942, Statutes of 1992)
enacted provisions that generally effectuated the
participation of groups, such as customers and other
parties, as defined, who seek to intervene in all
proceedings of the Public Utilities Commission.
Participation by these groups was effectuated by, among
other means, the enactment of provisions to facilitate the
compensation of these intervening consumer groups for their
expenses in participating in commission proceedings.
SB 521 (Bowen) (enacted as Chapter 300, Statutes of 2003)
included within the definition of "customer" any
representative of a group or organization authorized
pursuant to its articles of incorporation or bylaws to
represent the interests of small commercial customers, as
defined by a certain peak demand threshold, who receive
bundled electric service from an electrical corporation. It
also prohibited a representative of a group representing the
interests of small commercial customers who receive bundled
electric service from an electrical corporation from being
eligible for an award of compensation if the representative
has a conflict arising from prior representation before the
commission.
POSITIONS
Support
Personal Insurance Federation of California/Sponsor
Association of California Insurance Companies (ACIC)
Greenlining Institute
Opposition
None received.
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Consultant: Hugh Slayden, (916) 651-4773