BILL ANALYSIS Ó
SENATE INSURANCE COMMITTEE
Senator Ronald Calderon, Chair
SB 596 (Price) Hearing Date: April 27, 2011
As Amended: April 25, 2011
Fiscal: No
Urgency: No
SUMMARY Would permit reformatting and consolidation of
closely-related current notices required under the California
Insurance Code to permit reduction in mailings and paper usage.
DIGEST
Existing law
1. Requires an insurer, upon receiving notice of a claim,
to immediately, but not more than 15 calendar days after
receipt, provide the insured with a legible reproduction of
Insurance Code section 790.03, relating to prohibited acts
in the business of insurance, in at least 12-point type,
and a written notice concerning the California Department
of Insurance Fair Claims Settlement Practices Regulations.
2. Requires every insurer, within 15 days of a request,
whether made orally or in writing, to provide an insured a
copy of California Insurance Code Section 790.03(h) and
copies of the California Code of Regulations Sections
2695.5, 2695.7, 2695.8 and 2695.9 of Subchapter 7.5 of
Chapter 5 of Title 10.
3. Requires that no residential property insurance policy
be issued or delivered in California without an offer of
earthquake insurance coverage availability which is
required to include specified provisions.
Under current law, the statute currently authorizes this
notice to be expanded to include "additional provisions not
in conflict or in derogation of" the mandatory offer. (CIC
Section 10083(c))
4. Requires that at the time of offering to issue or renew
an earthquake insurance policy, the insurer is to disclose
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in writing to the applicant all discounts or surcharges
that are available to the insured. This notice is required
to be in a "freestanding document".
5. Prohibits issuance of any policy of residential property
insurance unless the named insured is provided a copy of
the California Residential Property Insurance Disclosure.
6. Effective July 1, 2011, requires that every California
Residential Property Insurance Disclosure be accompanied by
a "Residential Property Insurance Bill of Rights" document.
This bill
1. Would leave unchanged the requirement that an insurer
provide copies of CIC Section 79003(h) and the related DOI
regulations within 15 days of any oral or written request.
2. Would revise the contents of the insurance claim-related
written notice and permit its provision in 10-point rather
than 12-point type. The revised notice would be as
follows:
"Subdivision (h) of Section 790.03 of the Insurance Code
and Sections 2695.5, 2695.7, 2695.8, and 2695.9 of
Subchapter 7.5 of Chapter 5 of Title 10 of the California
Code of Regulations govern claims settlement practices and
how insurance claims must be processed in this state. This
law and these regulations are available at the Department
of Insurance Internet site, www.insurance.ca.gov. You may
also obtain a copy of this law and these regulations free
of charge from this insurer."
3. Would allow the California Residential Property
Insurance Disclosure and the California Residential
Property Insurance Bill of Rights to be placed in the same
document .
COMMENTS
1. Purpose of the bill : According to the Author, by permitting
the consolidation and streamlining of several consumer
notices currently required by the Insurance Code, this bill
permits increased efficiency. By consolidating certain
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disclosure and policyholder notices into a single mailing,
the bill reduces numerous customer communications that often
confuse customers. The bill also decreases the use of
resources such as paper.
SB 596 would allow the California Residential Property
Insurance Disclosure and the California Residential Property
Insurance Bill of Rights to be placed in the same document.
Reducing one sheet of paper in disclosures for homeowners is
estimated to save between five and seven million sheets of
paper annually.
2. Background and Discussion: The purpose of this bill is to
permit insurers to reformat and consolidate disclosures
provided under current law so as to reduce the number of
mailings, bring important information to the consumer's
attention in a single contact, and allow existing
requirements to be met with greater efficiencies by
insurers.
3. The reformatted claim notice would reduce the volume of
paper because it would eliminate the requirement to send a
copy of CIC Section 790.03(h) in response to every notice of
a new insurance claim but it would continue to require
disclosure of:
a. The DOI website where copies of that law and
related regulations can be found.
b. That the insurer will send copies of the law
and regulations free of charge upon request.
4. The measure, subject to revisions in format, continues to
provide important information to consumers.
5. Since the existing mandatory earthquake offer contemplates
the possibility of adding language to that disclosure which
is "not in conflict or in derogation of" the mandatory
offer, the inclusion of the available discount and surcharge
information appears consistent with the disclosure framework
established by the earthquake offer law.
6. Consolidation of California's Residential Property
Insurance Disclosure form, which is intended to help ensure
homeowners know what their policies coverage includes, and
the Bill of Rights, which aims to provide insureds with
important information related to their homeowner's insurance
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purchase appears to place closely-related information
together where it can be easily referenced.
7. The California Department of Insurance indicates it is
interested in the bill but is working productively with
Senator Price.
8. Summary of Arguments in Support:
According to the Association of California Insurance
Companies (ACIC) which is this bill's sponsor:
a. "SB 596 improves overall efficiency, and saves
precious natural resources by consolidating certain
disclosure and policy notices into a single mailing. SB
596 will reduce multiple mailings on the same subject
that is both costly and confusing to customers. This
disclosure consolidation would save the industry an
estimated 4.7 million sheets of paper.
Specifically, the bill consolidates the notice of the
California Earthquake Authority Coverage with the notice
of available discounts for earthquake coverage into a
single mailing. Both disclosures relate to the same
subject, earthquake coverage, but separate mailing are
now statutorily required. This is both a waste of
resources and confusing to consumers. Consolidating the
same exact notices is an efficiently that does nothing to
erode either the information that is disclosed or the
rights of the insureds.
SB 596 also proposes to consolidate the Residential
Property Disclosure Form, which explains many of the
common features of a homeowner's policy, with the
"Homeowner's Bill of Rights" which discloses the rights
of a homeowner policy holder. Both of these notices
pertain to the homeowner's policy and therefore should be
sent in the same mailing. Again, the disclosures remain
the same but are sent in the same envelope.
Lastly, the bill proposes to simply notify an insured
upon filing a claim that there exists an "Unfair Claims
Practice Act" that prohibits specified acts by an
insurer. In that notification, the insurer would provide
the web address where an insured could find a copy of the
Act and also offer to send a hard copy in the mail upon
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request. This document is a reprint of the insurance
code, thus making it the longest and most obscure of all
notices. The document scores very low on readability
indices and the first 2 pages of the document do not
provide relevant information. SB 596 proposes to pare
down the document to those sections that pertain to how
the insurer treats the insured.
SB 596 will save the industry millions of sheets of paper
per year thus sparring precious natural resources and
reducing costs by making some common sense consolidation
of notices. This bill does not erode any disclosures or
rights of an insured."
The Personal Insurance Federation of California (PIFC),
which is in support, states:
b. "SB 596 would improve disclosure and notification
requirements and reduce costs by eliminating separate
mailing requirements for certain documents. Under
current law, consumers are often confused when presented
with numerous customer communications from their
insurance company - documents that must be mailed
separately under the Insurance Code."
9. Summary of Arguments in Opposition:
The Consumer Attorneys of California (CAOC) state:
a. "Consumer Attorneys have traditionally opposed any
legislation that weakens consumer disclosures or
protections. Insurance Code § 790.03 and the Fair Claims
Settlement Practices Regulations clearly define and
outline unfair and deceptive business practices and
duties owed to the policyholder as they relate to
handling a claim, the settlement of a claim and the right
to an attorney. There is a fundamental difference between
the insurer sending a policyholder a copy of the law that
governs how a claim must be processed, and sending a
notice to the consumer that states there is a law that
governs. Consumers have the right to know what their
rights are under the law and what duties are owed to them
as a policyholder. Although the insurance industry has
stated that this will represent a cost-savings benefit to
it by reducing printing costs, we believe that the need
for disclosures to be presented to the consumer far
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outweigh any cost-savings to the insurer. Unfortunately,
it is our belief that in its current form SB 596 weakens
consumer protections."
10. Amendments: None proposed
11. Prior and Related Legislation:
The sponsors identify AB 328 (Calderon), Chapter 443, Statutes
of 2009 as a related measure. This bill, to facilitate greater
efficiencies in the business of insurance, authorized insurance
companies to send various notices required by the California
Insurance Code, electronically by agreement with the recipient
using procedures that conform to the Uniform Electronic
Transactions Act and applicable substantive law and authorizes
insurance companies to pay claims by electronic funds transfers.
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
Association of California Insurance Companies (ACIC) (Sponsor)
Personal Insurance Federation of California (PIFC) (Support)
Opposition
Consumer Attorneys of California (CAOC)
Consultant: Ken Cooley (916) 651-4110