BILL ANALYSIS Ó
SENATE INSURANCE COMMITTEE
Senator Ronald Calderon, Chair
AB 1391 (Committee on Insurance) Hearing Date: June 26, 2013
As Amended:June 17, 2013
Fiscal: Yes
Urgency: No
VOTES: Asm. Floor(05/09/13)75-0/Pass
Asm. Appr. (05/01/13)17-0/Pass
SUMMARY: This bill is the annual insurance omnibus bill and
would make a number of technical, clarifying, or minor
modifications to the Insurance Code.
DIGEST
Existing law
1. Provides that a risk retention group may be a corporation,
public entity, or other limited liability association that meets
certain criteria, including that its primary activity consists
of assuming and spreading all, or any portion, of the liability
exposure of its group members:
A. Requires an entity seeking to be licensed as a risk
retention group to be organized under California law and
licensed as a liability insurance company; and
B. Exempts risk retention groups from the Business Transacted
with Producer Controlled Insurer Act, which regulates
controlled insurers, as prescribed.
1. Conditions the cancelation of a motor vehicle policy on the
mailing of a notice a specified number of days prior to the
effective date of the cancelation.
A. Provides that no cancellation of a motor vehicle insurance
policy, not subject to certain cancellation protections
AB
1391 (Committee on Insurance), Page 2
because it has been in effect less than 60 days, is effective
unless a notice of cancellation, subject to certain notice
provisions, is mailed or delivered by the insurer to the named
insured not later than the 59th day following the effective
date and at least 10 days prior to the effective date of
cancellation.
B. Provides no notice of cancellation of a motor vehicle
insurance policy, where the cancellation is based on, among
other things, nonpayment of premium, is effective unless
mailed or delivered by the insurer to the named insured,
lienholder, or additional interest at least 20 days prior to
the effective date of cancellation, except as specified.
1. Defines the term "Adjusted RBC Report" as a Risk-Based Capital
(RBC) report that has been adjusted by the Insurance
Commissioner in accordance with specified provisions governing
the determination of a property and casualty insurer's RBC.
2. Provides for continuing education requirements, prior to
license renewals, for specified insurance agents and
broker-agents, including personal lines broker-agents and
limited lines automobile insurance agents.
3. Requires every life agent who sells annuities to satisfactorily
complete 8 hours of training prior to soliciting individual
consumers, and requires every life agent who sells annuities to
satisfactorily complete 4 hours of training prior to each
license renewal.
4. Prohibits the Insurance Commissioner from granting 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 United States Securities and
Exchange Commission or the Financial Industry Regulatory
Authority.
5. Requires an individual holding an insurance adjuster license,
not otherwise exempt, to complete a minimum of 24 hours of
continuing education courses, as specified.
6. Defines an insurance solicitor as a natural person employed to
aid an insurance agent or insurance broker in transacting
insurance other than life.
7. Provides that a nonresident licensee who applies for a property
AB
1391 (Committee on Insurance), Page 3
broker-agent, casualty broker-agent, personal lines
broker-agent, or life agent resident license in this state, and
who is currently licensed for the same lines of authority in the
state of his or her current resident license, is not required to
complete an examination. The application for examination is
required to be received within 90 days of the cancellation of
the applicant's resident license and the producer database
records, maintained by the National Association of Insurance
Commissioners, are required to indicate that the producer is
licensed in good standing for the line of authority requested.
8. Regulates the sale of portable electronics insurance policies
and requires all portable electronics vendors offering that
insurance to be licensed, as specified.
9. Defines a title insurer as any company issuing title policies
as insurer, guarantor or indemnitor.
A. Authorizes an underwritten title company to engage in the
business of preparing title searches, title reports, title
examinations, or certificates or abstracts of title, upon the
basis of which a title insurer writes title policies.
B. Authorizes any insurer, upon payment of the fees and costs
and surrender to the commissioner of its certificate of
authority, to apply to withdraw from this state, as provided.
AB
1391 (Committee on Insurance), Page 4
This bill
1. Risk Retention Groups
A. Would require, on and after January 1, 2015, a risk
retention group to comply with specified corporate
governance requirements at the time of licensure,
including that the board of directors have a majority of
independent directors, as defined, that the term of any
material service provider contract with a risk retention
group not to exceed 5 years, and that the risk retention
group have an audit committee composed of at least 3
independent board members.
B. Would also delete the risk retention group exemption
from the Business Transacted with Producer Controlled
Insurer Act.
1. Motor Vehicle Insurance Cancelation Notices. Would remove the
requirements for cancellation of a motor vehicle insurance
policy less than 60 days old, and would apply the requirements
regarding notice of cancellation for nonpayment of premiums, and
other specified reasons, to all cancellation circumstances.
2. Risk-based Capital Report. Would revise that definition to
also include a risk-based capital report that has been
adjusted by the commissioner in accordance with specified
provisions governing the determination of a life or health
insurer's RBC.
3. Continuing Education - Ethics. Would provide that
continuing education requirements include 3 hours of ethics.
4. Continuing Education - Annuity Training. Would clarify the
completion of an 8-hour training requirement to initially
procure a license to sell annuities does not satisfy the
requirement to complete a 4-hour training course in order to
renew the annuity license.
5. Authority to Transact Variable Contracts. Would make clear
that the life agent or applicant is required furnish proof
that he or she is registered to sell securities in
California in accordance with the rules of the United States
Securities and Exchange Commission or the Financial Industry
Regulatory Authority.
AB
1391 (Committee on Insurance), Page 5
6. Continuing Education - Exemption for P&C
Broker-Agent/Insurance Adjuster. Would authorize an
exemption from the continuing education requirements for an
individual licensed as an insurance adjuster and as a
property or casualty broker-agent who has met other
specified continuing education requirements.
7. Disability Insurance - "Insurance Solicitor". Would
redefine an insurance solicitor to mean a natural person
employed to aid a property and casualty broker-agent acting
as an insurance agent or insurance broker in transacting
insurance other than life, disability, or health.
8. License Exam Waiver for Licensees Moving to California.
Would provide that upon issuance of the California resident
license, the examination waiver also applies to adding
additional lines of authority to the California resident
license provided that the individual was previously licensed
in good standing for the requested additional lines of
authority, and the application is received within 12 months
of the cancellation of the applicant's previous resident
license in another state.
9. Termination of Portable Electronics Insurance Policies.
Would authorize an insurer to terminate or otherwise change
the terms and conditions of a policy of portable electronics
insurance, as provided.
10. Underwritten Title Companies. Authorize underwritten title
companies to apply to withdraw from the California insurance
market.
11. Miscellaneous. Would make technical, conforming, and
clarifying changes, and removes obsolete provisions.
COMMENTS
1. Purpose of the bill . According to the bill's sponsor, the
California Department of Insurance (CDI), this bill remedies
several issues identified and vetted by CDI to clarify and
cleanup various Insurance code sections, including several
for alignment with the National Association of Insurance
Commissioners (NAIC) model laws.
AB
1391 (Committee on Insurance), Page 6
2. Background
A. Risk Retention Groups. In the 1980s Congress
established and broadened the ability of employers to band
together to form a risk retention group (RRG) in response
to severe shortages of certain commercial insurance. RRGs
are multi-owner entities, similar to a captive insurance
or group self-insurance program, that provide most types
of commercial insurance coverage. Corporations, public
entities, or any limited liability association may form an
RRG and federal law provides a structure for RRGs to
operate across state lines (subject to state regulation).
The National Association of Insurance Commissioners (NAIC)
promulgates model laws to assist states in developing
effective and consistent national standards. The NAIC
updated its model laws relating to RRGs in response to
recommendations by the U.S. Government Accountability
Office.
i. Corporate Governance Requirements. Existing law
lacks specific requirements for corporate governance of
RRGs. This bill amends Section 131 by adding corporate
governance standards to conform to NAIC standards.
ii. Producer Controlled Insurers. Most producer
controlled insurers must comply with the Business
Transacted with Producer Controlled Insurers Act
(Sections 1216 et seq.), but RRGs are currently
exempted. The act protects consumers from insurer
insolvencies where insurance producers (such as a fire
and casualty licensees) have substantial control over
the operations of the insurer and subjects producers to
civil liability for material noncompliance if the
insurer or a policy holder suffers a loss or damage.
Revisions to the NAIC model law repealed the exemption
for RRGs; this bill amends Section 1216.1 consistent
with the NAIC revisions.
A. Motor Vehicle Insurance Cancelation Notices. This
bill amends Section 662 and repeals Section 668.5 to
eliminate a complex treatment of cancellation notices for
AB
1391 (Committee on Insurance), Page 7
private passenger auto policies less than 60 days old.
B. Risk-based Capital Report. This bill amends Section
739 and 739.3 relating to Risk-based Capital (RBC)
reports. RBC represents the value of capital that an
insurer should set aside to cover the risks it has
assumed. An insurer must submit annually an RBC report
demonstrating that it holds sufficient capital to pay
potential claims.
i. This bill corrects the definition in Section 739
of "Adjusted RBC Report" by adding missing a reference
to the formula for life and health insurers.
ii. Current law determines whether an insurer has a
Company Action Level Event, a situation requiring the
insurer to provide specified financial-related
information to the Commissioner. "Trend tests" are
criteria used to determine if additional information to
the Commissioner is required from both life and
property and casualty (P&C) insurers. This bill
corrects inadvertent omissions to Section 739.3(a)(2)
and (3) that excluded P&C insurer's trend test. The
correction will also bring California insurance law
consistent with NAIC Model language to maintain
California's NAIC accreditation status.
A. Clean-up to Section 1011(c). AB 2303 (Committee on
Insurance), Chapter 786, Statutes of 2012, renumbered
subsection 1011 (c) to 1011 (a)(3). The re-designated
subsection requires insurers to make a regulatory filing
in connection with certain transactions which is commonly
referred to as a "1011 (c) filing". This bill changes the
designation system in this subsection and related
conformity changes in other sections to maintain the
integrity of the established "1011 (c) filing" convention.
B. Licensees not Authorized to Sell Disability Insurance.
This bill amends two sections consistent with the
requirement that persons who transact disability insurance
AB
1391 (Committee on Insurance), Page 8
must be licensed as an accident and health agent or life
and accident health agent.
i. Definition of "Insurance Solicitor." This bill
amends the definition of "insurance solicitor" in
Section 1624 to align with the definition provided in
Section 34 (as amended by Chapter 786, Statutes of
2012).
ii. Remove Obsolete P&C Reference from Section
10785(h). This bill removes references to P&C
broker-agents from language in Section 10785 related to
the compensation of agents or broker-agents relative to
the enrollment of individuals in an individual health
benefit plan.
A. License Exam Waiver for Licensees Moving to
California. Under current law, nonresident licensees have
90 days from the date they cancel their resident license
from the state they left to apply for a California
resident license and be eligible for a license exam
waiver. This bill would retain the 90-day period for the
first California resident license application, but would
amend Section 1675 to allow individuals 12 months to
receive an exam waiver for additional lines of authority
for which they were previously licensed in another state.
This proposal is consistent with the provisions of the
NAIC's Producer Licensing Model Act.
B. Continuing Education (CE)
i. Ethics. The NAIC's Uniform Licensing Standards
sets the CE requirement for insurance agents and
brokers at 24 hours every two-year license term with
three of the 24 hours covering ethics. This standard
covers the major lines of license authority (i.e.,
P&C, life, accident/health and personal lines).
Current law conforms to the 24-hour CE requirement,
but not the 3-hour ethics requirement. This bill
amends Sections 1749.3, 1749.31, 1749.32, and 1749.33
to add the ethics component.
AB
1391 (Committee on Insurance), Page 9
ii.Annuity Training Requirement for Life Insurance
Agents. Life insurance agents must complete 8 hours
of training before selling annuity products and 4
hours of CE in annuities prior to each license
renewal. The 8-hour course is intended for life
insurance agents who have never sold annuities and the
4-hour courses are intended for agents with some
knowledge in annuities and provides more in-depth
subject matter. However, some life agents continue to
take the initial 8-hour course to meet the CE
requirements in lieu of the more advanced curriculums
of the 4-hour courses. This bill amends Section 1749.8
and prohibits life insurance agents from repeating the
initial 8-hour course for the purpose of satisfying
the 4-hour CE requirement.
iii.Persons Licensed as P&C Broker-Agent and Insurance
Adjuster. Agents and brokers are required to complete
24 hours of CE on a biennial basis as a condition of
license renewal whether licensed for only one line of
authority or multiple lines of authority. Insurance
adjusters are also required to complete 24 hours of
CE. This bill amends Section 14090.1 to allow
individuals licensed both as a P&C broker-agent and an
insurance adjuster to apply the same 24-hours of
education for both CE licensing renewal requirements.
A. Authority to Transact Variable Contracts. As a
condition for a life agent to be granted variable contract
authority in California, he or she must be registered with
the U.S. Securities Exchange Commissioner (SEC) to sell
securities or be registered to sell securities in
accordance with the rules of the Financial Industry
Regulatory Authority (FINRA). This bill amends Section
1758.3 and clarifies the requirements for a licensee to be
authorized to sell variable contracts in California
specifically.
B. Termination of Portable Electronics Insurance. AB
2856 (Chavez), Chapter 437, Statutes of 2002, established
a regulatory framework for offering portable electronics
AB
1391 (Committee on Insurance), Page 10
insurance. Existing law does not provide rules governing
the termination or modification of a policy of portable
electronics insurance. This bill would add Section
1758.681 and set forth specific notice requirements
applicable to portable electronics insurance when terms
and conditions are modified or a policy is terminated.
C. Repeal Obsolete Mandated Report Requirement. Section
1872.87 requires CDI and the Department of Motor Vehicles
(DMV) to issue a report to the Governor and Joint
Legislative Budget Committee by October 1, 2008, on the
feasibility of transferring collection of the auto fraud
assessments to DMV. According to CDI, the report was
issued. This bill strikes that requirement.
D. Clean-up to Section 10234.93. This proposed amendment
would make non-substantive technical or stylistic changes.
E. Underwritten Title Companies. An underwritten title
company (UTC) sells title insurance issued by a title
insurer, but is not an insurer itself. Current law
provides a process by which insurers can voluntarily
withdraw from the California market, but not for a UTC;
rather, CDI must order the UTC to cease and desist, which
is administratively burdensome to both the UTC and CDI.
This bill adds Sections 12389.7 and amends 12414.24 to
apply the market withdrawal process for insurers (Section
1070 et seq.) to UTCs. CDI states that providing UTCs
with a statutory framework to withdraw from the market
would facilitate their cessation of business process,
provide operational efficiencies, and eliminate
unnecessary administrative bureaucracy.
3. Arguments in Support
Included in the background information when available.
4. Arguments in Opposition
AB
1391 (Committee on Insurance), Page 11
None received.
5. Suggested Amendments . The author has offered the following
amendments for consideration by the committee (Legislative
Counsel amendments are attached).
A. California Automobile Assigned Risk Plan (CAARP) and
California Low Cost Automobile Insurance Program (CLCA).
The California Automobile Assigned Risk Plan (CAARP) and
California Low Cost Automobile Insurance Program (CLCA)
are intended to provide automobile liability insurance to
those who "in good faith" are entitled to but are unable
to obtain insurance through ordinary methods. CAARP is not
an insurer, but a processing center that puts consumers in
touch with an insurance company which will insure them.
Applicants to the plan are divided among these insurance
companies in proportion to the amount of automobile
insurance business each company writes in the state. For
example, a company which insures 10 percent of the cars in
California's regular market insures 10 percent of the
applicants to the assigned risk plan.
Section 11629.7 et seq. establishes the California Low
Cost Automobile Insurance Program (CLCA) and places it
within CAARP. CLCA provides eligible, low-income
consumers with affordable liability insurance protection.
The proposed amendments would add a new section to the
bill that would streamline the rulemaking process for
changes to the California Automobile Assigned Risk Plan
(CAARP) and California Low Cost Automobile Insurance
Program (CLCA). The Plan of Operations, which provides
the technical and administrative activities to carry out
the programs, was adopted by reference in the California
Code of Regulation. Under current law any change, with
the exception of rate determinations, must go through the
full rulemaking process. Proposed amendments would permit
the Insurance Commissioner to approve changes to the Plan
without having to go through the full rulemaking process,
but only if the changes are approved by an advisory
AB
1391 (Committee on Insurance), Page 12
committee and after a public hearing that is noticed at
least 45 days in advance. If, before or during the
hearing, the Commissioner receives comments raising
fundamental issues related to the validity of the proposed
plan amendments, as provided in Government Code Section
11349, then adoption of the plan would be subject to the
full rulemaking process.
B. Portable Electronics Insurance. Proposed amendments
would clarify that a portable electronics insurance policy
remain subject to the aggregate limit of liability whether
or not a termination notice was sent. Additionally, the
amendments would provide that enrollment would continue
for 30 days from the date the termination notice is sent,
unless a new policy is in effect.
POSITIONS
Support
Department of Insurance (Sponsor)
Oppose
None received.
Consultant: Hugh Slayden, (916) 651-4773