BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                            



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                                    THIRD READING


          Bill No:  AB 1391
          Author:   Assembly Insurance Committee
          Amended:  6/27/13 in Senate
          Vote:     21


           SENATE INSURANCE COMMITTEE  :  9-0, 6/26/13
          AYES:  Calderon, Gaines, Corbett, Correa, Knight, Lieu, Nielsen,  
            Roth, Torres

           SENATE APPROPRIATIONS COMMITTEE  :  Senate Rule 28.8

           ASSEMBLY FLOOR  :  75-0, 5/9/13 (Consent) - See last page for vote


           SUBJECT :    Insurance:  omnibus

           SOURCE  :     Department of Insurance


           DIGEST  :    This bill is the annual insurance omnibus bill, and  
          makes a number of technical, clarifying, or minor modifications  
          to the Insurance Code.

           ANALYSIS  :    

          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:
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             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 cancellation of a motor vehicle policy on the  
            mailing of a notice a specified number of days prior to the  
            effective date of the cancellation.

             A.   Provides that no cancellation of a motor vehicle  
               insurance policy, not subject to certain cancellation  
               protections 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 (Commissioner) in accordance with specified  
            provisions governing the determination of a property and  
            casualty (P&C) 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 eight hours of training prior to  
            soliciting individual consumers, and requires every life agent  
            who sells annuities to satisfactorily complete four hours of  
            training prior to each license renewal.

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          4.Prohibits the Commissioner from granting authority to transact  
            variable contracts unless the life agent or applicant  
            furnishes proof that he/she is registered to sell securities  
            in accordance with the rules of the U.S. Securities and  
            Exchange Commission or the Financial Industry Regulatory  
            Authority (FINRA).

          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 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/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 (NAIC), 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.Requires the Commissioner, after a public hearing held in  
            accordance with the rulemaking provisions of the  
            Administrative Procedure Act, to approve or issue a reasonable  
            plan, or reasonable amendments to the plan, for the equitable  
            apportionment, among insurers admitted to transact liability  
            insurance, of those applicants for automobile bodily injury  
            and property damage liability insurance who are in good faith  
            entitled to, but are unable to procure, that insurance through  
            ordinary methods and provides for judicial review of the  
            proceedings held to revise automobile insurance rates.


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          10.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.


          This bill:

          1.Requires, 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 five years, and that the risk  
            retention group have an audit committee composed of at least  
            three independent board members; deletes the risk retention  
            group exemption from the Business Transacted with Producer  
            Controlled Insurer Act.

          2.Removes the requirements for cancellation of a motor vehicle  
            insurance policy less than 60 days old, and applies the  
            requirements regarding notice of cancellation for nonpayment  
            of premiums, and other specified reasons, to all cancellation  
            circumstances.

          3.Revises the definition of "RBC report" 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.

          4.Provides that continuing education requirements include three  
            hours of ethics.

          5.Clarifies that the completion of an eight-hour training  
            requirement to initially procure a license to sell annuities  

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            does not satisfy the requirement to complete a four-hour  
            training course in order to renew the annuity license.

          6.Clarifies that a life agent or applicant is required furnish  
            proof that he/she is registered to sell securities in  
            California in accordance with the rules of the U.S. Securities  
            and Exchange Commission or the FINRA.

          7.Authorizes 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.

          8.Redefines an "insurance solicitor" to mean a natural person  
            employed to aid a P&C broker-agent acting as an insurance  
            agent or insurance broker in transacting insurance other than  
            life, disability, or health.

          9.Provides 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.

          10.Authorizes an insurer to terminate or otherwise change the  
            terms and conditions of a policy of portable electronics  
            insurance, as provided.

          11.Requires that the reasonable amendments to specified plans be  
            approved by the plan's advisory committee; deletes the  
            requirement that the public hearings be held in accordance  
            with the rule making provisions of the Administrative  
            Procedure Act, and provide, with exceptions that the plan and  
            any amendments not be subject to those provisions.  The bill  
            requires the Commissioner to provide 45 days' notice of a  
            public hearing by publishing the notice in the California  
            Regulatory Notice Register, mailing the notice to the parties  
            on the Department of Insurance's public Internet Web site.   
            The bill also provides for judicial review of a change to the  
            plan.


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          12.Authorizes underwritten title companies to apply to withdraw  
            from the California insurance market.

          13.Makes technical, conforming, and clarifying changes, and  
            removes obsolete provisions. 

           Background
           
           1.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 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.

              A.   Corporate governance requirements.   Existing law lacks  
               specific requirements for corporate governance of RRGs.   
               This bill amends existing law by adding corporate  
               governance standards to conform to NAIC standards. 
              B.   Producer controlled insurers.   Most producer controlled  
               insurers must comply with the Business Transacted with  
               Producer Controlled Insurers Act 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.

           1.Motor vehicle insurance cancelation notices  .  This bill amends  
            Section 662 and repeals Section 668.5 to eliminate a complex  
            treatment of cancellation notices for private passenger auto  
            policies less than 60 days old.


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           2.Risk-based capital report  .  This bill amends Sections 739 and  
            739.3 relating to 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.

             A.   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. 

             B.   Existing 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 P&C insurers.  This bill corrects  
               inadvertent omissions to Sections 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.

           1.Clean-up to Section 1011(c).   AB 2303 (Assembly Committee on  
            Insurance, Chapter 786, Statutes of 2012) renumbered  
            Subsections 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.

           2.Licensees not authorized to sell disability insurance .  This  
            bill amends two sections consistent with the requirement that  
            persons who transact disability insurance must be licensed as  
            an accident and health agent or life and accident health  
            agent.

              A.   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 AB 2303, Chapter 786, Statutes of 2012).
           

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             B.   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.

           1.License Exam Waiver for licensees moving to California  .  Under  
            existing 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 retains the 90-day period for  
            the first California resident license application, but amends  
            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 Producer Licensing  
            Model Act. 

           2.Continuing Education (CE)
           
              A.   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).  Existing law conforms to the 24-hour CE  
               requirement, but not the three-hour ethics requirement.   
               This bill amends Sections 1749.3, 1749.31, 1749.32, and  
               1749.33 to add the ethics component.

              B.   Annuity training requirement for life insurance agents .   
               Life insurance agents must complete eight hours of training  
               before selling annuity products and four hours of CE in  
               annuities prior to each license renewal.  The eight-hour  
               course is intended for life insurance agents who have never  
               sold annuities and the four-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 eight-hour course to meet the  
               CE requirements in lieu of the more advanced curriculums of  
               the four-hour courses.  This bill amends Section 1749.8 and  
               prohibits life insurance agents from repeating the initial  
               eight-hour course for the purpose of satisfying the  
               four-hour CE requirement.

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              C.   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.

           1.Authority to transact variable contracts  .  As a condition for  
            a life agent to be granted variable contract authority in  
            California, he/she must be registered with the U.S. Securities  
            Exchange Commissioner to sell securities or be registered to  
            sell securities in accordance with the rules of the FINRA.   
            This bill amends Section 1758.3 and clarifies the requirements  
            for a licensee to be authorized to sell variable contracts in  
            California specifically.

           2.Termination of portable electronics insurance  .  AB 2856  
            (Chavez, Chapter 437, Statutes of 2002) established a  
            regulatory framework for offering portable electronics  
            insurance.  Existing law does not provide rules governing the  
            termination or modification of a policy of portable  
            electronics insurance.  This bill adds Section 1758.681 and  
            sets forth specific notice requirements applicable to portable  
            electronics insurance when terms and conditions are modified  
            or a policy is terminated.

           3.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.

           4.Clean-up to Section 10234.93  .  This proposed amendment makes  
            non-substantive technical or stylistic changes.

           5.Underwritten title companies  .  An underwritten title company  
            (UTC) sells title insurance issued by a title insurer, but is  

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            not an insurer itself.  Existing 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 Section 12389.7 and amends  
            Section 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 facilitates their cessation of business process,  
            provides operational efficiencies, and eliminates unnecessary  
            administrative bureaucracy.

           Comments
           
          According to the bill's sponsor, 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 NAIC's model laws.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  No

           SUPPORT  :   (Verified  8/13/13)

          Department of Insurance (source)

           ASSEMBLY FLOOR  :  75-0, 5/9/13
          AYES:  Achadjian, Alejo, Allen, Ammiano, Atkins, Bigelow, Bloom,  
            Blumenfield, Bocanegra, Bonilla, Bonta, Bradford, Brown,  
            Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway,  
            Cooley, Dahle, Daly, Dickinson, Eggman, Fong, Fox, Frazier,  
            Beth Gaines, Garcia, Gatto, Gomez, Gordon, Gorell, Gray,  
            Grove, Hagman, Hall, Harkey, Roger Hernández, Jones,  
            Jones-Sawyer, Levine, Linder, Lowenthal, Maienschein, Mansoor,  
            Medina, Melendez, Mitchell, Morrell, Mullin, Muratsuchi,  
            Nazarian, Nestande, Olsen, Pan, Patterson, Perea, V. Manuel  
            Pérez, Quirk, Quirk-Silva, Rendon, Salas, Skinner, Stone,  
            Ting, Torres, Wagner, Weber, Wieckowski, Wilk, Williams,  
                                                         Yamada, John A. Pérez
          NO VOTE RECORDED:  Donnelly, Holden, Logue, Waldron, Vacancy


          AL:ej  8/13/13   Senate Floor Analyses 


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                           SUPPORT/OPPOSITION:  SEE ABOVE

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