BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1391|
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THIRD READING
Bill No: AB 1391
Author: Assembly Insurance Committee
Amended: 8/19/13 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.
Senate Floor Amendments of 8/19/13 add double-jointing language
to avoid chaptering out issues with AB 1180 (Pan).
ANALYSIS :
Existing law:
1.Provides that a risk retention group may be a corporation,
public entity, or other limited liability association that
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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 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
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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.
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
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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.
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 an RBC
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.
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5.Clarifies that the completion of an eight-hour training
requirement to initially procure a license to sell annuities
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 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. 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
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also provides for judicial review of a change to the plan.
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.
14.Adds double-jointing language to avoid chaptering out issues
with AB 1180 (Pan).
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.
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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.
2.RBC 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.
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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).
B. Remove obsolete P&C reference from Section 10785(h) .
This bill removes references to P&C broker-agents from
language in Section 10785(h) 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
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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.
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.
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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
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 8/19/13)
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
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NO VOTE RECORDED: Donnelly, Holden, Logue, Waldron, Vacancy
AL:ej 8/20/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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