BILL ANALYSIS Ó
SENATE INSURANCE COMMITTEE
Senator William W. Monning, Chair
AB 1395 (Perea) Hearing Date: June 25, 2014
As Amended: June 19, 2014
Fiscal: No
Urgency: No
Prior Votes Not Relevant
SUMMARY Would increase the special purpose assessment on each
auto insurance policy to fund consumer protection activities at
the California Department of Insurance (CDI) from $0.25 to
$0.26; and would provide that an insurer is not required to
refund any portion of the annual Seismic Safety Account special
assessment collected on a residential or commercial property
insurance policy because the policy is cancelled prior to the
end of the policy term.
DIGEST
Existing law
1. Imposes an annual $0.25 special purpose assessment on each
auto insurance policy until January 1, 2016, and no more than
$0.25 thereafter, to fund consumer protection activities at the
CDI;
2. Specifies that, upon appropriation, two-thirds of the special
purpose assessment be used for the purpose of funding the
consumer service functions of CDI related to regulating
automobile insurers, as provided, and one-third of the special
purpose assessment be used for the purpose of improving consumer
functions of CDI, related to regulating automobile insurers, as
specified;
3. Authorizes CDI, upon appropriation by the Legislature, to use
up to $0.05 of the $0.25 special purpose assessment revenues
collected to notify insurers and other members of the public
about the existence of any low-cost automobile insurance
program;
4. Establishes the Seismic Safety Account as a special account
AB 1395 (Perea), Page 2
within the Insurance Fund, to be distributed upon appropriation
by the Legislature, to the Alfred E. Alquist Seismic Safety
Commission;
5. Imposes an annual assessment of $0.15 until August 1, 2017, and
no more than $0.15 thereafter, on all property insurance
policies in the state to fund the Seismic Safety Account.
This bill
1. Would change raise the special purpose assessment for
consumer protection activities to $0.26 until January 1,
206, and no more than $0.26 thereafter;
2. Would provide that the insurer is not required to refund
any portion of the Seismic Safety Account special assessment
because the policy is cancelled prior to the end of the
policy term.
COMMENTS
1. Purpose of the bill To remedy administrative problems
regarding two special purpose assessments levied by the CDI
identified by the respective auto and property insurers
responsible for collecting the assessments.
2. Background Auto insurers doing business in California must
pay an annual special purpose assessment for each insured
vehicle to fund CDI research into consumer auto-related
unfair claim practice complaints; investigation and
prosecution of auto-related producer licensee violations;
auto-related educational materials for consumers; and
outreach activities for the California Low Cost Automobile
Insurance Program. Insurers may recoup the assessment via
an insurance policy premium surcharge. Until last year, the
assessment was 30 cents, and was scheduled to sunset in
2015. Last year the Legislature passed SB 476 (Steinberg,
Ch. 347, Statutes of 2013) that, among other provisions,
reduced this assessment from $0.30 to $0.25 per year until
January 1, 2016, and not exceeding $0.25 thereafter.
According to the insurance industry, $0.25 is a computer
nightmare for standard 6 months policies, so they have
AB 1395 (Perea), Page 3
requested that the $0.25 assessment be changed to $0.26.
The CDI collects 15 cents annually on each real property
insurance policy to be provided to the Seismic Safety
Commission. An issue has been raised about what happens
with the assessment if the policy terminates partway through
the one year policy period. This bill would say that the
insurer does not have to refund part of the fee once it is
collected, even if the policy is terminated. Given the
small amount of the annual fee, this is intended to
eliminate the possibility of insurers, or the Seismic Safety
Fund, having to refund pennies to individual insureds.
3. Support . According to the Personal Insurance Federation of
California, AB 1395 would solve two technical issues
associated with insurance industry-collected fees. This bill
is necessary because a portion of the annual Auto Fraud fee
was adjusted down in SB 476 (Steinberg, 2013) to $0.25 per
policy, however, insurance company systems cannot evenly
divide that sum between the two 6-month auto policy periods.
In addition, a legal safe harbor is needed for insurance
companies that collect the $0.15 annual fee required for the
Seismic Safety Fund. Insurers do not keep any portion of
these fees and pass them directly along to the CDI.
4. Opposition None received.
5. Suggested Amendments Both this bill and AB 1472 (Budget
Committee, currently on Senate 3rd Reading) amend Insurance
Code section 12975.9. If both bills are sent to the
Governor, double-jointing language to AB 1472 will be
required.
6. Prior and Related Legislation
SB 476 (Steinberg, Ch. 347, Statutes of 2013) eliminated the
sunset dates for the Auto Consumer Assessment, Organized
Automobile Fraud Activity Interdiction Assessment, and the
Life and Annuity Consumer Protection Fund, lowered the
maximum assessment of the Auto Consumer Assessment from
$0.30 to $0.25, and expanded application of the Life and
Annuity Consumer Protection Fund to include life insurance
and annuity products valued at less than $15,000.
AB 98 (Budget Committee, Ch. 27, Statutes of 2013) Created a
Seismic Safety Fund within the Insurance Fund, and imposed
AB 1395 (Perea), Page 4
an annual assessment for each residential and commercial
property insurance policy not to exceed $0.15 to fund the
Seismic Safety Commission.
AB 1472 (Budget Committee) would extend the annual $0.15
Seismic Safety Fund assessment to rental and leased real
property, commercial or residential, that is covered by a
property insurance policy.
POSITIONS
Support
Personal Insurance Federation of California
Oppose
None received
Consultant: Erin Ryan (916) 651-4110