BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                            



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                                    THIRD READING


          Bill No:  SB 251
          Author:   Calderon (D)
          Amended:  4/17/13
          Vote:     21


           SENATE INSURANCE COMMITTEE  :  9-0, 4/24/13
          AYES:  Calderon, Gaines, Corbett, Correa, Knight, Lieu, Nielsen,  
            Price, Roth


           SUBJECT  :    Insurance:  notice:  electronic transmission

           SOURCE  :     Association of California Insurance Companies


           DIGEST  :    This bill authorizes an insurer, with the consent of  
          the policyholder, to transmit electronically, in lieu of mail,  
          the offer of renewal required for personal auto, real and  
          personal property, and liability insurance policies; the notice  
          of conditional renewal for commercial insurance policies, and  
          the offer of renewal and certain disclosures related to  
          earthquake insurance so long as the insurer complies with the  
          specified provisions of the Uniform Electronic Transactions Act  
          (UETA) and additional procedures and standards.

           ANALYSIS  :    

          Existing law:

          1.Authorizes any written notice required to be given or mailed  
            to any person by an insurer relating to any insurance on risks  
            or on operations in this state, unless excepted by Civil Code  
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            Sec. 1633.3, to be provided by electronic transmission if each  
            party has agreed to conduct the transaction by electronic  
            means, as provided.

          2.Excepts from its provisions authorizing electronic delivery  
            the offer of renewal required by Insurance Code Sec. 663 for  
            personal automobile insurance and Insurance Code Sec. 678 for  
            personal liability and property insurance; the notice of  
            conditional renewal of certain types of commercial insurance  
            required by Insurance Code Sec. 678.1; and the offer of  
            coverage or renewal for earthquake insurance or any related  
            disclosure required by Insurance Code Sec. 10086.

          3.Prohibits residential property insurer's insurers from issuing  
            or delivering property insurance without offering earthquake  
            coverage prior to, concurrent with, or within 60 days  
            following the issuance or renewal of a residential property  
            insurance policy.

          4.Authorizes an earthquake insurer, at any renewal, to modify  
            the terms and conditions of an existing policy, rider, or  
            endorsement, and that if the insurer modifies the terms and  
            conditions of an existing policy, rider, or endorsement, the  
            insurer is required to provide the insured with the renewal  
            notice in a stand-alone disclosure document stating the  
            changes in the terms and conditions of the insured's existing  
            policy, rider, or endorsement.

          5.Requires that before expiration of personal automobile  
            insurance policy, an insurer shall deliver to or mail to the  
            named insured, at the address shown on the policy, either a  
            written or verbal offer of renewal of the policy at least 20  
            days before expiration or a written notice of nonrenewal of  
            the policy at least 30 days before expiration.

          6.Requires that at least 45 days prior to policy expiration of  
            insurance covering loss or damage to specified real or  
            personal property or covering personal legal liability, an  
            insurer shall deliver to the named insured or mail to the  
            named insured at the address shown in the policy, either of  
            the following an offer of renewal of the policy stating any  
            reduction of limits or elimination of coverage or a notice of  
            nonrenewal of the policy.


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          7.Provides that in the event an insurer fails to give the named  
            insured either an offer of renewal or notice of nonrenewal:

             A.   The existing policy, with no change in its terms and  
               conditions, shall remain in effect for 45 days from the  
               date that either the offer to renew or the notice of  
               nonrenewal is delivered or mailed to the named insured.

             B.   A notice to that effect shall be provided by the insurer  
               to the named insured with the policy or the notice of  
               renewal or nonrenewal.

          1.Requires that if an insurer fails to give timely notice of the  
            nonrenewal or conditional renewal, the policy of insurance  
            shall be continued, with no change in its terms or conditions,  
            for a period of 60 days after the insurer gives the notice.

          This bill:

             1.   Authorizes an insurer to send electronically offers of  
               renewal and conditional renewal for automobile and  
               specified property insurance if the insurer complies with  
               specified requirements, including but not limited to:  

             A.   Confirming an insured's verbal consent to an offer or  
               renewal in writing or electronically.

             B.   Disclosing to the insured that disclosure by electronic  
               transmission is voluntary.

             C.   Disclosing that the insured can opt out of disclosure by  
               electronic transmission at any time.

             D.   Maintaining a process or system that can demonstrate  
               that the offer, notice or disclosure provided by electronic  
               transmission was both sent and received.  The information  
               retained is to be retrievable (for the life of the policy,  
               plus five years) upon request by the Department of  
               Insurance (DOI).

             E.   Following one of three specified protocols when  
               information is received that an offer, notice or disclosure  
               sent by electronic transmission was not received by the  
               insured.

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             1.   Authorizes the DOI to suspend an insurer from providing  
               offers, notices, or disclosures by electronic transmission  
               if there is a pattern or practices that demonstrate the  
               insurer has failed to comply with the requirements of this  
               bill.  An insurer may appeal the suspension and resume its  
               electronic transmission of offers, notices, or disclosures  
               upon communication from the DOI that the changes the  
               insurer made to its process or system to comply with the  
               requirements of this bill are satisfactory.

          2.Authorizes an insurer to send the renewal notice required to  
            be made every other year and certain disclosures related  
            earthquake insurance to be sent electronically, so long as the  
            insurer complies with certain requirements in addition to  
            those specified in UETA.

          3.Deletes obsolete cross-references and make conforming changes.

           Background
           
          The National Conference of Commissioners on Uniform State Laws  
          adopted the UETA Model Act in 1999 establishing a consistent  
          interstate policy for electronic transactions.  California  
          enacted UETA that same year.

          In 2000, President Bill Clinton signed the Electronic Signatures  
          in Global and National Commerce Act (ESIGN) (15 U.S.C. 7001 et  
          seq.).  Congress drafted ESIGN to apply to insurance and  
          preempts any state law not substantially similar to the UETA  
          Model Act.  Forty-seven states have adopted some version of  
          UETA.

          Generally speaking, UETA provides that any transaction not  
          otherwise exempted from UETA may be conducted electronically  
          subject to specific rules and standard.  The major principles  
          governing UETA are detailed in the Senate Insurance Committee  
          analysis.

          The drafters of UETA and ESIGN designed the language to  
          accommodate different types of existing and potential  
          technology.  ESIGN specifically preempts state laws that  
          specifies alternative procedures or requirements of electronic  
          records that accord "greater legal effect to, the implementation  

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          or application of specific technology or technical specification  
          for performing the functions of creating, storing, generating,  
          receiving, communicating, or authenticating electronic records  
          or electronic signatures[.]"  (15 U.S.C. 7002(a)(1)(2)(A)(ii))

          Insurers may use any number of currently existing technologies,  
          including email, facsimile, text messaging, or smartphone or  
          tablet application.  Smartphone or tablet applications are a  
          potentially powerful and growing means that an insurer could  
          communicate with consumers.  AB 1708 (Gatto, Chapter 236,  
          Statutes of 2012), provided, that a motorist may present digital  
          proof of insurance to police during a traffic stop.  In order to  
          provide this service, a growing number of insurers have  
          developed mobile applications that provide access to the digital  
          proof of insurance, send the consumer notifications, offer  
          access to coverage terms, assists in filing claims, etc.   
          Although it is not clear if insurers have used mobile  
          applications to provide mandatory notices pursuant to UETA yet,  
          mobile apps function as a powerful tool for effective and  
          confirmed delivery of these notices.

           Prior Legislation
           
          SB 1212 (R. Calderon, 2011-12), which died in Assembly Judiciary  
          Committee, would have authorized an insurer to transmit  
          electronically specified offers of renewal for automobile,  
          property, or commercial insurance, as well as certain liability  
          insurance, and notices related to earthquake coverage.

          AB 328 (C. Calderon, Chapter 433, Statutes 2009), authorized  
          electronic transmission of certain notices that otherwise would  
          require a mailing, upon agreement by the policyholder to receive  
          the electronic communication, including notice of reasons for  
          refusal to issue a good driver policy pursuant to Proposition  
          103, notice of the reasons for cancelling an automobile  
          insurance policy, notice of the right of a homeowner to purchase  
          earthquake coverage from or as arranged by the homeowner's  
          insurer, or the proof of mailing this notice, and the standard  
          residential property insurance disclosure that sets forth the  
          various types of homeowners' insurance policies.

          SB 820 (Sher, Chapter 428, Statutes of 1999), enacted  
          California's Uniform Electronic Transactions Act.


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

           SUPPORT  :   (Verified 5/1/13)

          Association of California Insurance Companies (source)
          American Insurance Association
          Independent Insurance Agents and Brokers of California
          National Association of Mutual Insurance Companies
          Pacific Association of Domestic Insurance Companies
          Personal Insurance Federation of California
          State Farm Insurance Company

           OPPOSITION  :    (Verified 5/1/13)

          United Policyholders

           ARGUMENTS IN SUPPORT  :    The bill's sponsor, the Association of  
          California Insurance Companies (ACIC), explains that SB 251 is a  
          necessary public policy step as California and the rest of the  
          nation continue to move towards electronic or paperless  
          transactions.  ACIC cites the 2012 US Auto Insurance Study by  
          J.D. Powers and Associates that states:

               Among customers who utilize multiple contact channels to  
               resolve an issue, 40% of Gen Y customers begin online,  
               further underscoring their preference to seek answers to  
               their questions via this channel.  In contracts, the most  
               frequent starting point for Boomers (born from 1946-1964),  
               who have used multiple channels to resolve an issue, is  
               their agent (40%).

          ACIC argues that California's current law is outdated to  
          accommodate the Gen Y customer demand cited in that study.  SB  
          251 gives Gen Y consumers the choice to "opt-in."  ACIC also  
          points out that California is only one of three states in the  
          nation that continues to have a statute that expressly disallows  
          insurers form providing notice or documents related to policy  
          renewal or conditional renewal by electronic transmission.

           ARGUMENTS IN OPPOSITION  :    United Policyholders states that  
          "nearly 90% of homes in California are uninsured for earthquake  
          losses and believes that SB 251 will decrease the likelihood  
          that homeowners will receive and accept the offer to buy  

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          earthquake insurance if the notice is only made electronically."

          They also express concerns that actual receipt of emailed  
          documents can be compromised by: (1) SPAM blockers that filter  
          out legitimate business messages; (2) the actions of people who  
          change their email addresses or service providers but do not  
          know who to notify the insurance company of their new email  
          address; (3) technological problems, such as when a computer  
          server is down when an important email message is sent; and (4)  
          the real threat of computer viruses or scams that makes  
          consumers reluctant to open emails from senders not immediately  
          recognizable.


          AL:ej  5/3/13   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

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