Amended in Senate April 17, 2013

Amended in Senate April 8, 2013

Senate Bill No. 476

Introduced by Senator Steinberg

February 21, 2013

An act to repeal and add Sections 1872.81, 1874.8, and 10127.17 of the Insurance Code, relating to insurance.

LEGISLATIVE COUNSEL’S DIGEST

SB 476, as amended, Steinberg. Insurance: special assessments.

(1) Existing law, until January 1, 2015, imposes on an insurer a $0.30 special purpose assessment on each vehicle insured under an insurance policy issued in this state by the insurer. Existing law specifies that $0.20 of each $0.30 special purpose assessment shall be used to fund specified consumer service functions of the Department of Insurance relating to motor vehicle insurance. Existing law further specifies that the remaining $0.10 of each $0.30 special purpose assessment shall be used to fund the improvement of certain consumer functions of the department.

This bill would revise and recast those provisions, delete the date of repeal, and require a special purpose assessment of $0.25 until January 1, 2015, and not exceeding $0.25 thereafter, on each vehicle insured under an insurance policy issued in this state by the insurer. The bill would also specify that, upon appropriation, 2⁄3 of the special purpose assessment be used for the purpose of funding the consumer service functions of the department related to regulating automobile insurers, as provided, and 1⁄3 of the special purpose assessment be used for the purpose of improving consumer functions of the department, related to regulating automobile insurers, as specified.

The bill would authorize the department, 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.

(2) Existing law provides that each insurer doing business in this state shall pay an annual special purpose assessment to be determined by the Insurance Commissioner, but not to exceed $0.50 annually for each vehicle insured under an insurance policy the insurer issues in this state, in order to fund the Fraud Division and the Organized Automobile Fraud Activity Interdiction Program. Under existing law, of the funds collected, 42.5% are required to be distributed to district attorneys, 42.5% are required to be distributed to the department’s Fraud Division, and 15% are required to be distributed to the Department of the California Highway Patrol, to be used as provided. Existing law provides that this assessment be repealed on January 1, 2015.

This bill would revise and recast those provisions, delete the date of repeal, and make the distribution of funds by the commissioner upon appropriation by the Legislature.

(3) Existing law creates the Life and Annuity Consumer Protection Fund as a special account within the Insurance Fund begin delete . Existing law end delete begin insert , and, until January 1, 2015, end insert requires each insurer admitted to transact insurance in this state to pay a fee determined by the commissioner, not to exceed $1, for each individual life insurance policy and each individual annuity product that it issues to a resident of this state with a value of $15,000 or more. If an insurer elects to charge the purchaser of a life insurance policy or annuity product this fee, the fee is required to be set forth as a separate charge in the contract schedule or premium notice. The moneys in the Life and Annuity Consumer Protection Fund are to be distributed, as provided, and are required to be used exclusively for the purpose of protecting consumers of life insurance and annuity products in this state. Existing law requires that 50% of the moneys in the fund be distributed within the department for functions related to individual life insurance and annuity products, including, but not limited to, educating consumers in all aspects of life insurance and annuity products, consumer protection, purchasing and using insurance and annuity products, claim filing, benefit delivery, and dispute resolution.

begin delete

The

end delete

begin insert This end insert bill would revise and recast those provisions, delete the date of repeal, and require that the moneys distributed by the commissioner, upon appropriation by the Legislature, fund the reasonable costs incurred in regulating entities transacting life insurance and annuity products in this state. begin insert The bill would delete the requirement that each individual life insurance policy and each individual annuity product have a value of $15,000 or more in order for the special assessment to apply. end insert The bill would also require that instead of consumer education, the moneys in the fund distributed within the department for functions related to individual life insurance and annuity products be used to disseminate information to insurers, insureds, and others regarding the applicable regulation of life insurance and annuity products, including consumer protection, purchasing and using insurance and annuity products, claim filing, benefit delivery, and dispute resolution.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

The Legislature finds and declares all of the
following:

(a) Automobile insurance rates are approved by the Insurance
Commissioner, who is required to ensure that automobile insurance
is fair, available, and affordable to all Californians. Several factors
guide the commissioner’s rate-setting powers, including factors
that have a substantial relationship to the risk of loss. The
California Low Cost Automobile Insurance Program makes
automobile insurance available to low-income drivers, thereby
reducing the number of uninsured motorists on California’s roads.
Since the program’s inception in 2005, 59 percent of those
receiving insurance coverage through the program were previously
uninsured, and the program has covered $7.56 million in property
damage claims and $8.5 million in bodily injury claims, directly
protecting insurers and insureds from the risk of loss associated
with the full cost of injuries and damages had those motorists
remained uninsured.

(b) The Organized Automobile Fraud Activity Interdiction
Program merges the resources of the Department of Insurance, the
Department of the California Highway Patrol, and district attorneys
to combat automobile insurance fraud, which includes the staging
of automobile accidents and the filing of fraudulent automobile
accidents or damage claims. The program provides a direct benefit
to insurers by prioritizing the remediation of automobile insurance
fraud, resulting in reduced claims costs for insurers.

(c) The Department of Insurance is responsible for investigating
violations of the Insurance Code related to life insurance policies
and annuity products. The role of district attorneys in prioritizing
the prosecution of fraudulent activities involving insurance and
annuity products, including the economic abuse of consumers,
enables the department to take prompt and decisive action to restrict
or terminate the licenses of persons criminally convicted of
financial abuse crimes. The department’s regulatory purposes of
deterring insurance and annuity fraud are also furthered by warning
consumers, particularly seniors, about unsavory sales practices
and by helping consumers understand the types of fraudulent
activities being perpetrated.

SEC. 2.  

Section 1872.81 of the Insurance Code is repealed.

SEC. 3.  

Section 1872.81 is added to the Insurance Code, to
read:

1872.81.  

In addition to the special purpose assessment imposed
pursuant to Section 1872.8, an insurer doing business in this state
shall, until January 1, 2015, pay to the commissioner an annual
special purpose assessment of twenty-five cents ($0.25), and
thereafter pay to the commissioner an annual special purpose
assessment in an amount not to exceed twenty-five cents ($0.25),
as determined by the commissioner, for each vehicle insured under
an insurance policy it issues in this state, for expenditure, upon
appropriation by the Legislature, as follows:

(a) Two-thirds of the special purpose assessment shall be used
for the purpose of funding the consumer service functions of the
department that are related to regulating automobile insurers,
including those functions performed by the rating and underwriting
service bureau, the claims service bureau, the investigations bureau,
or any successor bureaus of the department that may assume the
consumer service functions of these bureaus, and legal services in
support of these bureaus.

(b) One-third of the special purpose assessment shall be used
for the purpose of improving consumer functions identified in
subdivision (a) of the department that are related to regulating
automobile insurers, including, for improving the ability of the
department to respond to consumer complaints and information
requests through the department’s toll-free telephone number, and
for improving the ability of the department to offer information
about automobile insurance rates to the public.

(c) Upon appropriation by the Legislature, the Department of
Insurance may use up to five cents ($0.05) of the special purpose
assessment revenues collected pursuant to this section to notify
insurers and other members of the public about the existence of
any low-cost automobile insurance program established pursuant
to Section 11629.7 or other statutes that establish a program of the
type identified in Section 11629.7. In requesting an appropriation
for this purpose under its proposed departmental budget submitted
to the Department of Finance, the Department of Insurance shall
explain, with as much specificity as is reasonably possible, the
objectives for the use of the funds and the quantitative criteria by
which the Legislature may evaluate the effectiveness of the
department’s use of the funds.

SEC. 4.  

Section 1874.8 of the Insurance Code is repealed.

SEC. 5.  

Section 1874.8 is added to the Insurance Code, to read:

1874.8.  

(a) Each insurer doing business in this state shall pay
an annual special purpose assessment to be determined by the
commissioner in an amount not to exceed fifty cents ($0.50) for
each vehicle insured under an insurance policy it issues in this
state, in order to fund the Fraud Division and the Organized
Automobile Fraud Activity Interdiction Program.

(b) (1) From the funds to be distributed to district attorneys
under this section, the commissioner shall fund between three and
10 grants at any one time for a coordinated program targeted at
the successful prosecution and elimination of organized automobile
fraud activity. These grants may be awarded only to district
attorneys.

(2) In determining whether to award a district attorney a grant
pursuant to this subdivision, the commissioner shall consider
factors indicating organized automobile fraud activity in the district
attorney’s county, including, but not limited to, the county’s level
of general criminal activity, population density, automobile
insurance claims frequency, number of suspected fraudulent claims,
and prior and current evidence of organized automobile fraud
activity. Funding priority shall be given to those grant applications
with the potential to have the greatest impact on reducing organized
automobile insurance fraud activity committed by insurers,
insureds, and others, and lessening the economic losses realized
by insurers from that fraud.

(3) All participants of a grant under this subdivision shall
coordinate their efforts and work in conjunction with the Fraud
Division, other participating agencies, and all interested insurers
in this regard.

(c) Of the funds collected pursuant to this section, upon
appropriation by the Legislature, 42.5 percent shall be distributed
to district attorneys, 42.5 percent shall be distributed to the Fraud
Division, and 15 percent shall be distributed to the Department of
the California Highway Patrol. Funds distributed pursuant to this
section to the Fraud Division and to the Department of the
California Highway Patrol shall be used to fund Fraud Division
and Department of the California Highway Patrol investigators to
work in conjunction with district attorneys who are awarded grants.
Each grantee shall be notified by the Fraud Division of the identity
of the investigators assigned to work with the grantee. Each grantee
shall provide the Fraud Division with any information requested
by the division relative to a prosecution prior to filing a case. This
section does not prohibit the referral of any cases developed by
the Fraud Division to any appropriate prosecutorial entity.

(d) A grant under this section shall be awarded on the basis of
a single application for a period of three years and shall be subject
where applicable to the requirements of subdivision (b) of Section
1872.8, except for the requirement that grants be awarded according
to population. Continued funding of a grant shall be contingent
upon a grantee’s successful performance, as determined by an
annual review by the commissioner. The Department of the
California Highway Patrol shall submit to the commissioner, for
informational purposes only, an annual report on its expenditure
of funds under this section in the same format as is required of
grantees under this section.

(e) Two or more district attorneys may submit a joint application
for a grant award under this section.

(f) The Fraud Division shall report to the Governor, the
Legislature, and to the committees of the Senate and Assembly
having jurisdiction over insurance on the results of the grant
program established by this section, including funding distributed
to the Department of the California Highway Patrol in the annual
report submitted pursuant to Section 12922.

(g) For purposes of this section, “organized automobile fraud
activity” means two or more persons who conspire, aid and abet,
or in any other manner act together, to engage in economic
automobile theft as defined in subdivision (f) of Section 1872.8,
or to violate any of the following sections in a manner that involved
an automobile insurance claim:

(1) Section 650 or 6152 of the Business and Professions Code.

(2) Section 750.

(3) Section 549, 550, or 551 of the Penal Code.

SEC. 6.  

Section 10127.17 of the Insurance Code is repealed.

SEC. 7.  

Section 10127.17 is added to the Insurance Code, to
read:

10127.17.  

(a) The Life and Annuity Consumer Protection
Fund is hereby created as a special account within the Insurance
Fund. Each insurer admitted to transact insurance in this state shall
pay a fee to be determined by the commissioner, not to exceed one
dollar ($1), for each individual life insurance policy and each
individual annuity product that it issues to a resident of this state
begin delete with a value of fifteen thousand dollars ($15,000) or more end delete . If an
insurer elects to charge the purchaser of a life insurance policy or
annuity product this fee, the fee shall be set forth as a separate
charge in the contract schedule or premium notice. Life insurance
or annuity forms are not required to be filed again for review as a
consequence of this provision. The revenue from this fee shall be
deposited into the Life and Annuity Consumer Protection Fund.

(b) Moneys in the Life and Annuity Consumer Protection Fund
shall be distributed by the commissioner, upon appropriation by
the Legislature, to fund the reasonable costs incurred in regulating
entities transacting life insurance and annuity products in this state.
Moneys in the fund shall not be used for any other purpose.

(c) Fifty percent of these funds shall be distributed within the
department for functions related to individual life insurance and
annuity products, including, but not limited to:

(1) Investigating and prosecuting financial abuse by insurance
licensees, or persons holding themselves out to be insurance
licensees, or any person purporting to be engaged in the business
of insurance.

(2) Responding to consumer inquiries and complaints related
to life insurance or annuity products.

(3) Disseminating information to insurers, insureds, and others
regarding the applicable regulation of life insurance and annuity
products, including consumer protection, purchasing and using
insurance and annuity products, claim filing, benefit delivery, and
dispute resolution.

(4) Regulating and overseeing life insurance and annuity
products and advertising for these products directed toward
consumers.

(d) Fifty percent of the funds shall be distributed to district
attorneys for investigating and prosecuting individual life insurance
and annuity product financial abuse cases involving insurance
licensees, or persons holding themselves out to be insurance
licensees, or any person purporting to be engaged in the business
of insurance, and for other projects beneficial to insurance
consumers.

(1) The commissioner shall distribute funds to district attorneys
who are able to show a likely positive outcome that will benefit
consumers in the local jurisdiction based on specific criteria
promulgated by the commissioner. Each local district attorney
desiring a portion of those funds shall submit to the commissioner
an application, including, at a minimum all of the following:

(A) The proposed use of the moneys and the anticipated
outcome.

(B) A list of all prior relevant cases or projects and a copy of
the final accounting for each. If cases or projects are ongoing, the
most recent accounting shall be provided.

(C) A detailed budget, including salaries and general expenses,
and specifically identifying the cost of purchase or rental of
equipment or supplies.

(2) Each district attorney that receives funds pursuant to this
section shall submit a final detailed accounting at the conclusion
or closure of each case or project. For cases or projects that
continue longer than six months, interim accountings shall be
submitted every six months, or as otherwise directed by the
commissioner.

(3) Each district attorney that receives funds pursuant to this
section shall submit a final report to the commissioner, which may
be made public, as to the success of the case or project conducted.
The report shall provide information and statistics on the number
of active investigations, arrests, indictments, and convictions. The
applications for moneys, the distribution of moneys, and the annual
reports shall be public documents.

(4) Notwithstanding any other provision of this section,
information submitted to the commissioner pursuant to this section
concerning criminal investigations, whether active or inactive,
shall be confidential.

(5) The commissioner may conduct a fiscal audit of the programs
administered under this subdivision. This fiscal audit shall be
conducted by an internal audit unit of the department. The cost of
any fiscal audits shall be paid for from the Life and Annuity
Consumer Protection Fund established by this section.

(6) If the commissioner determines that a district attorney is
unable or unwilling to investigate or prosecute a relevant financial
abuse case, the commissioner may discontinue distribution of funds
allocated for that matter and may redistribute those funds to other
eligible district attorneys.

(e) If, as of June 30 of any calendar year, the total amount in
the Life and Annuity Consumer Protection Fund exceeds five
million dollars ($5,000,000), the commissioner shall reduce the
amount of the assessment accordingly for the following year to
eliminate that excess. An insurer, upon receipt of an invoice, shall
transmit payment to the department for deposit in the Life and
Annuity Consumer Protection Fund. Any balance remaining in
the Life and Annuity Consumer Protection Fund at the end of the
fiscal year shall be retained in the account, to be available in the
next fiscal year.

(f) The commissioner may develop guidelines for implementing
or clarifying these provisions, including guidelines for the
allocation, distribution, and potential return of unused funds. The
commissioner may, from time to time, issue regulations for
implementing or clarifying these provisions.

(g) The commissioner shall provide a consolidated report
annually on the department’s Internet Web site, which shall
include, but is not limited to, the following information:

(1) The number of opened consumer complaints related to life
insurance or annuity products.

(2) The number of opened investigations related to life insurance
or annuity products.

(3) The number of investigations related to life insurance or
annuity products referred to and reported by prosecuting agencies.

(4) The number of administrative or regulatory cases related to
life insurance or annuity products referred to the department’s
legal division.

(5) The number of administrative or regulatory enforcement
actions taken in cases related to life insurance or annuity products.

(6) Descriptions of efforts by the department to disseminate
information to insurers and others regarding the applicable
regulation of life insurance and annuity products, including
consumer protection, purchasing and using insurance and annuity
products, claim filing, benefit delivery, and dispute resolution.