BILL ANALYSIS �
SENATE INSURANCE COMMITTEE
Senator Ronald Calderon, Chair
SB 476 (Steinberg) Hearing Date: April 24, 2013
As Amended: April 17, 2013
Fiscal: Yes
Urgency: No
SUMMARY: Would eliminate the sunset dates for Auto Consumer
Assessment, Organized Automobile Fraud Activity Interdiction
Assessment, and the Life and Annuity Consumer Protection Fund that
are purposed to funding investigation and enforcement actions
through the California Department of Insurance (CDI) and local
district attorneys related to insurance fraud. Also, would lower
the maximum assessment of the Auto Consumer Assessment and expands
application of the Life and Annuity Consumer Protection Fund to
include life insurance and annuity products valued at less than
$15,000.
DIGEST
Existing law
1. Auto Consumer Assessment (Ins. Code � 1872.81)
A. 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;
B. Specifies that $0.20 of each $0.30 special purpose
assessment shall be used to fund specified consumer service
functions of the California Department of Insurance (CDI)
relating to motor vehicle insurance;
C. 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 CDI.
1. Organized Automobile Fraud Activity Interdiction Assessment
(Ins. Code � 1874.8)
A. Provides that each insurer doing business in this state
shall pay an annual special purpose assessment to be
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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
CDI's Fraud Division and the Organized Automobile Fraud
Activity Interdiction Program;
B. Provides that, of the funds collected, 42.5% are required
to be distributed to district attorneys, 42.5% are required to
be distributed to CDI's Fraud Division, and 15% are required
to be distributed to CDI of the California Highway Patrol, to
be used as provided;
C. Provides that this assessment be repealed on January 1,
2015.
1. Life and Annuity Consumer Protection Fund (Ins. Code �
10127.17)
A. Creates the Life and Annuity Consumer Protection Fund as a
special account within the Insurance Fund until January 1,
2015;
B. 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;
C. Provides that if an insurer elects to charge the purchaser
of a life insurance policy or annuity product for this fee,
the fee is required to be set forth as a separate charge in
the contract schedule or premium notice;
D. Provides that 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;
E. Requires that 50% of the moneys in the fund be distributed
within CDI 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.
SB 476 (Steinberg), Page 3
This bill
1. Auto Consumer Assessment
A. Would revise and recast provisions relating to the
Auto Consumer Assessment, 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;
B. Would also specify 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;
C. Would authorize 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;
1. Organized Automobile Fraud Activity Interdiction Assessment
A. Would revise and recast provisions relating to the
Organized Automobile Fraud Activity Interdiction
Assessment;
B. Would delete the date of repeal;
C. Would provide for the distribution of funds by the
commissioner upon appropriation by the Legislature.
1. Life and Annuity Consumer Protection Fund
A. Would revise and recast provisions relating to the
Life and Annuity Consumer Protection Fund, delete the date
of repeal, and require that the moneys distributed by the
commissioner, upon appropriation by the Legislature, fund
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the reasonable costs incurred in regulating entities
transacting life insurance and annuity products in this
state;
B. 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;
C. Would also require that instead of consumer education,
the moneys in the fund distributed within CDI 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.
COMMENTS
1. Purpose of the bill . According to the author, this bill
seeks to provide a continuous and reliable funding source
for supporting critical consumer protection activities
relating to insurance fraud. Additionally, this bill
reduces the auto consumer assessment amount to help
eliminate the current fund gap between revenue and
expenditures, and provides the Commissioner the authority to
adjust the assessment, up to the $0.25 cap, to help prevent
or minimize any future gaps.
2. Background
A. Auto Consumer Assessment. Auto insurers doing
business in California must pay an annual assessment of
$0.30 for each insured vehicle. Insurers may recoup the
assessment via an insurance policy premium surcharge. The
funds collected are used by CDI to research consumer
auto-related unfair claim practice complaints;
investigating and prosecuting auto-related producer
licensee violations; auto-related educational materials
for consumers; and outreach activities for the California
Low Cost Automobile Insurance Program. The assessment
sunsets on January 1, 2015.
SB 476 (Steinberg), Page 5
This bill would eliminate the sunset date and would
authorize the Commissioner to determine the assessment,
not to exceed $0.25.
B. Organized Automobile Fraud Activity Interdiction
Assessment. Auto insurers must pay an annual assessment,
determined by the Commissioner but not to exceed $0.50 for
each insured vehicle. Insurers may recoup the assessment
via an insurance policy premium surcharge. The funds
collected are used for activities relating to investigate
and prosecute organized auto insurance fraud in
California. Funds are allocated by the Insurance
Commissioner to local district attorneys (42.5%), CDI
(42.5%) and the California Highway Patrol (15%). This
assessment is scheduled to sunset on January 1, 2015.
The primary focus of the program is directed at the
organized criminal activity that occurs in urban areas and
which often involves the staging of automobile accidents
and the filing of fraudulent automobile accident or damage
claims.
i. CDI Fraud Division. According to CDI's 2011
Annual Report, during Fiscal Year 2010-11, the Fraud
Division assigned 181 new cases and 239 referrals to
prosecuting authorities. Potential losses amounted to
$3,647,929.
ii. District Attorneys' Organized Automobile Fraud
Activity Interdiction Program. According to CDI's
2011 Annual Report, during Fiscal Year 2010-11, ten
counties were awarded grant funding totaling
$6,586,044. The grant-awarded to district attorneys
reported 249 arrests, which included many of the Fraud
Division arrests. District attorneys prosecuted 252
cases involving 551 defendants with chargeable fraud
totaling $8,895,149. District attorney prosecution
outcomes totaled 263 convictions.
This bill would eliminate the sunset date.
A. Life and Annuity Consumer Protection Assessment. The
Senate Insurance Committee held a hearing in February 2003
to investigate financial abuse of seniors; part of the
hearing was dedicated to considering senior financial
abuse related to the sale of annuities. The following
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year, AB 2316 (Chan), Chapter 835, Statutes of 2004,
established the Life and Annuity Consumer Protection Fund.
To support the fund, Insurers must pay a $1 annual fee on
each new life insurance policy and annuity product valued
at $15,000 or more. Insurers may, however, recoup the
assessment via an insurance policy premium or contract
surcharge. The funds collected are used for
investigation, prosecution and education/outreach
activities relating to individual life insurance and
annuity products with 50% allocated to CDI and 50% to
local district attorneys via grants awarded by CDI.
i. Enforcement Actions and Prosecutions.
According to CDI's 2011 Annual Report, in 2011, CDI
opened 2,221 consumer complaints and 175
investigations. CDI referred or reported 41 cases to
prosecuting agencies, with 21 administrative or
regulatory cases referred to the CDI's Legal Division.
Eight administrative or regulatory actions were
taken.
ii. Senior Outreach. A portion of the fund goes
to consumer education events targeted for senior.
According to CDI's 2011 Annual Report, CDI
participated in approximately 60 senior outreach
events, during calendar year 2011, in which staff
discussed issues such as purchasing annuities, and
scams committed against seniors in purchasing
insurance, including life insurance and annuities.
CDI also distributes information brochures concerning
insurance topics to the public during outreach events
and developed and conducted an advertising campaign
called Senior Advisory, which is placed with various
magazine publications throughout the State.
This bill would eliminate the sunset date and expand the
assessment to include all life insurance and annuity
products.
1. Arguments in Support
A. Auto Consumer Assessment. CDI explains that when the
$0.30 annual assessment was established, a portion was
dedicated to help address a backlog in CDE auto insurance
enforcement cases. With the backlog addressed, the
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assessment no longer needs to be at the $0.30 level.
B. Life and Annuity Consumer Protection Assessment. CDI
states that, since 2006, the number of life and annuity
investigations opened by CDI has grown, almost by 50% and
the average time to investigate cases has almost doubled.
Life and annuity cases are inherently difficult to
investigate since they involve investments and complex
funding scenarios. Excluding policies and annuity with
values under $15,000 disregards the complaints and
investigations CDI handles related to these products. In
fact, annuities with a value under $15,000 account for
over 76% of all annuities issues. SB 467 eliminates the
exclusion of life insurance policies and annuities under
$15,000 to more closely align with revenues.
According to CDI, the original $1.00 assessment was
projected to generate $1.5-$2.0 million annually in
revenue. Revenue has declined since fiscal year 2008-09.
CDI collected an average of $861,000 for fiscal years
2009-10 through 2011-12., approximately 57% of the
originally anticipated revenue, even though expenditures
have grown 144% from fiscal year 2006-07 to 2011-12. CDI
explains the expenditures have grown, in part, because, it
has been taking longer to investigate the growing number
of products on the market. The average time to
investigate complaints has grown 250% from fiscal year
2007-08 to 2011-12. CDI explains that these cases involve
investments and complex funding calculations, as well as
the increasing number of different annuity products
entering the market.
1. Arguments in Opposition
None received
2. Comments
Committee staff notes the complexity and expense of filing a
civil action in order to recover damages for the type of
conduct targeted by these programs. Fraud, in particular,
may be very difficult to prove. Since consumers rarely have
the resources or legal expertise to navigate the court
system without an attorney, even in egregious cases, filing
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a complaint with law enforcement or CDI may be their only
practical recourse.
Committee staff also notes that CDI intends to raise its
fees for all producers and companies operating in California
by 10% on June 25, 2013, to allow CDI to meet the
appropriation authorized by the Budget Act. (Ins. Code �
12978.)
3. Prior and Related Legislation
A. Auto Consumer Assessment
SB 940 (Speier), Chapter 884, Statutes of 1999,
established fees through January 1, 2007 of $0.50 on each
automobile policy to support CDI's automobile fraud
division and $0.30 per policy to support consumer
protection activities.
AB 1183 (Vargas), Chapter 717, Statutes of 2005, extended
the sunset date to January 1, 2010.
AB 601(Garrick), Chapter 247, Statutes of 2009, extended
the sunset date from January 1, 2010, to January 1, 2015.
B. Organized Automobile Fraud Activity Interdiction
Assessment
AB 1050, Chapter 885, Statutes of 1999, created the
Organized Automobile Fraud Activity Interdiction Program
in Fiscal Year 2000-01; increased the auto fraud fee from
$1.00 per auto policy per year to $1.50 per policy per
year; and directed that the additional $0.50 fund three to
six new grants to fight organized auto fraud activity.
AB 1183 (Vargas), Chapter 717, Statutes of 2005, extended
the sunset date to January 1, 2010.
SB 1847 (Committee on Banking, Finance and Insurance),
Chapter 405, Statutes of 2006, revised various reporting
requirements including reports on workers' compensation
and auto insurance fraud.
AB 1401, Chapter 335, Statutes of 2007, increased the
assessment on Insurers that funds the activities of the
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Fraud Division in CDI, and made other changes to the
administration of the fraud program.
AB 2143, Chapter 445, Statutes of 2008, extended the
sunset date from January 1, 2010, to January 1, 2015.
C. Life and Annuity Consumer Protection Assessment
AB 2316 (Chan), Chapter 835, Statutes of 2004, created the
Life and Annuity Consumer Protection Fund and established
the $1 annual fee on each new life insurance policy and
annuity product valued at $15,000 or more.
AB 76 (Yamada), Chapter 75, Statutes of 2009, extended the
$1 fee based on individual life insurance and annuity
products worth $15,000 or more issued by insurers until
January 1, 2015, that is dedicated to protecting consumers
of insurance products and required the Insurance
Commissioner to annually publish a report detailing
certain consumer protections.
D. Similar Programs
AB 2138 (Blumenfield), Chapter 444, Statutes of 2012,
authorized the Insurance Commissioner to increase annual
assessment of $0.10 to $.020 to the Disability Insurance
Fraud Account paid by health and disability insurers for
each insured under an insurance policy issued in the state
to support workload increases related to investigating and
prosecuting health and disability fraud in the State.
POSITIONS
Support
Department of Insurance (Sponsor)
California District Attorneys Association
California Association of Health Underwriters (CAHU)
National Association of Insurance and Financial Advisors of
California (NAIFA)
Opposition
None received
SB 476 (Steinberg), Page 10
Consultant: Hugh R. Slayden, (916) 651-4110