BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Kevin de León, Chair
SB 476 (Steinberg) - Insurance: Special Assessments
Amended: April 17, 2013 Policy Vote: Ins 9-0
Urgency: No Mandate: No
Hearing Date: May 23, 2013 Consultant: Maureen Ortiz
SUSPENSE FILE.
Bill Summary: SB 476 eliminates the sunset dates for three
assessments that support consumer programs and fraud
investigations within the Department of Insurance (CDI) and
makes associated funding changes as described below.
Fiscal Impact:
Estimated revenue decrease of $778,000 in FY 2013-14 and FY
2014-15 and revenue of $7.2 million annually thereafter for
the Auto Consumer Assessment (Insurance Fund).
Estimated revenue of $6.3 million in FY 2014-15 and $12.6
million annually thereafter for the Organized Auto Fraud
Assessment (Insurance Fund)
Estimated revenue increase of $426,000 in FY 2013-14 and
FY 2014-15 and revenue of $1.7 million annually for the Life
and Annuity Consumer Protection Assessment (Life and Annuity
Consumer Protection Fund)
Background:
Auto Consumer Assessment:
This program was established in 2007 and, until January 1, 2015,
imposes a $0.30 special purpose assessment on insurers for each
vehicle insured under an insurance policy it issues in this
state. Current law specifies that $0.20 of the $0.30 assessment
will be used to fund specific consumer service functions at the
department through the rating and underwriting services bureau,
the claims services bureau, the investigations bureau, and for
legal services in support of these bureaus. The remaining $0.10
of the $0.30 special purpose assessment is used for improving
consumer functions of the department related to automobile
insurance.
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Organized Automobile Fraud Activity Interdiction Assessment
This program was established in 2000 and, until January 1, 2015,
imposes an annual special purpose assessment of up to $0.50 for
each vehicle insured under an insurance policy. Current law
specifies that 42.5% of the funds collected be used to support
the CDI's Fraud Division, 42.5% of the funds collected are
required to be distributed to district attorneys, and 15% of the
revenue is directed to the California Highway Patrol to fund an
Organized Automobile Fraud Activity Interdiction Program.
Life and Annuity Consumer Protection Fund
This program was established in 2004 and, until January 1, 2015,
imposes a $1 assessment for each individual life insurance
policy and each individual annuity product issued to a resident
of this state that has a value of $15,000 or more. These funds
are deposited into the Life and Annuity Consumer Protection Fund
and are used to protect consumers of life insurance and annuity
products. Of the amount collected, 50% of the funds are used as
follows:
- To investigate and prosecute financial abuse by insurance
licensees,
- To respond to consumer inquiries and complaints related to
life insurance or annuity products,
- To regulate and oversee life insurance and annuity products
and the advertising of these products.
The remaining 50% of the funds collected are distributed to
district attorneys for investigating and prosecuting individual
life insurance and annuity product financial abuse cases
involving insurance licensees.
Proposed Law: SB 476 repeals the sunset date for the Auto
Consumer Assessment, the Organized Automobile Fraud Activity
Interdiction Assessment, and the Life and Annuity Consumer
Protection Assessment. Additionally, the bill makes the
following specific changes to each program:
Auto Consumer Assessment
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SB 476 reduces the Auto Consumer Assessment from $0.30 to an
amount equal to $0.25 the first year and an assessment of not
more than $0.25 annually thereafter. The bill provides that
upon appropriation by the Legislature, two-thirds of this
assessment shall be used for the purpose of funding the consumer
service functions of CDI related to regulating automobile
insurers, and one-third of the assessment will be used for
improving consumer functions at the department related to
regulating automobile insurers.
In addition, upon appropriation by the Legislature, the
department may use up to $0.05 of the special purpose assessment
revenues to notify insurers and other members of the public
about the existence of any low-cost automobile insurance
program.
Organized Automobile Fraud Activity Interdiction Assessment
SB 476 makes no changes in the existing fee but provides that
funds will be available for disbursement upon appropriation by
the Legislature.
Life and Annuity Consumer Protection Fund
SB 476 broadens the life and annuity policies that will be
subject to the $1 assessment by eliminating the requirement that
the policy have a value of $15,000 or more, thereby,
encompassing all individual life insurance policies and annuity
products.
SB 476 requires that the funds be available for disbursement by
the Insurance Commissioner upon appropriation by the Legislature
and specifies the money will be used to fund the reasonable
costs incurred in regulating entities transacting life insurance
and annuity products.
Staff Comments: The current assessment of $0.30 for each
automobile insured under an insurance policy issued in this
state was established in part to address a significant backlog
at the Department of Insurance. SB 476 reduces the assessment
to $0.25 for the first year now that the backlog has been
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addressed, and allows the commissioner to establish the fee for
ongoing years of up to $0.25.
Increasing the pool of life insurance and annuity policies that
will be subject to the $1 Life and Annuity Consumer Protection
Assessment is necessary to adjust an existing imbalance where
revenues have not been sufficient to fund regulatory activities
in this area. According to the department, annuities with a
value under $15,000 account for over 76% of all annuities
issued. Although initial projections when this assessment was
first imposed estimated revenue at approximately $1.5 million -
$2 million annually, the CDI has collected an average of
$861,000 for fiscal years 2009-10 through 2011-12. However,
during this same time period, expenditures have grown 144% in
part to accommodate the increased number of products on the
market.
It should be noted that the CDI has plans to increase its fees
for all producers and companies operating in California by 10%
on June 25, 2013 to allow the department to meet the
appropriation authorized by the Budget Act.