BILL ANALYSIS Ó SB 476 Page 1 Date of Hearing: June 26, 2013 ASSEMBLY COMMITTEE ON INSURANCE Henry T. Perea, Chair SB 476 (Steinberg) - As Amended: June 18, 2013 SENATE VOTE : 38-1 SUBJECT : Department of Insurance: Special assessments SUMMARY : Repeals the sunset date on three special assessments, reduces one of the assessments, and revises recasts the distribution of those funds collected. Specifically, this bill : 1)Eliminates the January 1, 2015 sunset clause on three special assessments that fund specific Department of Insurance (DOI) activities. The three assessments support: a) The DOI's Fraud Division and Organized Automobile Fraud Activity Interdiction Program. b) The DOI's automobile insurance consumer protection program. c) The Life and Annuity Consumer Protection Program. 2)Reduces the per vehicle assessment for automobile insurance consumer protection activities from $0.30 per vehicle to $0.25 per vehicle until January 1, 2015, and thereafter authorizes the Insurance Commissioner (commissioner) to further reduce the assessment if it is generating more funds than needed to fund its statutory purposes. 3)Provides a 6-month delayed implementation date for the reduced assessment to allow insurers time to modify their automated payment programs. 4)Recasts the specified purposes to which the assessment funds may be used. 5)Eliminates an exclusion from the assessment for the Life and Annuity Consumer Protection Program for life insurance policies with face values of $15,000 or less. SB 476 Page 2 6)Requires the commissioner to include, in an annual report on the use of the assessment funds, specified additional data that would allow the Legislature and stakeholders to better evaluate how well the programs are operating. 7)Contains legislative findings and declarations in support of the bill's purposes. EXISTING LAW : 1)Requires insurers that sell automobile insurance to pay a special purpose assessment of $0.30 per insured vehicle, and specifies how the funds are to be distributed and spent. 2)Requires insurers that sell automobile insurance to pay an additional special purposes assessment of up to $0.50, as determined by the commissioner, per insured vehicle, and specifies how the funds are to be distributed and spent. 3)Establishes the Life and Annuity Consumer Protection Fund, and requires life insurers to pay up to $1.00, as determined by the commissioner, for each individual life or annuity policy sold, and specifies how the finds are to be distributed and spent. 4)Establishes a sunset clause on each of these fees of January 1, 2015. FISCAL EFFECT : According to the Senate Appropriations Committee, the reduction of the vehicle assessment from $0.30 to $0.25 would result in a decrease in revenue of $778,000, and the elimination of the exclusion for life insurance policies under $15,000 would result in an increase $426,000 to the Life and Annuity Consumer Protection Fund. COMMENTS : 1)Purpose . According to the author, the bill is intended to ensure a continuous and reliable source of funding for the various consumer protection programs funded by the assessments, especially for the local district attorneys who obtain grants from these programs. These local assistance funds are most effectively used when the recipients can rely on ongoing funding, because they can retain experienced staff, among other benefits. SB 476 Page 3 2)Background . The DOI is funded through the Insurance Fund, a Special Fund that includes a number of subaccounts. Unlike some special funded agencies that have a primary revenue source, and flexibility on how its funds are expended, the Insurance Fund contains a broad range of revenue sources, many of which have specific statutory restrictions on how the funds can be used. These restrictions include direction on how the DOI can use the funds, as well as specific divisions of the funds for various local assistance purposes, frequently local assistance to county district attorneys for prosecution of insurance-related crimes. The DOI has in the past, as it is doing in this bill, come to the Legislature asking to reduce certain fees when it becomes clear that the available funds exceed what can be reasonably spent on the specified purposes. 3)Sunset clauses . Proponents, including DOI and local district attorneys, argue that repeal of the sunset clauses is appropriate because each of these programs has been in existence for a number of years, and each time a sunset has approached, the Legislature has extended it. In light of the needs for reliability of funding, especially for local district attorneys, they argue that the repeal is appropriate. In addition, recent amendments to the bill have increased the reporting requirements, so that the Legislature and stakeholders will have better information to evaluate how funds are being used. 4)Additional amendment . The DOI and insurers have been working on ways to enhance reporting and accountability with respect to the funds impacted by the bill. Most of this is reflected in the recent amendments to the bill. However, one additional provision was negotiated after the language was submitted to Legislative Counsel. The parties have agreed to add an additional element to the report that the commissioner must file, as follows: page 5, between lines 39 and 40, add "(6) Total aggregate annual assessment revenue and expenditures pursuant to the assessment." REGISTERED SUPPORT / OPPOSITION : Support California Department of Insurance (sponsor) SB 476 Page 4 Los Angeles County District Attorney's Office (co-sponsor) California Advocates for Nursing Home Reform (CANHR) California Association of Health Underwriters (CAHU) California District Attorneys Association (CDAA) Congress of California Seniors National Association of Insurance and Financial Advisors of California (NAIFA-California) United Policyholder San Diego County District Attorney Opposition None reported. Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086