BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1072|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
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THIRD READING
Bill No: AB 1072
Author: Daly (D)
Amended: 8/19/15 in Senate
Vote: 21
SENATE INSURANCE COMMITTEE: 8-0, 6/24/15
AYES: Roth, Gaines, Berryhill, Glazer, Hernandez, Liu,
Mitchell, Wieckowski
NO VOTE RECORDED: Hall
SENATE JUDICIARY COMMITTEE: 7-0, 7/14/15
AYES: Jackson, Moorlach, Anderson, Hertzberg, Leno, Monning,
Wieckowski
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
ASSEMBLY FLOOR: 79-0, 5/11/15 - See last page for vote
SUBJECT: Insurance: firefighters or police officers benefit
and relief associations
SOURCE: California Correctional Peace Officers Association
Benefit Trust Fund
California State Firefighters' Association
Peace Officers Research Association of California
DIGEST: This bill requires firefighters' and police officers'
benefit and relief associations (associations) to file an
actuarial opinion with the Insurance Commissioner (IC) that
meets specified standards.
Senate Floor Amendments of 8/19/15 clarify the actuarial
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Page 2
standards to be applied as those published by the American
Academy of Actuaries and the Actuarial Standards Board, and
recast the authority of the IC to make recommendations to the
Legislature on changes in law necessary to protect the interests
of members of the associations.
ANALYSIS:
Existing law:
1)Prohibits a person, generally, from transacting insurance
without a certificate of authority from the IC and establishes
laws and standards applicable to the business of insurance.
2)Provides that firemen's, policemen's or peace officers'
benefit and relief associations formed for the purpose of
aiding their members and dependents in case of sickness,
accident, distress, or death shall not be subject to any other
provision of the Insurance Code nor any state law relating to
insurance.
3)Requires associations to obtain a certificate of authority
from the IC.
4)Limits membership to current and former members (who qualified
at the time of membership in the association) of police
departments and fire departments; regular and salaried peace
or law enforcement officers; and emergency medical services
personnel employed by a fire department of a city, county, or
district.
5)Requires that the trustees, directors or governing body be
elected by the membership.
6)Prohibits the use of money or property from being paid out as
benefits to anyone other than its members, their dependents,
or beneficiaries nominated in writing by them.
7)Provides that the association shall be supported mainly by
contributions from its members and by donations.
This bill:
1)Requires associations that issue long-term disability or
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long-term care policies or contracts to submit an actuarial
opinion and supporting memorandum to the IC, no later than
July 1, 2016, as to whether the reserves and related actuarial
items that support the policies or contracts are expected to
be adequate to satisfy contractual provisions, based on
reasonable assumptions, and based on actuarial standards of
practice published by the American Academy of Actuaries and
the Actuarial Standards Board.
2)Permits the association to submit a previously prepared
opinion if completed no earlier than December 31, 2013.
3)Exempts associations that offer benefits through an admitted
insurer.
4)Provides that an association that is seeking a certificate of
authority may file, if feasible, an actuarial opinion that it
would have adequate resources to provide the benefits promised
in its contracts.
5)Requires the IC to notify an association if a filing fails to
meet the standards required by this bill and specify issues
that are deficient to be addressed in an amended filing,
consistent with actuarial standards of practice published by
the American Academy of Actuaries and the Actuarial Standards
Board.
6)Prohibits an association that receives a notification from
indicating that it is operating under the auspices of the
authority of any provision of the Insurance Code, the IC or
the California Department of Insurance (CDI), and shall,
commencing 30 days from the date of the notification, include
the following language or other language approved by the IC in
all contracts that are not regulated by CDI, and in
certificates evidencing coverage under those contracts: "ALL
OR A PORTION OF THE BENEFITS PROVIDED BY THIS CONTRACT ARE NOT
SUBJECT TO REGULATION BY THE CALIFORNIA DEPARTMENT OF
INSURANCE, AND THE CONTRACT IS NOT GUARANTEED BY THE
CALIFORNIA LIFE AND HEALTH INSURANCE GUARANTEE ASSOCIATION."
7)Provides that if the IC determines, after a review of the
filings from the associations, that the laws governing these
associations are inadequate to protect the interests of the
members of the associations, he or she shall, on or before
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July 1, 2017, develop and deliver recommendations to the
Senate and Assembly Committees on Insurance regarding changes
in the law necessary to protect the interests of members of
the associations.
8)Recognizes that information submitted by a company pursuant to
those provisions and in the possession or control of the CDI
as confidential and privileged, exempt from disclosure by the
IC pursuant to the California Public Records Act, and not
subject to subpoena or discovery from the IC or admissible in
into evidence in a private civil action if obtained from the
IC.
9)Sunsets on December 31, 2018.
Background
Police, peace officer, and firefighter benevolent associations
have been around in the United States for well over 150 years.
These groups formed to provide aid and assistance to injured
public safety employees and their dependents. In general, the
benevolent associations were made up of officers in the same
department. As needs and sophistication developed, the nature
of benefits developed as well.
The nature of benefits provided by these associations has grown
to the point where they resemble sophisticated insurance
products including long-term disability income (LTD) benefits
and long term care (LTC) benefits. As the nature of benefits
has expanded, and the number of members has expanded, concerns
have arisen about the unregulated status of these associations.
These concerns have led many associations to shift from
self-insured arrangements (entities that keep the money, charge
membership fees, and pay benefits out of the funds collected) to
insured programs where the entities contract with a licensed
insurance company to provide the benefits.
The associations follow the pattern shared with other mutually
beneficial risk management arrangements exempt from insurance
regulation. These associations may not sell benefits to the
general public, they must limit their membership to specified
public safety personnel, and the members must elect the
governing body. It also prohibits the use of contributions from
its members for use as benefits for anyone other than members,
their dependents, or beneficiaries.
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The law does not limit these associations to a "one employer" or
"one union" model; a benefit association may be established by
virtually anyone as long as it meets the necessary
organizational qualifications. It may offer any scope of health
care, disability and related benefits it chooses. Since they
are organized around employment, they are often connected with
organized labor and frequently qualify as ERISA plans subject to
oversight by the U.S. Department of Labor.
There are approximately 70 of these associations in operating in
California, but the following entities are among the largest.
The California Law Enforcement Association for police and the
California Association of Professional Firefighters for
firefighters are multi-employer associations that offer LTD
benefits; their joint trust, the National Peace Officers and
Fire Fighters Benefit Association, offers LTC benefits. The
Peace Officers Research Association of California has a
multi-employer association that offers LTD benefits and the
California Correctional Peace Officers Association is a single
union association that offers LTD benefits.
Insurance regulation typically requires that an insurer must
have adequate resources to make good on promised benefits. This
is usually, but not always, established through reserving
requirements. As the sophistication of promised benefits has
grown, the sophistication of financial regulation to ensure
promised benefits has evolved as well. However, benefit relief
associations are not subject to commercial insurance oversight
and there is no formal mechanism at the state level for
evaluating the financial status of the system.
Some associations rely on a "pay as you go" model to fund their
benefit promises. That is, they are depending on the premiums
paid currently by active members to fund at least some of the
obligations owed to members who accrued their membership rights
in the past. These benefit associations are voluntary; if the
association has to adjust contributions or benefits in a way
that make the product unattractive, the association could suffer
from adverse selection or a self-perpetuating cycle of premium
increase/benefit reductions and membership losses. On the other
hand, some of these groups providing pay-as-you-go benefits have
been offering these benefits for up to 30 years and have not
failed to make good on promised benefits.
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This bill requires these associations to provide an opinion by a
qualified actuary with supporting memoranda regarding the
associations' reserves and related practices are actuarially
sound. The IC will review and analyzes all of these opinions
and advise the Legislature on any recommended changes to
existing law necessary to ensure members receive promised
benefits.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
SUPPORT: (Verified8/20/15)
California Correctional Peace Officers Association Benefit Trust
Fund (co-source)
California Firefighters' Association (co-source)
Peace Officers Research Association of California (co-source)
Anaheim Police Association
California Correctional Peace Officers Association
Madera Police Officers Association
Monterey County Probation Association
Oakland Police Officers Association
San Bernardino County Safety Employees' Benefit Association
Santa Monica Police Officers Association
Shasta County Deputy Sheriffs Association
Simi Valley Police Officers' Association
Ventura County Deputy Sheriffs' Association
OPPOSITION: (Verified8/20/15)
None received
ARGUMENTS IN SUPPORT: According to the California
Correctional Peace Officers Association Benefit Trust Fund, this
bill is intended to insure that benefits offered to, and paid
for, by peace officers and firefighters are actually available
when they need them. The primary mechanism for carrying out
this goal is to insure that such benefits are offered on an
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actuarially sound basis. The trust notes that AB 1072 does not
propose to regulate these associations on the same basis as
insurance companies offering similar products. Rather it
proposes only a one-time check to insure the fiscal soundness of
the programs.
ASSEMBLY FLOOR: 79-0, 5/11/15
AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,
Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang,
Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle,
Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina
Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez,
Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden,
Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder,
Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina,
Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen,
Patterson, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez,
Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting,
Wagner, Waldron, Weber, Wilk, Williams, Wood
NO VOTE RECORDED: Atkins
Prepared by:Erin Ryan / INS. / (916) 651-4110
8/21/15 10:37:45
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