BILL ANALYSIS                                                                                                                                                                                                    Ó



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          CONCURRENCE IN SENATE AMENDMENTS


          AB  
          1131 (Dababneh)


          As Amended  September 1, 2015


          Majority vote


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          |ASSEMBLY:  |76-0  |(May 26, 2015) |SENATE: |40-0  |(September 8,    |
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          Original Committee Reference:  INS.


          SUMMARY:  Permits consumers to receive documents and conduct  
          certain transactions related to life insurance, disability  
          insurance and annuities electronically.  


          The Senate amendments: 


          1)Clarify that an agent or broker is not liable for any  
            deficiencies in the system used by the insurer to conduct  
            electronic transactions.


          2)Make minor technical changes.


          3)Add amendments to eliminate chaptering out conflicts with AB  
            1097 (Holden) of the current legislative session.








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          EXISTING LAW:  Establishes the Uniform Electronic Transactions  
          Act (UETA) and the Electronic Signatures in Global and National  
          Commerce Act (eSIGN) that governs the conduct of electronic  
          transactions and requires that both parties consent to  
          conducting transactions electronically.


          1)Prohibits the use of electronic transactions for many  
            insurance products.
          2)Permits consumers, who opt-in, to receive electronic renewal  
            notices for the following types of insurance policies:


             a)   Automobile 


             b)   Property


             c)   Liability


             d)   Commercial liability


             e)   Workers' Compensation


          3)Requires the insurer to obtain consent from the insured before  
            sending electronic renewal notices.
          4)Requires the insurer to make the following disclosures to the  
            consumer before sending electronic renewal notices and  
            disclosures:


             a)   That the insured must opt-in to receiving these  
               electronic documents.
             b)   That the insured may opt-out of electronic receipt at  
               any time.









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             c)   How the insured can change the email address used by the  
               insurer.


             d)   Provide the insured the insurer's contact information  
               (including toll free phone number and Web site address).


          5)Permits an insurer, after obtaining consent from the insured,  
            to send offers of earthquake insurance and renewal notices for  
            earthquake insurance policies electronically.
          6)Requires the insurer to provide the consumer, upon request, a  
            printed copy of the electronic documents to the insured.


          7)Requires the insurer to do one of the following within two  
            business days if the electronic transmission fails:


             a)   Contact the insured to confirm the email address and  
               resend the document electronically.
             b)   Resend the documents by regular mail to the insured's  
               address.


          8)Permits the department to suspend an insurer's authorization  
            to send electronic documents if the insurer has a pattern or  
            practice that demonstrates a failure to comply with the bill's  
            requirements.
          FISCAL EFFECT:  According to the Senate Appropriations  
          Committee, pursuant to Senate Rule 28.8, negligible state costs.


          COMMENTS:  


          1)Purpose.  According to the author, current law needs to be  
            updated to allow broader use of voluntary e-delivery and  
            e-signature of life insurance documents.  While California law  
            largely follows the principles of the federal eSIGN  
            legislation, many life insurance documents are still required  








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            to be delivered in hardcopy form, and many transactions still  
            have a "wet signature" requirement.  This has prevented the  
            life insurers from implementing a completely electronic sales  
            process, presenting challenges to customers and agents, and  
            undermining the benefits to insurers and consumers of full  
            electronic processing.  In advancing this legislation, the  
            department and the life insurance industry are attempting to  
            meet the increasing demand of California consumers to conduct  
            business electronically, and take advantage of the convenience  
            of e-delivery and e-signatures in life insurance. 


          2)Electronic Transactions.  In 2000 eSIGN was enacted to  
            establish federal law governing electronic transactions.   
            Generally speaking, UETA (adopted by California in 1999)  
            provides that the law should be construed to facilitate  
            electronic transmissions and that any transaction not  
            specifically exempted from UETA may be conducted  
            electronically, subject to specific rules including:


             a)   All parties must "opt-in" and may "opt-out" from  
               conducting further transactions electronically at any time.  

             b)   A record or signature cannot be denied legal effect  
               because it is in electronic form.   


             c)   If a law requires a person to provide information in  
               writing to another, that requirement is satisfied if the  
               information is provided in an electronic record that the  
               recipient can preserve and access for future reference. 


          3)Advantages of Electronic Transactions.  Electronic  
            transactions notices have a number of significant advantages  
            including:


             a)   Consumer Choice.  Many consumers prefer to interact with  
               their financial services companies electronically and  
               current law denies these consumers that option.  








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             b)   Faster Delivery.  First class mail is typically  
               delivered within a few days whereas electronic mail is  
               essentially instantaneous.


             c)   Cheaper.  Electronic delivery will reduce administrative  
               costs for insurers.


             d)   Greener.  Electronic delivery eliminates the consumption  
               of energy, paper, and other consumables associated with  
               delivering conventional mail.


             e)   Disaster Recovery.  Natural disasters frequently disrupt  
               mail delivery.  Electronic delivery of these notices  
               greatly reduces the potential for disruptions related to  
               natural disasters.


             f)   Portability.  For the many consumers who do not receive  
               their mail at their primary residence or who change their  
               primary residence frequently, electronic delivery provides  
               a more timely notice.  


          4)Previous Legislation.  Senate Bill 251 (Calderon), Chapter  
            369, Statutes of 2013 which allows policy renewal notices for  
            property/casualty insurance policies to be delivered  
            electronically.  This bill closely parallels the requirements  
            of SB 251 as it relates to notices and disclosures related to  
            life insurance.  However, this bill allows for a dramatically  
            broader range of electronic transactions in life insurance  
            including the transmission of key documents requiring an  
            affirmative acknowledgment of receipt by the consumer  
            (including the policy document itself and notices of lapse,  
            termination, cancellation or non-renewal).  


          5)Partial Progress.  Property/casualty, life, and health  
            insurers have long sought more flexibility in responding to  
            consumer demand for greater electronic commerce options.  Last  








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            Session, SB 251 made the first significant strides.  However,  
            the scope of electronic activity allowed by this bill stands  
            in stark contrast to current law that still prohibits simple,  
            common, consumer initiated transactions in property/casualty  
            insurance.  If this bill is enacted consumers would face the  
            incongruous reality of being able to purchase an annuity  
            costing hundreds of thousands of dollars online, but still  
            have to use a paper process to add a vehicle to their  
            automobile policy.  This bill recognizes the increasing demand  
            from consumers, who already safely conduct most of their  
            financial affairs online, to bring life insurance products  
            online, and highlights the need to recognize that same demand  
            in other types of insurance products.


          Analysis Prepared by:         Paul Riches / INS. / (916)  
                          319-2086          FN: 0002081