BILL ANALYSIS Ó AB 1131 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 1131 (Dababneh) As Amended September 1, 2015 Majority vote -------------------------------------------------------------------- |ASSEMBLY: |76-0 |(May 26, 2015) |SENATE: |40-0 |(September 8, | | | | | | |2015) | | | | | | | | | | | | | | | -------------------------------------------------------------------- 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. AB 1131 Page 2 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. AB 1131 Page 3 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 AB 1131 Page 4 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. AB 1131 Page 5 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 AB 1131 Page 6 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