BILL ANALYSIS Ó
AB 1163
Page 1
Date of Hearing: May 6, 2015
ASSEMBLY COMMITTEE ON INSURANCE
Tom Daly, Chair
AB 1163
(Rodriguez) - As Amended April 21, 2015
SUBJECT: Health plans and health insurers: agents and brokers
contracts
SUMMARY: Requires health insurers and health care service plans
(health plans) to provide their agents at least 60 days written
notice of contract changes. Specifically, this bill:
1)Requires health plans to provide agents and brokers with at
least 60 days written notice of any material change in their
contract.
2)Defines material change as one that that causes the contract
to no longer reflect the terms the parties intended to be the
basis for their mutual contractual obligations.
EXISTING LAW:
AB 1163
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1)Provides for the regulation of insurers and health insurance
agents and brokers by the California Department of Insurance.
2)Defines a health insurance agent as a "life licensee," which
is a person authorized to transact insurance coverage for
sickness, bodily injury, or accidental death and may include
benefits for disability income.
3)Establishes the Knox-Keene Health Care Service Plan Act of
1975, the body of law governing plans in the state, and
provides for the licensure and regulation of plans by the
Department of Managed Health Care.
4)Prohibits, with certain exceptions, a property and casualty
insurer from terminating or amending a contract with an agent
or broker of property and casualty insurance that has been in
effect for at least one year, unless 120 days advanced written
notice has been given by the insurer to the agent or broker.
FISCAL EFFECT: Undetermined
COMMENTS:
1)Purpose . According to the author, AB 1163 was introduced in
response to recent actions by a health insurance carrier that
made substantial and material changes to their agreement with
health insurance agents only 48 hours before the changes took
effect. AB 1163 would level the playing field and provide for
a fair and reasonable notice to agents when their contract is
substantially changed. An agent or producer agreement is a
written contract setting out the terms between an insurance
agency and the health plan it represents. Important details
such as ownership of renewal, commissions, and general duties
AB 1163
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and responsibilities of each party are usually spelled out in
this agreement. Most agent agreements contain provisions that
address how and when notice of changes to the agency agreement
can be implemented.
2)Commissions . Health plans pay commissions to licensed agents
for selling and servicing the plan contract or insurance
policy. Commissions are paid based on a schedule outlining
the amount and timing of payments that is part of the contract
between the health plan and the agent. Health plans sometimes
use commissions to drive agents to sell certain products by
increasing commissions for products they wish to aggressively
market. Conversely, they may lower commissions to deter
agents from selling certain products. For example, if a
health plan has saturated a market with a certain product, or
determines that a product is creating losses, they may opt to
lower commissions, thus decreasing financial incentives for
agents to sell the product.
3)Supporters . CAHU, Independent Insurance Agents and Brokers
Association of California, and the National Association of
Insurance and Financial Advisors state that not only does this
bill respond to recent actions by a health insurance carrier
that made material changes to a contract with only 48 hours'
notice, it also levels the playing field and provides fair and
reasonable notice to licensed agents when their contract is
substantially changed. The sponsors state that most contracts
contain provisions that address how and when notice of changes
to the contract can be implemented; however, some contracts
contain separate clauses that allow carriers to make
substantial changes to the agreement without any notice at
all. The sponsors state that agents understand that business
needs can sometimes drive a need for a material change, and
this bill ensures that a change desired by the carrier can
take effect as soon as proper notice is given.
4)Opponents . The Association of California Life and Health
Insurance Companies (ACLHIC) and the California Association of
Health Plans (CAHP) oppose this bill, stating that it would
unnecessarily interfere with private party contracts and seeks
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to offer a legislative remedy to an issue better handled
through the course of contractual negotiations and agreements.
ACLHIC and CAHP state that this bill usurps current contract
negotiation practices which already have self-imposed time
frames and notification agreements, and where violations are
treated as a breach of contract. The opposition argues that a
vast majority of their member companies currently have a
30-day notification agreement built into their existing
contract frameworks and deviation from that would result in
significant expense and confusion. Lastly, ACLHIC and CAHP
state that the definition of "material" change under this bill
is vague and may introduce further confusion into the
contractual negotiation process.
Suggested Amendment . The definition of a material change
included in the bill is unnecessarily vague and invites
needless litigation. The author should consider amending the
bill to define material changes as a change to a provision of
the contract relating to:
a. Commissions, bonuses, and incentives.
b. Right of survivorship.
c. Indemnification of the agent.
d. Errors and omissions coverage requirements.
REGISTERED SUPPORT / OPPOSITION:
Support
California Association of Health Underwriters
Independent Insurance Agents and Brokers of California
AB 1163
Page 5
National Association of Insurance and Financial Advisors
Opposition
Association of California Life and Health Insurance Companies
California Association of Health Plans
Analysis Prepared by:Paul Riches / INS. / (916) 319-2086