BILL ANALYSIS Ó
AB 1163
Page 1
ASSEMBLY THIRD READING
AB
1163 (Rodriguez)
As Amended May 12, 2015
Majority vote
-------------------------------------------------------------------
|Committee |Votes |Ayes |Noes |
| | | | |
| | | | |
|----------------+------+----------------------+--------------------|
|Health |17-0 |Bonta, Maienschein, | |
| | |Bonilla, Burke, | |
| | |Chávez, Chiu, Gomez, | |
| | |Gonzalez, Lackey, | |
| | |Nazarian, Patterson, | |
| | |Ridley-Thomas, | |
| | |Rodriguez, Santiago, | |
| | |Thurmond, Waldron, | |
| | |Wood | |
| | | | |
|----------------+------+----------------------+--------------------|
|Insurance |12-0 |Daly, Beth Gaines, | |
| | |Travis Allen, | |
| | |Calderon, Cooley, | |
| | |Cooper, Dababneh, | |
| | |Frazier, Gatto, | |
| | |Gonzalez, Mayes, | |
| | |Rodriguez | |
| | | | |
| | | | |
-------------------------------------------------------------------
AB 1163
Page 2
SUMMARY: Prohibits a health care service plan (plan) or health
insurer (insurer) from making material changes to contracts with
insurance agents or brokers without providing at least 60 days of
notice. Specifically, this bill:
1)Prohibits a material change made by a plan or insurer to the
terms and conditions of a contract with an agent or broker from
becoming effective until the plan or insurer has provided at
least 60 days of written or electronic notice indicating the
change to the contract.
2)Defines a "material change" as a change made to a provision of
the contract affecting commissions, bonuses, incentive payments,
right of survivorship, indemnification by the plan or insurer,
and errors and omissions coverage requirements.
3)Specifies that the notice requirement shall not apply if the
change to the contract is mutually agreed upon by the plan or
insurer and the agent or broker, or if the change is required by
state or federal law.
4)Provides that violations of these provisions by a plan are
exempt from disciplinary and criminal offense provisions in
existing law.
FISCAL EFFECT: None
COMMENTS: According to the author, this bill responds to recent
actions by a health insurance carrier that made substantial
material changes to its contract with agents, providing only 48
hours' notice before those changes took effect. The author states
that this bill will prevent this from occurring by requiring plans
and insurers to provide their appointed agents with 60 days
AB 1163
Page 3
advance notice of any material changes in their contracts. The
author states that this bill would require a delay of
implementation of any substantive change made to a contract by a
plan or insurer until proper notice is given to the agent.
Background. Contracts between agents and brokers and insurance
carriers set forth the terms and conditions of their business
relationship, and contain provisions regarding compensation,
required levels of client service, reporting requirements, and
other provisions. These contracts generally contain provisions
outlining how changes to the contract may be made, and when they
take effect. However, there is no standard contract required, and
contract provisions vary among insurance carriers.
Plans and insurers set aside a portion of the premium to pay
licensed agents a commission that generally covers the selling of
the plan or insurance policy, as well as ongoing servicing.
Contracts between agents and plans and insurers contain a
commission schedule outlining the amount of commissions an agent
will be paid, the timing of payment of commissions, and other
provisions.
Plans and insurers 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.
Changes to commissions may impact agents, not only in the amount
of ongoing compensation for a certain product, but also in terms
of time and resources invested in selling and servicing a product.
For example, agents may spend days or weeks working up a policy
for a client based on the assumption of a certain commission. For
larger clients, such as large employers, it may take a team of
agents to work up a policy, and agents may make investments in
additional staff to provide ongoing servicing of a policy after it
is sold. According to the California Association of Health
Underwriters (CAHU), if the commission rate for a certain product
AB 1163
Page 4
is changed, agents may need time to lay out other options for the
client to consider or select.
Support. CAHU, Independent Insurance Agents and Brokers
Association of California, and the National Association of
Insurance and Financial Advisors, the sponsors of this bill, 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, many
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.
Opposition. 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 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. Opponents 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.
AB 1163
Page 5
Analysis Prepared by:
Kelly Green / HEALTH / (916) 319-2097 FN: 0000375