BILL ANALYSIS Ó
AB 1163
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CONCURRENCE IN SENATE AMENDMENTS
AB
1163 (Rodriguez)
As Amended July 14, 2015
Majority vote
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|ASSEMBLY: | 75-0 | (May 22, |SENATE: |40-0 | (September 2, |
| | |2015) | | |2015) |
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Original Committee Reference: HEALTH
SUMMARY: Prohibits a health care service plan (plan) or health
insurer (insurer) from making material changes to contracts with
insurance solicitors without providing at least 45 days of
notice.
The Senate amendments delete a provision that exempts violations
of the provisions of this bill from criminal offense and other
disciplinary provisions of the Knox-Keene Health Care Service
Plan Act of 1975, and replace references to "agents" and
"brokers" with "solicitors" and "life agents."
FISCAL EFFECT: According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
COMMENTS: According to the author, this bill was introduced in
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response to the recent action of a health insurance carrier that
made material changes to their agreement with licensed health
insurance agents with only 48 hours of notice before the
substantive changes took effect. This action, combined with
other recent actions that changed agent agreements since the
advent of the Affordable Care Act, have made licensed agents
aware of agent vulnerability to health plan and carrier actions
as they seek to add or shed market share. The author states
that this bill levels the playing field and provides for a fair
and reasonable notice to licensed agents when their contract is
materially changed.
Contracts between agents and brokers and insurance carriers set
forth the terms and conditions of their business relationship.
Contracts between agents and carriers 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
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ongoing servicing of a policy after it is sold.
California Association of Health Underwriters (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 this
bill levels the playing field and provides fair and reasonable
notice to licensed agents when their contract is substantially
changed. According to CAHU, if the commission rate for a
certain product is changed, agents may need time to lay out
other options for the client to consider or select. 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.
No opposition has been received.
Analysis Prepared by:
Kelly Green / HEALTH / (916) 319-2097 FN:
0001914