BILL ANALYSIS Ó AB 1163 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 1163 (Rodriguez) As Amended July 14, 2015 Majority vote -------------------------------------------------------------------- |ASSEMBLY: | 75-0 | (May 22, |SENATE: |40-0 | (September 2, | | | |2015) | | |2015) | | | | | | | | | | | | | | | -------------------------------------------------------------------- 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 AB 1163 Page 2 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 AB 1163 Page 3 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