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