BILL ANALYSIS Ó
AB 1922
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Date of Hearing: May 18, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
AB
1922 (Daly) - As Amended April 28, 2016
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|Policy |Insurance |Vote:|13 - 0 |
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Urgency: No State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill exempts workers' compensation insurers from filing
with regulators ancillary agreements, as defined, which meet
specified conditions. Specifically, this bill:
1)Adopt definitions that mirror definitions in recently adopted
regulations, including definitions for ancillary agreements,
limiting and restricting endorsements, and customized limiting
and restricting endorsement.
2)Requires ancillary agreements to be filed with, and reviewed
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by, regulators, as required in regulations.
3)Exempts from filing requirements ancillary agreements between
insurers and businesses of a certain size and sophistication,
as specified, whose policy or endorsement contains a
deductible of $250,000 or greater.
4)Prohibits ancillary agreements from amending or revising
coverage provided, or benefits payable, under a policy unless
it is filed for review.
FISCAL EFFECT:
CDI would incur minor one-time costs to set up a process to
identify policies exempt from filing and likely minor ongoing
costs to ensure compliance (Insurance Fund).
CDI's recent regulations requiring filing of ancillary
agreements were cited by the department as having no state
fiscal impact, and reducing the number of such filings by
exempting those between insurers and large employers does not
appear to add significant costs.
COMMENTS:
1)Purpose. The bill is intended to exempt certain documents from
regulatory review. The sponsor of this bill, the American
Insurance Association, indicates recently adopted regulations
expand the number and type of workers' compensation policy
documents required to be filed and reviewed. This bill is
intended to recognize that specialized contractual agreements
between an insurer and a large employer, which do not impact
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the underlying policy and endorsements, are reasonable
commercial transactions that do not require CDI oversight.
2)Background. Under current law, workers' compensation policies
and endorsements must be filed with the Workers' Compensation
Insurance Rating Bureau (WCIRB), an unincorporated, private,
nonprofit association comprised of all companies licensed to
transact workers' compensation insurance in California. WCIRB
is the designated rating bureau that performs a range of
functions on behalf of and with the approval of the Insurance
Commissioner.
Insurers are required to submit to the WCIRB copies of all new
or revised policy, endorsement, and ancillary agreement forms
for preliminary examination. All documents are scrutinized by
the WCIRB for both language and content and, as required,
returned to the insurer for clarification or revision. Forms
not previously approved by the California Department of
Insurance (CDI) as to form and substance, are submitted by the
WCIRB to CDI for approval. After 30 days, the forms may be
used unless they are disapproved by CDI.
3)Policy and endorsement filing requirements. As noted,
workers' compensation policies and endorsements (additions,
subtractions, or revisions) must be filed, but current law
does not define these terms. There has been substantial debate
over the scope of this filing requirement between the
insurance industry and CDI. In an effort to provide certainty
on this issue, CDI adopted regulations on December 16, 2015,
defining certain terns; this regulation package defined which
"ancillary" documents are covered by the statutory mandate.
The definitions of some terms, as well as the requirement to
file ancillary agreements, included in this bill are taken
directly from the regulation package. CDI believes these
documents are necessary to ensure what is filed reflects the
entire policy, but industry believes the regulations capture
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some documents that are truly peripheral to the main policy
and endorsement forms.
Policies with deductibles over $250,000, to which the proposed
filing exemption would apply, are purchased by employers who
wish to self-insure but only up to a limit. These policies
require the insurer to pay all benefits, but the employer is
financially liable for benefits under the deductible limit.
Thus, ancillary agreements are used to detail how repayments
will be made, what duties the two parties owe to each other,
how disputes will be resolved, and related matters. This bill
proposes an exemption to the filing of these ancillary
agreements, which are agreements that generally do not relate
to the terms of coverage or benefits payable, but instead
relate to such payment and dispute resolution details, for the
large-deductible policies generally purchased by large and
sophisticated employers. It requires any ancillary agreement
that amends or revises coverage or benefits to be filed for
review.
4)Support. American Insurance Association (AIA), the California
Chamber of Commerce, and individuals insurers support this
bill, contending that CDI's oversight of the filings proposed
for exemption is unnecessary and counterproductive. They state
transparency for its own sake should not be over-valued when
the counter-balance is that reasonable commercial activity
would be impeded.
5)Opposition. Opponents to the bill, CDI and one attorney who
regularly handles cases on behalf of employers suing insurers,
raise issues about the bill. CDI believes the exemption in
the bill is overly broad, and undermines CDI 's role in
reviewing important policy documents. In CDI's view, large
insurers will use the law to evade review, thereby harming
public policy transparency.
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Analysis Prepared by:Lisa Murawski / APPR. / (916)
319-2081