BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 1922 (Daly) - Workers' compensation policies: ancillary
agreements
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|Version: June 28, 2016 |Policy Vote: INS. 6 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: August 1, 2016 |Consultant: Debra Cooper |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 1922 would codify the definition of ancillary
agreement for purposes of worker's compensation insurance and
provide that the requirement to file ancillary agreements with
the Insurance Commissioner (IC) prior to issuance shall not
apply to an ancillary agreement between an insurer and certain
California employers, as specified, if the agreement does not
change the benefits or coverage under the worker's compensation
policy.
Fiscal
Impact:
Potentially significant costs to the Department of Insurance
(CDI) of $181,000 in fiscal year 2016-17, $352,000 in fiscal
year 2017-18, and ongoing costs of $317,000 per year for
analyzing filed ancillary agreements, identifying policies
exempt from filing, and ensuring compliance. (Insurance Fund)
AB 1922 (Daly) Page 1 of
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Unknown, but potentially significant costs to CDI for their
Legal and Administrative Hearing Branches to pursue claims
identified by the audit and investigation team. (Insurance
Fund)
Background: Workers' compensation is a bargain between an employer and an
employee that any injuries incurred on the job will be paid for
in exchange for the employee giving up the right to sue. Some
employers opt for "large deductible" policies in which the
employer bears more of the risk in exchange for dramatically
lower premiums.
The requirement to file all workers' compensation policies and
endorsements was enacted in 1995. The IC has interpreted the
requirement to include ancillary agreements between the insurer
and the employer and states that filing is necessary to properly
regulate the business of insurance and insurance contracts in
California. Insurers have argued that the definition of
ancillary agreement remains vague and includes agreements that
have not traditionally been considered part of the policy to
file.
After several years of discussions and negotiations, new
regulations were adopted that took effect on April 1, 2016, that
define ancillary agreements and include them among forms that
must be filed with the IC to be approved or pass 30 days from
the date of filing without being disapproved. The forms are
subject to a filing fee.
Proposed Law:
This bill would:
Define "ancillary agreement" and specify exclusions from the
definition.
Provide that the requirement to file an ancillary agreement
with the IC prior to issuance shall not apply to an ancillary
agreement between an insurer and a California employer in
conjunction with a workers' compensation policy or endorsement
that contains a deductible obligation equal to or greater than
$250,000 if the employer meets at least 3 of the following
AB 1922 (Daly) Page 2 of
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criteria:
- Is represented by a broker for negotiations
regarding the ancillary agreement and either has a
full-time risk manager involved in the evaluation of an
ancillary agreement or is represented by counsel during
negotiations regarding an ancillary agreement;
- Has 500 or more employees;
- Has an annual nationwide payroll in excess of $20
million;
- Has a workers' compensation manual standard premium
on a countrywide basis in excess of $1 million.
Provide that the exemption from filing ancillary agreements
does not apply to an ancillary agreement between an insurer
and a California employer that is issued to a co-employment
arrangement or that is negotiated, managed, or administered,
in whole or in part, by a managing general agent.
Provide that an ancillary agreement may not amend or revise
the coverage provided, or the benefits payable, under a
workers' compensation policy, or include charges or costs as
allocated loss adjustment expenses that are not defined as
allocated loss adjustment expenses in the California Workers'
Compensation Uniform Statistical Reporting Plan - 1995, unless
it is filed with and approved by the IC.
Specify that the terms and conditions of a workers'
compensation policy and any endorsements shall take precedence
over the provisions contained in an ancillary agreement.
Require that with any written quote to provide workers'
compensation coverage to a California employer, the insurer
must provide the insurance agent or broker for the employer a
draft of any ancillary agreement that the insurer reasonably
expects to require the employer to sign, together with a
notice that the terms of the ancillary agreement are
negotiable between the insurer and the employer.
Require the insurer to notify the IC within 30 days after
execution of an ancillary agreement and prohibit the ancillary
agreement from being subject to filing with the IC or rating
organization, or approval by the commissioner
Specify that these changes apply to ancillary agreements
issued or renewed on or after January 1, 2017.
Provide that, beginning January 1, 2022, an insurer that
intends to use a dispute resolution or arbitration agreement
to resolve disputes arising in California out of a workers'
compensation insurance policy or endorsement issued to a
California employer shall disclose to the employer,
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contemporaneously with any written quote that offers to
provide insurance coverage, that choice of law and choice of
venue or forum may be a jurisdiction other than California and
that these terms are negotiable.
Related
Legislation: AB 684 (Corbett, Chapter 566, Statutes of 2011)
requires an insurer that intends to use a dispute resolution or
arbitration agreement to resolve disputes arising in California
out of a workers' compensation insurance policy or endorsement
issued to a California employer to disclose to the employer,
contemporaneously with any written quote that offers to provide
insurance coverage, that choice of law and choice of venue or
forum may be a jurisdiction other than California and that these
terms are negotiable between the insurer and the employer.
Staff
Comments:
Because insurers have only had to file ancillary agreements
since the April 1, 2016, regulation change, CDI does not have an
accurate estimate of the number of agreements that could be
filed or would be exempt from being filed. Under this bill, CDI
will also not know of ancillary agreements that qualify for the
large employer exception. CDI will, however, still have the
authority to request any documents it becomes aware of or audit
any insurer that it suspects of engaging in illegal or unfair
practices.
The recent regulations that took effect April, 1 2016, requiring
filing of ancillary agreements were cited by CDI as having no
direct or indirect state cost. According to CDI, since the new
regulations took effect, the department received very few
ancillary agreements, but some of the ancillary agreements CDI
received were, in fact, deficient when compared to CA law. For
these ancillary agreements, CDI worked with those insurers to
modify their initial filing to ensure compliance with the law,
and as a result, CDI has not had to further investigate any of
these agreements.
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With this bill, CDI predicts they would need an audit team of 3
(two analysts and one supervising examiner) to perform an
estimated 6 examinations per year. Additionally, because the
number and scope of any potential violations is unknown, it is
difficult to predict the workload for CDI's Legal and
Administrative Hearing Branches as a result of information
gathered from audits.
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