BILL ANALYSIS                                                                                                                                                                                                    

                                                                    AB 2588

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          Date of Hearing:  May 18, 2016


                               Lorena Gonzalez, Chair

          2588 (Chu) - As Amended May 9, 2016

          |Policy       |Insurance                      |Vote:|9 - 4        |
          |Committee:   |                               |     |             |
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          Urgency:  No  State Mandated Local Program:  YesReimbursable:   


          This bill creates new individual licensing programs for  
          independent property/casualty insurance adjusters (adjusters)  
          and apprentice independent property/casualty insurance adjusters  
          (apprentices), overseen by the California Department of  
          Insurance (CDI). 

          To become licensed, individuals will have to complete  
          pre-licensing education, pass a qualifying examination, and pass  
          a fingerprint-based background check.  In addition, licensees  
          must complete 24 hours of continuing education every two years.   


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          FISCAL EFFECT:

          1)Estimated costs of $400,000-$500,000 to CDI annually for  
            licensing and enforcement (Insurance Fund).    

          2)Revenue associated with licensure fees is estimated are $2-4  
            million.  These estimates are subject to considerable  
            uncertainty and depend on the number of licenses sought.

          3)Significant costs over the first one to two years of  
            licensure, and minor ongoing costs to Department of Justice  
            for additional background checks, reimbursed by the  
            individuals being screened (Fingerprint Fees Account).  


          1)Purpose.  According to the author, this bill will improve the  
            caliber of independent insurance adjusters in California by  
            requiring anyone who is not employed by an insurer to be  
            licensed.  This bill will also allow California and other  
            states with similar licensing laws to license non-residents on  
            a reciprocal basis.  

          2)Background. Insurance adjusters investigate, negotiate, and  
            settle property and casualty claims for insurers.  34 other  
            states require licensure of independent adjusters, and the  
            National Association of Insurance Commissioners (NAIC)  
            publishes a model law for states to adopt at their option.   
            This bill is similar to the NAIC model law. Unlike some other  
            model laws produced by NAIC, however, the model law for  


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            insurance adjuster licensure is a guideline, not a  
            recommendation or an accreditation requirement for state  
            insurance departments.   

            According to CDI, California's independent insurance adjuster  
            licensing laws are the least stringent of any of the states  
            that require this license.  Unlike the other states,  
            California law allows unlicensed individuals to adjust claims  
            on behalf of their independent adjuster employer without  
            having to obtain a license.  Current state law only requires  
            licensure of the employers. Consequently, CDI notes, the  
            claims adjusters have never had to: 1) pass a  
            fingerprint-based background review, which would reveal any  
            criminal arrests and convictions such as felony convictions  
            involving dishonesty and breach of trust; 2) complete a  
            pre-licensing education course; 3) prove their competency in  
            adjusting claims by passing a qualifying license examination;  
            and finally: 4) complete continuing education courses that  
            would ensure ongoing competency.  

          3)Support and Opposition. This bill is sponsored by CDI, and  
            opposed by the American Association of Independent Claims  
            Professionals, a group that represents the adjusters required  
            to be licensed under this bill. 

          4)Staff Comments. There is some inherent difficulty in  
            estimating costs, workload, and revenue for a new licensure  
            program.  CDI estimates 20,000 to 40,000 new licensees. The  
            bill allows for a fee of up to $170 for each license which is  
            valid for two years, and requires a license renewal fee of up  
            to $170 every two-years.  First time applicants would also pay  
            an exam fee of $50.  The CDI estimates that the added  
            licensing and enforcement costs for these new licensees would  
            be $400,000 - $500,000 per year.  If the volume of  
            applications is near the CDI estimate and the maximum $170  
            license fee is charged, the DOI would expect to receive  


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            roughly $4 million per year in added revenue which far exceeds  
            the estimated cost of the licensing program.  Given the broad  
            disparity between the estimated costs and the maximum possible  
            revenue, DOI will have to refine its estimates before  
            establishing the fee and implementing the license requirement.  
             This bill could also be amended to provide additional  
            legislative oversight and to require CDI to report on fee  
            revenue, number of new licenses, and the associated ongoing  
            workload costs.  

          Analysis Prepared by:Lisa Murawski / APPR. / (916)