BILL ANALYSIS Ó
AB 2588
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ASSEMBLY THIRD READING
AB
2588 (Chu)
As Amended May 31, 2016
Majority vote
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Insurance |9-4 |Daly, Calderon, Chu, |Melendez, Travis |
| | |Cooley, Cooper, |Allen, Bigelow, |
| | |Dababneh, Frazier, |Dahle |
| | |Gatto, Rodriguez | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Appropriations |14-6 |Gonzalez, Bloom, |Bigelow, Chang, |
| | |Bonilla, Bonta, |Gallagher, Jones, |
| | |Calderon, Daly, |Obernolte, Wagner |
| | |Eggman, Eduardo | |
| | |Garcia, Roger | |
| | |Hernández, Holden, | |
| | |Quirk, Santiago, | |
| | |Weber, Wood | |
| | | | |
| | | | |
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SUMMARY: Creates new individual licensing programs for
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independent property/casualty insurance adjusters (adjuster) and
apprentice independent property/casualty insurance adjusters
(apprentice). Specifically, this bill:
1)Adds adjusters to an existing statute that defers license
renewal for insurance licensees who are actively serving in
the military.
2)Provides that fees collected under the adjuster licensing law
are earned fees and cannot be refunded.
3)Defines "catastrophe" for the purpose of the insurance
adjuster law to mean an event that causes a large number of
deaths or injuries, extensive damage to infrastructure,
overwhelming demand on first responders, or severe long-term
impact on economic activity.
4)Requires an individual or business entity that investigates,
negotiates, or settles property and casualty claims for an
insurer to be licensed by the Department of Insurance (DOI) as
an adjuster.
5)Exempts the following from the adjuster licensing requirement:
a) An officer, manager, director, or employee of an
insurer, surplus line insurer, risk retention group,
managing general agent, or the attorney-in-fact of a
reciprocal insurer.
b) An individual employed solely to obtain facts related to
a claim or furnish technical assistance to a licensed
adjuster.
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c) Fraud investigators.
d) Health care providers and their employees.
e) Managed care organizations and their employees.
f) Individuals employed by an employer who self-insures for
property/casualty risks.
g) Individuals who adjust workers' compensation claims.
h) Individuals who adjust portable electronic device
insurance claims if no more than 25 individuals adjust
claims under the supervision of a licensed independent
claims adjuster.
6)Requires an individual or business entity seeking a license as
an adjuster to submit fingerprints, the completed application,
and required fees.
7)Requires applicants for an adjuster license to:
a) Have either two years of experience adjusting claims or
worked for one year as an apprentice.
b) Complete a 20 hour pre-license course of study.
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c) Pass a written examination.
8)Requires an individual applying for a non-resident license and
resides in a state that does not license adjusters to become
licensed in California or in another state that individually
licenses independent adjuster and maintain that license in
good standing.
9)Exempts individuals licensed as an adjuster and in good
standing in another state from the pre-license education
requirement.
10)Establishes the apprentice license to gain the experience
required to become an adjuster. A licensed adjuster must
agree to provide training, direction and control of the
apprentice.
11)Establishes a non-resident adjuster license for applicants
who meet the following criteria:
a) Is licensed in good standing as an adjuster in their
state.
b) The applicant's home state issues non-resident adjuster
licenses to California applicants on the same basis that
California issues non-resident licenses.
12)Enacts an adjuster "code of conduct" which generally requires
adjusters to treat consumers fairly, not engage in the
practice of law, comply with applicable laws, and be free of
financial conflicts of interest.
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13)Requires adjusters to complete 24 hours of continuing
education in each two-year licensing cycle.
14)Requires the fee for an apprentice license to be set by the
commissioner and be reasonably related to the cost of
licensing.
15)Delays implementation of the new licensing requirement until
January 1, 2018.
16)Requires the DOI to report to the Legislature annually for
three years, beginning on March 1, 2019, on the number of
licenses issued, the revenues collected, and expenditures
related to licensing and regulating independent adjusters.
EXISTING LAW:
1)Requires business entities providing insurance adjusting
services to be licensed by the DOI.
2)Requires a business entity to designate a qualified individual
to be responsible for the operation of the business entity's
adjusting functions. That individual must have at least two
years of experience adjusting claims and pass an examination.
3)Exempts individuals working for an insurer or a business
entity that adjusts claims for an insurer from being licensed.
FISCAL EFFECT: According to the Assembly Appropriations
Committee:
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1)Estimated costs of $400,000-$500,000 to CDI annually for
licensing and enforcement (Insurance Fund).
2)Revenue estimates based on current fees are $1.7-2.6 million
ongoing, exceeding expected ongoing costs by a significant
margin. 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).
COMMENTS:
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 (including
self-insured entities) who adjusts property/casualty insurance
claims to be licensed. 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. Furthermore, the bill creates the
apprentice independent insurance adjuster license for those
seeking to become licensed. This bill will also allow
California and other states with similar licensing laws (34
other states license individual adjusters) to license
non-residents on a reciprocal basis. These changes will
streamline the process for non-residents to obtain an adjuster
license as currently these applicants must pass California's
examination which is substantively similar to the examination
passed in their resident states.
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2)Claims Adjusters. Claims adjusters are central to the
operation of an insurer. They investigate and evaluate
insurance claims, decide whether an insurance company must pay
a claim, and, if so, how much the insurance company must pay
to satisfy the claim. This frequently requires on-site
physical inspection in a property damage claim (commonly a
home, business location, or automobile) which brings them into
regular contact with the insured and with other members of the
public. This bill is proposing new, broader licensing
requirements for property/casualty adjusters.
3)NAIC Guideline. The National Association of Insurance
Commissioners (NAIC) is composed of the insurance
commissioners for each state and has a number of functions.
Among those is promoting consistency in insurance law by
developing model laws and guidelines for the states. Adopting
some NAIC model laws related to the financial solvency of
insurers is required for a state to maintain its accreditation
status with NAIC. Accreditation is crucial to the effective
functioning of the oversight of financial solvency and states
effectively have to adopt NAIC model laws that are part of the
accreditation standards. NAIC model laws and guidelines that
are not part of the accreditation standards are strictly
advisory and states are under no obligation to enact them.
This bill is based on a guideline developed by the NAIC that
is not an accreditation standard. The DOI reports that 35
states license adjusters in varying forms and this bill
closely follows the NAIC guideline, including the creation of
the apprentice license which is noted as an option in the
guideline.
4)Contractor vs. Employee. The bill only applies the new
individual license requirement to individuals who adjust
claims for an insurer or self-insured entity on a contract
basis while exempting individuals who are employees of an
insurer or self-insured entity. This is analytically
troublesome. Adjusters perform the same service and present
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the same risk regardless of their status as an employee or a
contractor. The argument that individual adjusters must be
licensed to ensure their competence and protect the public
applies equally to both employees and contractors who are
adjusting claims. Tax filing status seems a poor proxy for
determining the necessity of a license.
5)DOI Workload. The DOI has a working estimate of 40,000 new
licenses being issued over a two-year period if this bill is
enacted. This working estimate is based the assumption that
the number of independent adjusters in California would be
similar to other large states, such as Florida. It is often
difficult to estimate the number applicants when establishing
a new licensing program because the affected population is
typically unknown, and it can be hard to predict how
businesses may alter their practices based on new licensing
requirements. This in turn frustrates any attempt to set fees
and budgets at an appropriate level. 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 DOI 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
DOI estimate and the maximum $170 license fee is charged, the
DOI would expect to receive roughly $4 million per year in
added revenue which far exceeds the estimated cost of the
licensing program. Assuming costs are at the high end of DOI
estimates and the application volume estimate is accurate, a
license fee of $12.50 would cover the costs incurred by DOI.
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.
6)Impact of Expanding Licensing Requirements. There has been
some attention paid recently to the expanding number of
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occupations that require a license. Most notably a study
co-authored by the United States (US) Treasury Department,
Council of Economic Advisors, and the US Department of Labor
found that occupational licensing requirements have a
measurable economic impact. The study found that:
"?by making it harder to enter a profession, licensing can
also reduce employment opportunities and lower wages for
excluded workers, and increase costs for consumers.
a) Research shows that by imposing additional requirements
on people seeking to enter licensed professions, licensing
can reduce total employment in the licensed professions.
b) Estimates find that unlicensed workers earn 10% to 15%
lower wages than licensed workers with similar levels of
education, training, and experience.
"Licensing laws also lead to higher prices for goods and
services, with research showing effects on prices of between
3% and 16%. Moreover, in a number of other studies, licensing
did not increase the quality of goods and services, suggesting
that consumers are sometimes paying higher prices without
getting improved goods or services."
Analysis Prepared by:
Paul Riches / INS. / (916) 319-2086 FN: 0003392
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