BILL ANALYSIS Ó
SENATE COMMITTEE ON INSURANCE
Senator Richard Roth, Chair
2015 - 2016 Regular
Bill No: AB 2588 Hearing Date: June 22,
2016
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|Author: |Chu |
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|Version: |June 13, 2016 Amended |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Hugh Slayden |
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Subject: Independent insurance adjusters
SUMMARY Makes comprehensive revisions to the Insurance Adjuster Act
relative to qualifications for an independent insurance
adjusters (IA) license.
DIGEST
Existing law
1. Titles the collective laws relating to an independent insurance
adjuster (IA) the "Insurance Adjuster Act" ("the Act")
2. 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 (CDI) as an adjuster.
3. Exempts individuals working for an insurer or a business
entity that adjusts claims for an insurer from the license
requirement (permitting employees to work under single
licenses is sometimes referred to as a "company license").
4. Exempts specified certain categories of persons such as
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attorneys, collection agencies, banks, etc.
5. Permits unlicensed individuals to adjust claims in an
emergency, as specified, if they register with the insurance
commissioner (IC) within 15 working days of starting to adjust
claims.
6. Requires an individual license applicant to pass an exam, have
at least two-years of experience, pay a fee, and not have
committed certain acts or crimes.
7. Requires a business entity licensee to designate a qualified
individual to be responsible for the operation of the business
entity's adjusting functions and requires that the individual
must have at least two years of experience adjusting claims and
pass an examination.
8. Sets various license fees in statute and provides that the IC
may set some fees by regulation.
9. Requires license applicants to post a $2,000 surety bond.
10. Permits certain types of licensees that are actively
serving in the military to defer license renewal.
This bill
1. Retitles the Act as the "Independent Insurance Adjuster
Act."
2. Redefines IA as an individual, business entity, independent
contractor, or employee of a contractor, who contracts for
compensation with insurers; is treated as an independent
contractor for federal tax purposes; and who investigates,
negotiates, or settles property and casualty claims for
insurers.
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3. Requires unlicensed individuals adjusting claims during
emergency, disaster, or catastrophe to register with CDI
within 5 working days of commencing to adjust claims in
California and defines "catastrophe" 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. Eliminates, as of January 1, 2018, the company license and
requires all individuals employed by an IA that adjusts
claims to be licensed as well.
5. Revises some of the other exemptions and adds new
categories of exempted persons including employees of an
insurer, fraud investigators, individuals employed by an
employer who self-insures property and casualty risks; and
individuals collecting information related to portable
electronic insurance claims.
6. Creates an apprentice IA license and requires apprentices
to be supervised by a fully licensed IA.
7. Requires an individual applicant to submit fingerprints for
a background check; complete either two years in adjusting
insurance claims or one year as a licensed apprentice IA;
and complete 20 hours of pre-licensing education (this
requirement is deferred until January 1, 2019, for
applicants currently listed as an employee of a licensee);
pass an examination; and pay a fee.
8. Requires business entity applicants to provide certain
documents and information, and, starting January 1, 2018, to
designate a licensed individual to be responsible for the
organization's compliance with state law.
9. Establishes "reciprocity" with states with similar
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licensing requirements by creating a nonresident license and
exempts nonresident licensees from examination, education,
and other requirements so long as the applicant is licensed
and in good standing in the home state, pays the applicable
fees, and the licensees home state issues non-resident IA
licenses to California applicants on the same basis.
10. Enacts a "code of conduct" which generally requires IAs to
treat consumers fairly, not engage in the practice of law,
comply with applicable laws, and be free of financial
conflicts of interest.
11. Authorizes the IC to place a licensee on inactive status
for failing to complete the necessary continuing education
coursework.
12. Adds or adjusts various fees.
13. Requires CDI to annually report to the Legislature, on or
before March 1, 2019, and for a total of three years
thereafter, the number of individuals licensed; the
implementation costs and the revenues received; and the
annual projected costs and revenues associated with
licensure and enforcement activities.
14. Permits IAs that actively serving in the military to defer
license renewal.
COMMENTS
1. Purpose of the bill 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. Company adjusters are directly
employed by insurers; IAs are independent contractors.
Thirty-five states license IAs, but of those, only
California permits employees of a licensed IA to work under
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a company license. The remaining 34 states have adopted
laws similar to the Independent Adjuster Licensing Guideline
adopted by National Association of Insurance Commissioners
(NAIC) and require all individuals that adjust claims to be
licensed if they adjust claims as independent contractors
rather than employees. This bill would adopt the NAIC
Guideline.
According to the author, unlicensed employees of IA's are
not subjected to exam, fingerprint, education and background
review requirements. Since IAs work as contractors for
insurance companies, complaints submitted to CDI from
consumers about claims adjusting practices usually come in
the form of complaints against the insurance companies, not
IAs. Consumers typically have no idea whether the adjuster
handling their claim on behalf of the insurance company is
an independent or employee adjuster.
Further, whereas NAIC's Guideline provides for reciprocity
between states for issuing licenses to non-resident
independent adjusters, California does not provide
reciprocity with other states' licensing of independent
adjustors. Specifically, California law currently requires
non-residents to pass the California exam, which is
substantively similar to the exam offered in their resident
state. California law also does not allow residents of
fifteen states that do not license independent adjusters to
designate California as their "Home State."
California seeks to join these 34 other states by requiring
that anyone acting as an IA be licensed, including employees
of licensed IAs who currently are not licensed. Taken
together, these proposed changes will enhance consumer
protection and conform to national licensing reciprocity and
uniformity standards.
2. Background California first began licensing some insurance
adjusters in 1980. In 1985, adjusting licenses were split
into two classes, IA and public adjusters. California chose
to offer a company license for property and casualty
insurance. In 2008, the NAIC took a different approach and
did not adopt the company license. But, since it requires
all individual IAs to be licensed, it also establishes
apprenticeship licenses and reciprocity. (Reciprocity
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permits licensees to practice in several states without
having to repeat individual licensing requirements, which
may be particularly helpful in smaller states.)
This bill would follow the NAIC Guideline and eliminate
California's company license. Proponents argue that this
bill would help to create uniformity and consistency with
national standards, enhance public safety, and establish
reciprocity.
Adopting some NAIC model laws can be critical to the
interstate regulation of insurers and may even be blessed by
federal law. NAIC accreditation means insurers primarily
overseen by an accredited state are subject to minimum
standards. In order to receive and retain NAIC
accreditation, a state must adopt NAIC specific model laws
that are part of the accreditation standards. Other NAIC
model laws and guidelines not part of the accreditation
standards are strictly advisory. This bill is based on a
guideline, not an accreditation standard, but it does
facilitate reciprocity among adopting states. Notably, the
underlying substantive law related to claims practices, the
Unfair Claims Settlement Practices Act and the Fair Claims
Settlement Practices Regulations, significantly deviate from
the NAIC models and non-resident adjusters may have to apply
substantially different standards in California than those
of their home state.
Claims investigations sometimes require on-site physical
inspection (commonly a home, business location, or
automobile) which brings some IA's into regular contact with
insureds and with other members of the public. Existing law
does not require background checks for IAs or company
adjusters. This bill will require IAs to go through a
background check. However, concerns have been raised that
CDI has offered no evidence of a public safety problem.
Establishing reciprocity will give non-residents licensees
the authority to work in California (any person from another
state can work as an employee of a licensee now).
Reciprocity will primarily benefit non-resident licensees
and California licensees who wish to work in other states.
Portable Electronics Exemption. This bill would add an
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exception to portable electronic insurance. These contracts
cover small electronic devices, such as cell phones, and
related services, when they are lost or broken. Claims
usually do not involve controversial facts and are generally
handled in a rote matter, unless they involve some form of
fraud.
3. Support Insurance Commissioner Dave Jones supports the bill
because, taken together, these changes will enhance consumer
protection and conform to national licensing and reciprocity
standards.
4. Opposition The American Association of Independent Claims
Professionals (AAICP) primarily opposes this bill because it
believes that CDI has not offered any evidence of any flaw
or failure in the existing system and that AB 2588 moves in
the wrong direction. Moreover, they are concerned that the
bill lacks a grandfathering provision and would require many
highly experienced adjusters to go through the licensing
process.
AAICP notes that the NAIC Guideline applicable to
third-party administrators and California law permit
business entity licensing for life and health insurance
adjusters without each individual adjuster having to be
licensed. Other states, such as Utah and Montana, similarly
permit company-level licensure.
According to AAICP, there are hundreds, if not thousands, of
adjusters residing in states that do not provide a home
state license, and that are doing business in California
today that have already chosen a state other than California
as their "designated home state." This bill would require
them to change their home state to California. These
adjusters cannot change that designation and shift their
designated home state to California without having to change
every license they hold (and the typical adjuster holds
between 8-12 licenses).
This bill is not intended to cover workers' compensation,
which may be considered a line of casualty insurance. AAICP
believes that this bill could apply to workers' compensation
insurance and requests that the bill be clarified
accordingly.
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5. Questions A study co-authored by the 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." Does the evidence presented by the bill's
proponent justify the potentially negative impact on
consumers (in terms of higher insurance premium), employees
of IAs who will be subject to the licensing laws, and
potential exclusionary impact of disadvantaged applicants?
6. Prior and Related Legislation
AB 1636 (McAlister), Chapter 1202, Statutes of 1985,
established the licensing requirement for and regulation of
public insurance adjusters separate from the Insurance
Adjuster Act.
AB 1190 (Moore), Chapter 1190, Statutes of 1980, transferred
the licensing of insurance adjusters from the Bureau of
Collection and Investigative Services to the CDI and
reenacted licensing regulations in the Insurance Code.
POSITIONS
Support
California Department of Insurance (sponsor)
Oppose
American Association of Independent Claims Professionals
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