BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                       AB 2588|
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                                   THIRD READING 


          Bill No:  AB 2588
          Author:   Chu (D) 
          Amended:  8/15/16 in Senate
          Vote:     21 

           SENATE INSURANCE COMMITTEE:  5-2, 6/22/16
           AYES:  Roth, Glazer, Hall, Mitchell, Wieckowski
           NOES:  Gaines, Berryhill
           NO VOTE RECORDED:  Hernandez, Liu

           SENATE APPROPRIATIONS COMMITTEE:  5-2, 8/11/16
           AYES:  Lara, Beall, Hill, McGuire, Mendoza
           NOES:  Bates, Nielsen

           ASSEMBLY FLOOR:  50-29, 6/2/16 - See last page for vote

           SUBJECT:   Independent insurance adjusters


          SOURCE:    California Department of Insurance


          DIGEST:  This bill makes comprehensive revisions to the  
          Insurance Adjuster Act relative to qualifications for an  
          independent insurance adjusters (IA) license.


          ANALYSIS: 

          Existing law:


          1) Titles the collective laws relating to an independent insurance  








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             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 categories of persons such as 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  







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             in the military to defer license renewal.
           
           This bill:


          1) Retitles the Act as the "Independent Insurance Adjuster Act."


          2) Redefines an 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.


          3) Requires unlicensed individuals adjusting claims during  
             emergency, disaster, or catastrophe to register with CDI  
             within five 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  







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             insurance claims or one year as a licensed apprentice IA;  
             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) Exempts from the bond requirement those individual licensees  
             who adjusts solely on behalf of another licensee who meets  
             the bond requirement.


          9) 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.


          10)Establishes "reciprocity" with states with similar 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.


          11)Enacts a "code of conduct" which generally requires IAs to  
             treat consumers fairly, to not engage in the unauthorized  
             practice of law, comply with applicable laws, and be free of  
             financial conflicts of interest.


          12)Authorizes the IC to place a licensee on inactive status for  
             failing to complete the necessary continuing education  
             coursework.


          13)Adds or adjusts various fees.


          14)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  







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             implementation costs and the revenues received; and the  
             annual projected costs and revenues associated with licensure  
             and enforcement activities.


          15)Permits IAs actively serving in the military to defer license  
             renewal.


          Background


          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 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 adopts the NAIC Guideline and eliminates  
          the exemption for employees working under a company license.


          This bill also establishes reciprocity with other states that  
          have adopted the NAIC Guideline giving non-resident licensees  
          the authority to work in California after the bill goes into  
          effect (any person from another state can work as an employee of  
          a licensee now) and the ability of resident licensees to work in  
          other states.  


          Claims investigations sometimes require on-site physical  
          inspection of a home, or automobile which may bring an IA into  
          contact with insureds and other members of the public.  This  
          bill will require IAs to go through a background check.  


          The new licensing requirement would not apply to adjusters  
          processing portable electronic insurance claims.  These  







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          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.


          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   Yes


          According to the Senate Appropriations Committee, this bill  
          results in estimated ongoing costs to CDI of $700,000-$800,000  
          per year (Insurance Fund) for the added licensing and  
          enforcement costs for the new licensees and estimated costs to  
          the Department of Justice of $400,000 in fiscal year 2017-18,  
          $480,000 in fiscal year 2018-19, and $160,000 ongoing thereafter  
          (GF/Fingerprint Fees Account) for processing live scan  
          fingerprints submitted with applications.  The bill also results  
          in estimated revenue of $1.5-2.5 million per year (Insurance  
          Fund) from fees generated from these new licenses. 




          SUPPORT:   (Verified8/12/16)


          California Department of Insurance (source)


          OPPOSITION:   (Verified8/12/16)


          American Association of Independent Claims Professionals 


          ARGUMENTS IN SUPPORT:     The California Department of Insurance  
          supports the bill because, taken together, these changes will  
          enhance consumer protection and conform to national licensing  
          and reciprocity standards.


          ARGUMENTS IN OPPOSITION:     The American Association of  







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          Independent Claims Professionals primarily opposes this bill  
          because it believes that CDI has not offered any evidence of any  
          flaw or failure in the existing system.

          ASSEMBLY FLOOR:  50-29, 6/2/16
          AYES:  Alejo, Arambula, Atkins, Bloom, Bonilla, Bonta, Brown,  
            Burke, Calderon, Campos, Chau, Chiu, Chu, Cooley, Cooper,  
            Dababneh, Daly, Dodd, Eggman, Frazier, Cristina Garcia,  
            Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Roger  
            Hernández, Holden, Irwin, Jones-Sawyer, Levine, Lopez, Low,  
            McCarty, Medina, Mullin, Nazarian, O'Donnell, Ridley-Thomas,  
            Rodriguez, Salas, Santiago, Mark Stone, Thurmond, Ting, Weber,  
            Williams, Wood, Rendon
          NOES:  Achadjian, Travis Allen, Baker, Bigelow, Brough, Chang,  
            Chávez, Dahle, Beth Gaines, Gallagher, Gray, Grove, Hadley,  
            Harper, Jones, Kim, Lackey, Linder, Maienschein, Mathis,  
            Mayes, Melendez, Obernolte, Olsen, Patterson, Steinorth,  
            Wagner, Waldron, Wilk
          NO VOTE RECORDED:  Quirk

          Prepared by:Hugh Slayden / INS. / (916) 651-4110
          8/15/16 20:33:31


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