BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 2588| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 2588 Author: Chu (D) Amended: 8/19/16 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 and the qualifications for an independent insurance adjusters (IA) license. Senate Floor Amendments of 8/19/16 (1) make clarifying and technical changes to various provisions related to an application for a license as an IA and (2) add double-jointing language that coordinates with SB 488 (Block) in order to avoid a "chaptering-out" problem if both bills go into effect. AB 2588 Page 2 ANALYSIS: 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 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. AB 2588 Page 3 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 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 by insurers 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 exemptions and adds new categories of exempted persons including employees of an insurer, fraud investigators, individual employees who adjusts claims on behalf of his or her employer, and individuals collecting AB 2588 Page 4 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; 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 AB 2588 Page 5 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 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. AB 2588 Page 6 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 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: (Verified 8/22/16) California Department of Insurance (source) United Policyholders OPPOSITION: (Verified 8/22/16) AB 2588 Page 7 American Association of Independent Claims Professionals ARGUMENTS IN SUPPORT: CDI 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 Independent Claims Professionals states 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 8/22/16 22:42:35 **** END ****