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: 8/19/16 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
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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)
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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
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