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.  










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          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.









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           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  







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              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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              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.  








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          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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