BILL ANALYSIS Ó
AB 2588
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB
2588 (Chu)
As Amended August 19, 2016
Majority vote
--------------------------------------------------------------------
|ASSEMBLY: |50-29 |(June 2, 2016) |SENATE: |25-13 |(August 23, |
| | | | | |2016) |
| | | | | | |
| | | | | | |
--------------------------------------------------------------------
Original Committee Reference: INS.
SUMMARY: Creates new individual licensing programs for
independent property/casualty insurance adjusters (adjuster) and
apprentice independent property/casualty insurance adjusters
(apprentice).
The Senate amendments:
1)Eliminate the requirement for adjusters to maintain a $2,000
performance bond if the adjuster is working for a licensed
firm that meets the bonding requirement.
2)Establish an inactive license category for adjusters.
3)Reduces the fee for issuing or renewing an adjuster license
AB 2588
Page 2
from $120 to $80.
4)Resolve chaptering out conflicts with SB 488 (Block) of the
current legislative session.
EXISTING LAW:
1)Requires business entities providing insurance adjusting
services to be licensed by the Department of Insurance (DOI).
2)Requires a business entity to designate a qualified individual
to be responsible for the operation of the business entity's
adjusting functions. That individual must have at least two
years of experience adjusting claims and pass an examination.
3)Exempts individuals working for an insurer or a business
entity that adjusts claims for an insurer from being licensed.
FISCAL EFFECT: According to the Senate Appropriations
Committee, the bill has estimated ongoing costs to the DOI of
$700,000-$800,000 per year for the added licensing and
enforcement costs for the new licensees. The new program will
generate estimated revenue of $1.5-2.5 million per year from
fees from the new license requirements. 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
for processing live scan fingerprints submitted with
applications.
COMMENTS:
1)Purpose. According to the author, this bill will improve the
caliber of independent insurance adjusters in California by
requiring anyone who is not employed by an insurer (including
AB 2588
Page 3
self-insured entities) who adjusts property/casualty insurance
claims to be licensed. To become licensed, individuals will
have to complete pre-licensing education, pass a qualifying
examination, and pass a fingerprint-based background check.
In addition licensees must complete 24 hours of continuing
education every two years. Furthermore, the bill creates the
apprentice independent insurance adjuster license for those
seeking to become licensed. This bill will also allow
California and other states with similar licensing laws (34
other states license individual adjusters) to license
non-residents on a reciprocal basis. These changes will
streamline the process for non-residents to obtain an adjuster
license as currently these applicants must pass California's
examination which is substantively similar to the examination
passed in their resident states.
2)Claims Adjusters. 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. This frequently requires on-site
physical inspection in a property damage claim (commonly a
home, business location, or automobile) which brings them into
regular contact with the insured and with other members of the
public. This bill is proposing new, broader licensing
requirements for property/casualty adjusters.
3)NAIC Guideline. The National Association of Insurance
Commissioners (NAIC) is composed of the insurance
commissioners for each state and has a number of functions.
Among those is promoting consistency in insurance law by
developing model laws and guidelines for the states. Adopting
some NAIC model laws related to the financial solvency of
insurers is required for a state to maintain its accreditation
status with NAIC. Accreditation is crucial to the effective
functioning of the oversight of financial solvency and states
effectively have to adopt NAIC model laws that are part of the
accreditation standards. NAIC model laws and guidelines that
are not part of the accreditation standards are strictly
advisory and states are under no obligation to enact them.
This bill is based on a guideline developed by the NAIC that
is not an accreditation standard. The DOI reports that 35
AB 2588
Page 4
states license adjusters in varying forms and this bill
closely follows the NAIC guideline, including the creation of
the apprentice license which is noted as an option in the
guideline.
4)Contractor vs. Employee. This bill only applies the new
individual license requirement to individuals who adjust
claims for an insurer or self-insured entity on a contract
basis while exempting individuals who are employees of an
insurer or self-insured entity. This is analytically
troublesome. Adjusters perform the same service and present
the same risk regardless of their status as an employee or a
contractor. The argument that individual adjusters must be
licensed to ensure their competence and protect the public
applies equally to both employees and contractors who are
adjusting claims. Tax filing status seems a poor proxy for
determining the necessity of a license.
5)DOI Workload. The DOI has a working estimate of 40,000 new
licenses being issued over a two-year period if this bill is
enacted. This working estimate is based the assumption that
the number of independent adjusters in California would be
similar to other large states, such as Florida. It is often
difficult to estimate the number applicants when establishing
a new licensing program because the affected population is
typically unknown, and it can be hard to predict how
businesses may alter their practices based on new licensing
requirements.
6)Impact of Expanding Licensing Requirements. There has been
some attention paid recently to the expanding number of
occupations that require a license. Most notably a study
co-authored by the United States (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
AB 2588
Page 5
also reduce employment opportunities and lower wages for
excluded workers, and increase costs for consumers.
a) Research shows that by imposing additional requirements
on people seeking to enter licensed professions, licensing
can reduce total employment in the licensed professions.
b) Estimates find that unlicensed workers earn 10% to 15%
lower wages than licensed workers with similar levels of
education, training, and experience.
"Licensing laws also lead to higher prices for goods and
services, with research showing effects on prices of between
3% and 16%. Moreover, in a number of other studies, licensing
did not increase the quality of goods and services, suggesting
that consumers are sometimes paying higher prices without
getting improved goods or services."
Analysis Prepared by:
Paul Riches / INS. / (916) 319-2086 FN: 0004817