BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    AB 2591


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          ASSEMBLY THIRD READING


          AB  
          2591 (Dababneh)


          As Amended  May 10, 2016


          Majority vote


           ------------------------------------------------------------------ 
          |Committee       |Votes|Ayes                  |Noes                |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Insurance       |13-0 |Daly, Melendez,       |                    |
          |                |     |Travis Allen,         |                    |
          |                |     |Bigelow, Calderon,    |                    |
          |                |     |Chu, Cooley, Cooper,  |                    |
          |                |     |Dababneh, Dahle,      |                    |
          |                |     |Frazier, Gatto,       |                    |
          |                |     |Rodriguez             |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Judiciary       |10-0 |Mark Stone, Wagner,   |                    |
          |                |     |Alejo, Chau, Chiu,    |                    |
          |                |     |Gallagher,            |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |Cristina Garcia,      |                    |
          |                |     |Holden, Maienschein,  |                    |
          |                |     |Ting                  |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
           ------------------------------------------------------------------ 








                                                                    AB 2591


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          SUMMARY:  Allows a consumer who opts-in to initiate changes to  
          their automobile insurance policy online, receive non-renewal  
          and cancellation notices for homeowner's and automobile policies  
          electronically, eliminates existing sunset dates for many  
          electronic property/casualty and life insurance transactions and  
          notices.  Specifically, this bill:  


          1)Permits a consumer who opts-in to make consumer initiated  
            changes to their automobile insurance policy online. 


          2)Permits automobile and/or homeowner's policy holders who  
            opt-in to receive notices of cancellation and non-renewal  
            electronically.  This bill requires that the policy holder  
            acknowledge the receipt of the notice before the insurer can  
            consider it to have been received.


          3)Eliminates the use of electronic mail read receipts and other  
            email tracking technologies to verify delivery of electronic  
            cancellation and non-renewal notices for life insurance  
            products.


          4)Establishes a sunset date of January 1, 2021 for the  
            provisions allowing the electronic delivery of cancellation  
            and non-renewal notices.


          5)Sunsets Civil Code provisions governing electronic insurance  
            transactions at various dates.


          6)Consolidates existing reporting requirements related to the  
            impact and implementation of allowing electronic delivery of  
            insurance documents and notices by requiring the Insurance  








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            Commissioner to submit reports to the Legislature on or before  
            January 1, 2019.


          EXISTING LAW:  


          1)Establishes the Uniform Electronic Transactions Act (UETA) in  
            California law and the Electronic Signatures in Global and  
            National Commerce Act (eSIGN) in federal law that govern the  
            conduct of electronic transactions and require that both  
            parties consent to conducting transactions electronically.
          2)Permits consumers who opt-in to receive any documents relating  
            to their life insurance policy electronically.


          3)Requires consumers to opt-in to the electronic transmission of  
            life insurance documents to acknowledge receipt of a notice of  
            non-renewal or cancellation before the insurer can consider  
            the document to have been received.


          4)Permits consumers, who opt-in, to receive electronic renewal  
            notices for the following types of property/casualty insurance  
            policies:


             a)   Automobile 
             b)   Property


             c)   Liability


             d)   Commercial liability


             e)   Workers' Compensation









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             f)   Earthquake


             g)   Life and Disability


          5)Requires the insurer to obtain consent from the insured before  
            transmitting insurance documents electronically.
          6)Requires the insurer to make the following disclosures to the  
            consumer before sending electronic renewal notices and  
            disclosures:


             a)   That the insured must opt-in to receiving these  
               electronic documents.
             b)   That the insured may opt-out of electronic receipt at  
               any time.


             c)   How the insured can change the email address used by the  
               insurer.


             d)   Provide the insured the insurer's contact information  
               (including toll free phone number and website address).


          7)Requires the insurer to provide the consumer, upon request, a  
            printed copy of the electronic documents to the insured.
          8)Requires the insurer to do one of the following within two  
            business days if the electronic transmission fails:


             a)   Contact the insured to confirm the email address and  
               resend the document electronically.
             b)   Resend the documents by regular mail to the insured's  
               address.









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          9)Permits the department to suspend an insurer's authorization  
            to send electronic documents if the insurer has a pattern or  
            practice that demonstrates a failure to comply with statutory  
            requirements.
          10)Allows an insurer to appeal this suspension and, when the  
            department determines the insurer has complied with the  
            requirements of the bill, resume electronic transmission of  
            these documents.


          FISCAL EFFECT:  Unknown


          COMMENTS:  


          1)Purpose.  According to the author, current law must be updated  
            to preserve the consumer protections that exist today in the  
            California Civil and Insurance Codes and allow broader use of  
            voluntary e-delivery and e-signature of property and casualty  
            insurance documents.  SB 251 (Calderon), Chapter 369, Statutes  
            of 2013, which allowed consumers to opt-in to receive a narrow  
            range of insurance documents electronically, was a great first  
            step in modernizing California's insurance laws to reflect the  
            technology that is available today, but more is needed.  For  
            example, insurers still cannot electronically add a new driver  
            or new car to an insurance policy without mailing paper  
            copies, even when the consumer has chosen to go paperless.  AB  
            2591 takes the next step by expanding consumer's options to  
            receive electronic documents, and would preserve the consumer  
            protections that exist today in the California Civil and  
            Insurance Codes.  This bill would also decrease paper use and  
            gives the consumer a choice in how they want their insurance  
            documents delivered.
          2)Electronic Transactions.  In 2000 eSIGN was enacted to  
            establish federal law governing electronic transactions.   
            Generally speaking, UETA (adopted by California in 1999)  
            provides that the law should be construed to facilitate  








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            electronic transmissions and that any transaction not  
            specifically exempted from UETA may be conducted  
            electronically, subject to specific rules including:


             a)   All parties must "opt-in" and may "opt-out" from  
               conducting further transactions electronically at any time.  

             b)   A record or signature cannot be denied legal effect  
               because it is in electronic form.   


             c)   If a law requires a person to provide information in  
               writing to another, that requirement is satisfied if the  
               information is provided in an electronic record that the  
               recipient can preserve and access for future reference. 


            Since that time is has become common practice to buy, sell and  
            manage financial products online.  Online banking and  
            investing is routine and has been for many years.


          3)Advantages of Electronic Transactions.  Electronic  
            transactions notices have a number of significant advantages  
            including:
             a)   Consumer Choice.  Many consumers prefer to interact with  
               their financial services companies electronically and  
               current law denies these consumers that option.  
             b)   Faster Delivery. First class mail is typically delivered  
               within a few days whereas electronic mail is essentially  
               instantaneous.


             c)   Cheaper.  Electronic delivery will reduce administrative  
               costs for insurers.


             d)   Greener.  Electronic delivery eliminates the consumption  








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               of energy, paper, and other consumables associated with  
               delivering conventional mail.


             e)   Disaster Recovery.  Natural disasters frequently disrupt  
               mail delivery.  Electronic delivery of these notices  
               greatly reduces the potential for disruptions related to  
               natural disasters.


             f)   Portability.  For the many consumers who do not receive  
               their mail at their primary residence or who change their  
               primary residence frequently, electronic delivery provides  
               a more timely notice.  


          4)Previous Legislation.  SB 251 was enacted in 2013 which allows  
            policy renewal notices for property/casualty insurance  
            policies to be delivered electronically.  This bill closely  
            parallels the requirements of SB 251 as it relates to notices  
            and disclosures related to life insurance.  However, this bill  
            allows for a dramatically broader range of electronic  
            transactions in property/casualty insurance including the  
            transmission of key documents requiring an affirmative  
            acknowledgment of receipt by the consumer (including the  
            policy document itself and notices of lapse, termination,  
            cancellation or non-renewal).  


          5)Complete Model.  Last year, AB 1131 (Dababneh), Statutes of  
            638, was enacted to allow all life insurance documents to be  
            transmitted electronically if the consumer opts-in.  The bill  
            built on the foundation established by SB 251 in many ways.   
            For instance, the requirements for a consumer to opt-in, the  
            ability for a consumer to request hardcopies of a record on a  
            periodic basis, protocols to confirm email addresses, and the  
            steps required to respond to email messages that are not  
            successfully delivered are all drawn from SB 251.  However,  
            because the bill allows all life insurance documents to be  








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            sent electronically, it sets up different standards to ensure  
            that documents are sent and received based on the sensitivity  
            of the document.  For less sensitive documents (e.g.,  
            statements and routine notices) life insurers must comply with  
            the send/receive standards established by UETA.  For notices  
            of cancellation and non-renewal (which are regarded as the  
            most sensitive documents), the bill requires the policyholder  
            to acknowledge receipt of the notice before it is considered  
            to have been received.  This is a key consumer protection  
            because the policyholder has a limited amount of time to  
            respond to such a notice.  For instance, among the most common  
            causes for a cancellation notice is the failure to timely pay  
            a premium, but the policyholder has a window to pay the  
            premium to keep the policy in force after receiving the  
            notice.  This is particularly significant for life insurance  
            products as it can be difficult to replace a life insurance  
            policy later in life because life insurance policies are  
            harder to obtain and more costly as a person ages.  It is  
            worth noting that this standard imposes a greater level of  
            consumer protection than current law which merely requires the  
            insurer to have proof of mailing with no assurance that the  
            policyholder is aware of receiving the notice.


            This bill adds authority for policyholders to receive the full  
            range of documents for automobile and homeowner's policies  
            electronically by repealing the existing statute governing  
            electronic transmission requirements for property/casualty  
            policies and instead applying the standards developed in AB  
            1131.  The bill would apply a common set of standards to both  
            life insurance and property/casualty policies.  


          6)Pending Amendments.  The author is working with the Insurance  
            and Judiciary Committees to develop technical amendments that  
            will need to be adopted prior to taking the bill up on the  
            Assembly Floor.










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          Analysis Prepared by:                                             
          Paul Riches / INS. / (916) 319-2086  FN: 0002951