BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 2591| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 2591 Author: Dababneh (D), et al. Amended: 8/2/16 in Senate Vote: 21 SENATE INSURANCE COMMITTEE: 8-0, 6/22/16 AYES: Roth, Gaines, Berryhill, Glazer, Hall, Hernandez, Mitchell, Wieckowski NO VOTE RECORDED: Liu SENATE JUDICIARY COMMITTEE: 7-0, 6/28/16 AYES: Jackson, Moorlach, Anderson, Hertzberg, Leno, Monning, Wieckowski ASSEMBLY FLOOR: 80-0, 5/31/16 - See last page for vote SUBJECT: Insurance: electronic transmission SOURCE: American Insurance Association Association of California Insurance Companies Independent Insurance Agents and Brokers of California Pacific Association of Domestic Insurance Companies Personal Insurance Federation of California DIGEST: This bill consolidates and recasts the several standards applicable to insurance transactions made electronically, in addition to those provided by the Uniform Electronic Transactions Act (UETA), and applies those standards and UETA to additional insurance documents. AB 2591 Page 2 ANALYSIS: Existing law: 1)Requires that various insurance notices, contracts, or other documents (collectively referred to as "records") be provided in writing and transmitted as specified. 2)Validates electronic records and signatures that are otherwise required to be provided in writing. a) Provides that, under California's version of the UETA, a record or signature cannot be denied legal effect or enforceability because it is in electronic form provided that all parties agree and that the transaction complies with specified standards and principles, but exempts some classes of records and some specific documents as provided. (Civil Code § 1633.1 et seq.) b) Authorizes an insurer (including other licensees transmitting records on behalf an insurer) to transmit electronically specified informational notices for property and casualty insurance so long as the insurer maintains certain records as specified. (Ins. Code Section § 38.5(a).) c) Authorizes an insurer to transmit electronically specified renewal and other notices for property and casualty insurance and workers' compensation insurance, until 2019, so long as the insurer complies with UETA, documents consent as specifically provided, provides specified disclosures, documents the insured's email address on the declaration page, provides one free hardcopy annually on request, and complies with other consumer protections. (Ins. Code § 38.5(b).) d) Authorizes an insurer to transact life insurance electronically, until 2021, so long as the insurer complies with UTEA and meets other conditions similar to those AB 2591 Page 3 applicable to notices of renewal for property and casualty insurance records. (Ins. Code § 38.6.) e) Authorizes a life insurer to electronically transmit notices of cancellation or documents that must otherwise be sent by registered mail, certified mail, or other method providing confirmation of delivery, until 2021, so long as the insurer can demonstrate actual receipt as specified. (Ins. Code § 38.6.) f) Requires the Insurance Commissioner (IC) to submit a report to the Governor and to the appropriate legislative committees on the impact of electronic transmission of certain property and casualty insurance records by January 1, 2018, and another report on the impact of electronic transmission of certain life insurance records by January 1, 2020. This bill: 1)Revises and consolidates the several standards applicable to the electronic transaction of property and casualty insurance and life insurance into a single, universal set of rules, in addition to UETA, that applies to most insurance transactions and lines of insurance. a) Requires a disclosure that informs the consumer that the electronic transmission is voluntary and may be revoked at any time, provides a description of the record, describes the process to report or correct an email address, and provides contact information for the insurer. b) Requires the insurer to document the consumer's consent. c) Prohibits an insurer from charging a fee for hardcopy transactions or providing a discount for agreeing to electronic transactions. AB 2591 Page 4 d) Authorizes, until January 1, 2021, the electronic transmission of records that must be sent by registered and certified mail, or other form of delivery providing proof of delivery, and requires an insurer to retain proof of actual receipt by the consumer. e) Authorizes, until January 1, 2021, the electronic transmission of notices of cancellation or nonrenewal and requires an insurer to retain proof of actual receipt by the consumer. f) Prescribes a process for documents posted on a secure Web site or portal. g) Prescribes a follow-up process for contacting the insured if the insurer receives information that the document was not received. h) Requires the insurer to verify the consumer's electronic address when more than a year has passed since the last electronic communication. i) Establishes that agents and brokers are not liable for a deficiency in the electronic procedures agreed in the contract under specified conditions. j) Requires insurers to maintain relevant records for at least five years. aa) Authorizes the Department of Insurance to suspend a licensee's authority to transmit documents electronically under certain conditions. 2)Applies specifically UETA and the additional standards to certain property and casualty records, including certain AB 2591 Page 5 cancellation and nonrenewal notices, proof of mailing, and a notice of policy change or cancellation requested by insured, and others. 3)Eliminates the use of electronic mail read receipts and other email tracking technologies to prove actual receipt for insurance records and establishes standards to prove actual receipt for an application used on a personal electronic device for most lines of insurance. 4)Eliminates the sunset date on the provisions authorizing the electronic transmission of most property and casualty insurance notices currently subject to a sunset date (not including cancellation or nonrenewal notices and those requiring proof of receipt). 5)Changes the date by which the IC must submit reports regarding the electronic transaction of property and casualty insurance and life insurance to January 1, 2019. Background Not long ago "in writing" meant hardcopy and it was not clear whether the law recognized agreements formed and memorialized electronically. In 1999, the National Conference of Commissioners on Uniform State Laws adopted the model UETA to establish consistent interstate rules for electronic transactions. California enacted its version of UETA the same year. In 2000, Congress enacted the Electronic Records and Signatures in Global and National Commerce Act (ESIGN), in part, to encourage the states to adopt UETA. UETA establishes ground rules and principles for parties engaging in electronic commerce. Most importantly, UETA requires all parties to agree to engage in the transaction electronically. Since concepts from the paper world do not always translate easily into the digital, UETA also establishes extensive default rules and definitions. However, when AB 2591 Page 6 California enacted UETA, it exempted numerous records, including many insurance documents. Since then, the Legislature has applied UETA to many of the exempted records on a case-by-case basis. Since 2009, three bills have expanded the number of records subject to UETA, as well as established additional consumer protections specific to those records. AB 328 (C. Calderon. Chapter 433, Statutes of 2009) addressed basic informational documents related to property and casualty insurance (auto, homeowners, liability, commercial, etc.). SB 251 (R. Calderon, Chapter 369, Statutes of 2013) applied UETA to notices of renewal and other documents for property and casualty insurance, and added consumer protections specific to those documents. Last year, AB 1131 (Dababneh, Chapter 638, Statutes of 2015) applied UETA with additional consumer protections similar to those established by SB 251, to all life insurance transactions, including cancelation notices and documents sent by certified and registered mail. SB 251 is scheduled to sunset in 2019 and AB 1131 in 2021. Meanwhile insurers have developed a wide variety of services offered electronically. Consumers may provide proof of insurance, file a claim, summon emergency assistance, access documents, and seek other services through an application on a tablet or cell phone or through its Web site. In the end, the case-by-case approach as applied with multiple sunset dates has produced inconsistent standards within California insurance law that change every other year. Several insurers and insurance trade associations have indicated that these shifting standards have discouraged insurers, especially small insurers, from making the necessary investments in human and IT resources to send documents electronically. This bill establishes a single set of standards applicable to most insurance records, eliminates the sunset provisions applicable to many documents (but leaves the sunset provisions applicable to life insurance and sensitive documents) and more closely aligns California law to the national standards AB 2591 Page 7 established by ESIGN. FISCAL EFFECT: Appropriation: No Fiscal Com.:NoLocal: No SUPPORT: (Verified8/1/16) American Insurance Association (co-source) Association of California Insurance Companies (co-source) Independent Insurance Agents and Brokers of California (co-source) Pacific Association of Domestic Insurance Companies (co-source) Personal Insurance Federation of California (co-source) American Council of Life Insurers Association of California Life and Health Insurance Companies National Association of Mutual Insurance Companies State Farm Mutual Automobile Insurance Company Western Insurance Agents Association OPPOSITION: (Verified8/1/16) Consumer Attorneys of California ARGUMENTS IN SUPPORT: Several insurance trade associations explain that developments in everyday business electronic communications is already here and it includes secure inbox capabilities, real-time claims reporting and many other customer-friendly features enabled by mobile phone apps and internet-based solutions. As the majority of commerce moves to an online platform driven largely by consumers, the trade associations believe that it is appropriate to review remaining prohibitions on the electronic transaction insurance - particularly those that empower consumers to choose to opt-in. ARGUMENTS IN OPPOSITION: The Consumer Attorneys of AB 2591 Page 8 California (CAOC) highlights the importance of receiving documents that alter or cancel coverage. They argue that the consequences of a reduction or cancellation of coverage for a consumer can be serious, including financial exposure to significant uninsured losses for auto accidents and damage to one's home. CAOC emphasizes that it is crucial that consumers actually receive these documents and that the same rules that may be acceptable for telephone bills or credit card statements are not appropriate for auto and home insurance. ASSEMBLY FLOOR: 80-0, 5/31/16 AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon Prepared by:Hugh Slayden / INS. / (916) 651-4110 8/3/16 19:38:10 **** END ****