Amended in Assembly March 31, 2016

Amended in Assembly March 17, 2016

California Legislature—2015–16 Regular Session

Assembly BillNo. 2710


Introduced by Assembly Member Cooley

February 19, 2016


An act to amend, renumber, and add Sections 1063.5 and 1063.14 of, and to repeal Sections 1063.45 and 1063.135 of, the Insurance Code, relating to insurance.

LEGISLATIVE COUNSEL’S DIGEST

AB 2710, as amended, Cooley. Insurance: California Insurance Guarantee Association: premium charges.

(1) Existing law creates the California Insurance Guarantee Association (CIGA) and requires all insurers admitted to transact specified insurance lines in this state to become members. Each time an insurer becomes insolvent, to the extent necessary to secure funds for payment of covered claims of that insolvent insurer and also for payment of reasonable costs of adjusting the claims, CIGA is required to collect premium payments from its member insurers sufficient to discharge its obligations, as specified.

This bill, among other things, would no longer require an insurer to become insolvent in order for CIGA to collect premium payments from the member insurers and would require CIGA to collect premiums in order to secure funds for the payment of its administrative expenses.

(2) Existing law requires that the rate of premium charged be a uniform percentage of net direct written premium, as defined, in the preceding calendar year applicable to specific categories of insurance. The rate of premium charges to each member insurer in the appropriate categories are initially based on the written premium of each insurer as shown in the latest year’s annual financial statement on file with the Insurance Commissioner and are later adjusted as provided.begin insert Existing law authorizes CIGA to refund any credit due in a specific category of insurance to a member insurer as a result of the adjusted premium calculation, as provided.end insert

begin insert

This bill would instead require CIGA, with regard to premium charges paid prior to January 1, 2017, to refund to a member insurer any credit due in a specific category as a result of the adjusted premium calculation.

end insert

Thisbegin delete billend deletebegin insert bill, with regard to premium charges paid on or after January 1, 2017,end insert would delete the requirements that the rate of premium charges be initially based on the written premium of eachbegin delete insurer andend deletebegin insert insurer, that the premium chargesend insert be adjusted later as provided,begin insert and that the member insurer be eligible for a refund of any credit due to that member insurer as a result of the adjusted premium calculation,end insert and would instead require that the rate of premium charges to each member insurer in the appropriate categories be based on the net direct written premium of each insurer as shown in the latest year’s annual financial statement on file with the commissioner. The bill would also make conforming changes.

(3) Existing law authorizes CIGA to exempt or defer a member insurer from paying the premium charge if the payment would cause the member insurer’s financial statement to reflect an amount of capital or surplus less than the minimum amounts required for a certificate of authority by any jurisdiction in which the member insurer is authorized to transact insurance. Deferred premium charges are required to be paid when the payment will not reduce capital or surplus below required minimums. These payments are credited against future premium charges to those companies receiving larger premium charges by virtue of the deferment.

This bill would delete the requirement that the payments be credited against future premium charges to those companies receiving larger premium charges by virtue of the deferment.

(4) Existing law requires CIGA’s plan of operations to contain provisions requiring each member insurer to recoup the premium charge paid to CIGA from its insureds over a reasonable length of time by way of a reasonably calculated surcharge on insurance policies to which the provisions of CIGA apply.

Thisbegin delete bill, commencing January 1, 2017, among other things,end deletebegin insert billend insert would instead require each member insurer to recoup the premium charge from its insureds in the year following thebegin delete charge, wouldend deletebegin insert charge. The bill, with regard to premium charges paid on or after January 1, 2017, among other things, wouldend insert require the member insurer to file a report in accordance with the provisions of the plan of operation indicating the amount of surcharges it has collected, and would prohibit a member insurer electing to omit collecting surcharges from any of its insureds from being entitled to any reimbursement from CIGA, as specified.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

P3    1

SECTION 1.  

Section 1063.5 of the Insurance Code is amended
2and renumbered, to immediately precede Section 1063.5 of the
3Insurance Code, to read:

4

1063.45.  

(a) (1) begin deleteEach time an insurer becomes insolvent then,
5to end delete
begin insertTo end insertthe extent necessary to secure funds for the association for
6payment ofbegin insert administrative expenses of the association andend insert covered
7claims ofbegin delete that insolvent insurerend deletebegin insert insolvent insurersend insert and also for
8payment of reasonable costs of adjusting the claims, the association
9shall collect premium payments from its member insurers sufficient
10to discharge its obligations.

11(2) The association shall allocate its claim payments and costs,
12incurred or estimated to be incurred, to one or more of the
13following categories:

14(A) Workers’ compensation claims.

15(B) Homeowners’ claims and automobile claims, including all
16of the following:

17(i) Automobile material damage.

18(ii) Automobile liability (both personal injury and death and
19property damage).

20(iii) Medical payments.

21(iv) Uninsured motorist claims.

22(C) Claims other than workers’ compensation, homeowners,
23and automobile, as defined above.

24(3) Separate premium payments shall be required for each
25category.

P4    1(4) The premium payments for each category shall be used to
2pay the claims and costs allocated to that category.

3(b) (1) The rate of premium charged shall be a uniform
4percentage of net direct written premium in the preceding calendar
5year applicable to that category.

6(2) The rate of premium charges to each member insurer in the
7appropriate categories shall initially be based on the written
8premium of each insurer as shown in the latest year’s annual
9financial statement on file with the commissioner.

10(3) The initial premium shall be adjusted by applying the same
11rate of premium charge as initially used to each insurer’s written
12premium as shown on the annual statement for the second year
13following the year on which the initial premium charge was based.

14(4) (A) The difference between the initial premium charge and
15the adjusted premium charge shall be charged or credited to each
16member insurer by the association as soon as practical after the
17filing of the annual statements of the member insurers with the
18commissioner for the year on which the adjusted premium is based.

19(B) Any credit due in a specific category to a member insurer
20as a result of the adjusted premium calculationbegin delete mayend deletebegin insert shallend insert be
21refunded to the member begin delete insurer at the discretion of the association
22if the member insurer has agreed with the commissioner to no
23longer write insurance in that category but has not withdrawn from
24the state and surrendered its certificate of authority. However, in
25the case of an insurer that was a member insurer when the initial
26premium charge was made and that paid the initial assessment but
27is no longer a member insurer at the time of the adjusted premium
28charge by reason of its insolvency or its withdrawal from the state
29 and surrender of its certificate of authority to transact insurance
30in this state, any credit accruing to that insurer shall be refunded
31to it by the association.end delete
begin insert insurer.end insert

32(c) (1) For purposes of this section, “net direct written
33premiums” means the amount of gross premiums, less return
34premiums, received in that calendar year upon business done in
35this state, other than premiums received for reinsurance.

36(2) In cases of a dispute as to the amount of the net direct written
37premium between the association and one of its member insurers,
38the written decision of the commissioner shall be final.

39(d) (1) The premium charged to any member insurer for any
40of the three categories or a category established by the association
P5    1shall not be more than 2 percent of the net direct premium written
2in that category in this state by that member insurer per year,
3starting on January 1, 2003, until December 31, 2007, and
4thereafter shall be 1 percent per year, until January 1, 2015.

5(2) Commencing January 1, 2015, the premium charged to any
6member insurer for any of the three categories or a category
7established by the association shall not be more than 2 percent of
8the net direct written premium unless there are bonds outstanding
9that were issued pursuant to Article 14.25 (commencing with
10Section 1063.50) or Article 14.26 (commencing with Section
111063.70).

12(3) If bonds issued pursuant to either article are outstanding,
13the premium charged to a member insurer for the category for
14which the bond proceeds are being used to pay claims and expenses
15shall not be more than 1 percent of the net direct written premium
16for that category.

17(e) (1) The association may exempt or defer, in whole or in
18part, the premium charge of any member insurer, if the premium
19charge would cause the member insurer’s financial statement to
20reflect an amount of capital or surplus less than the minimum
21amounts required for a certificate of authority by any jurisdiction
22in which the member insurer is authorized to transact insurance.
23However, during the period of deferment, no dividends shall be
24paid to shareholders or policyholders by the company whose
25premium charge was deferred.

26(2) Deferred premium charges shall be paid when the payment
27will not reduce capital or surplus below required minimums.begin delete These
28payments shall be credited against future premium charges to those
29companies receiving larger premium charges by virtue of the
30deferment.end delete

31(f) After all covered claims of the insolvent insurer and expenses
32of administration have been paid, any unused premiums and any
33reimbursements or claims dividends from the liquidator remaining
34in any category shall be retained by the association and applied to
35reduce future premium charges in the appropriate category. begin delete36 However, an insurer that ceases to be a member of the association,
37other than an insurer that has become insolvent or has withdrawn
38from the state and has surrendered its certificate of authority
39following an initial assessment that is entitled to a refund based
40upon an adjusted assessment as provided above in this section,
P6    1shall have no right to a refund of any premium previously remitted
2to the association.end delete

3(g) The commissioner may suspend or revoke the certificate of
4authority to transact business in this state of a member insurer that
5fails to pay a premium when due and after demand has been made.

6(h) Interest at a rate equal to the current federal reserve discount
7rate plus 212 percent per annum shall be added to the premium of
8any member insurer that fails to submit the premium requested by
9the association within 30 days after the mailing request. However,
10in no event shall the interest rate exceed the legal maximum.

11(i) This section shall apply only to premium charges paid prior
12to January 1, 2017.

13(j) This section shall remain in effect only until January 1, 2020,
14and as of that date is repealed, unless a later enacted statute, that
15is enacted before January 1, 2020, deletes or extends that date.

16

SEC. 2.  

Section 1063.5 is added to the Insurance Code, to read:

17

1063.5.  

(a) (1) To the extent necessary to secure funds for the
18association for payment of the administrative expenses of the
19association, covered claims of insolvent insurers, and for payment
20of reasonable costs of adjusting the claims, the association shall
21collect premium payments from its member insurers sufficient to
22discharge its obligations.

23(2) The association shall allocate its claim payments and costs,
24incurred or estimated to be incurred, to one or more of the
25following categories:

26(A) Workers’ compensation claims.

27(B) Homeowners’ claims and automobile claims, including all
28of the following:

29(i) Automobile material damage.

30(ii) Automobile liability (both personal injury and death and
31property damage).

32(iii) Medical payments.

33(iv) Uninsured motorist claims.

34(C) Claims other than workers’ compensation, homeowners’,
35and automobile, as defined above.

36(3) Separate premium payments shall be required for each
37category.

38(4) The premium payments for each category shall be used to
39pay the claims and costs allocated to that category.

P7    1(b)begin insertend insert (1) The rate of premium charged shall be a uniform
2percentage of net direct written premium in the preceding calendar
3year applicable to that category.

4(2) begin delete(A)end deletebegin deleteend deleteThe rate of premium charges to each member insurer
5in the appropriate categories shall be based on the net direct written
6premium of each member insurer as shown in the latest year’s
7annual financial statement on file with the commissioner.

begin delete

8(B) Any credit due in a specific category to a member insurer
9may be used as an offset against any subsequent premium charge
10in that category and may be refunded to the member insurer at the
11discretion of the association if the member insurer has agreed with
12the commissioner to no longer write insurance in that category but
13has not withdrawn from the state and surrendered its certificate of
14authority. However, in the case of an insurer that was a member
15insurer when the premium charge was made and that paid the
16premium charge but is no longer a member insurer by reason of
17its insolvency or its withdrawal from the state and surrender of its
18certificate of authority to transact insurance in this state, any credit
19accruing to that insurer shall be refunded to it by the association.

end delete

20(c) (1) For purposes of this section, “net direct written
21premiums” means the amount of gross premiums, less return
22premiums, received in that calendar year upon business done in
23this state, other than premiums received for reinsurance.

24(2) In cases of a dispute as to the amount of the net direct written
25premium between the association and one of its member insurers,
26the written decision of the commissioner shall be final.

27(d) In charging premiums to member insurers, the association
28shall adjust, if necessary, the net direct written premiums shown
29on a member insurer’s annual statement by excluding any
30premiums written for any lines of insurance or types of coverage
31not covered by this article under paragraph (3) of subdivision (c)
32of Section 1063.1.

33(e) (1) The premium charged to any member insurer for any of
34the three categories or a category established by the association
35shall not be more than 2 percent of the net direct written premium
36unless there are bonds outstanding that were issued pursuant to
37Article 14.25 (commencing with Section 1063.50) or Article 14.26
38(commencing with Section 1063.70).

39(2) If bonds issued pursuant to either article are outstanding,
40the premium charged to a member insurer for the category for
P8    1which the bond proceeds are being used to pay claims and expenses
2shall not be more than 1 percent of the net direct written premium
3for that category.

4(f) (1) The association may exempt or defer, in whole or in
5part, the premium charge of any member insurer, if the premium
6charge would cause the member insurer’s financial statement to
7reflect an amount of capital or surplus less than the minimum
8amounts required for a certificate of authority by any jurisdiction
9in which the member insurer is authorized to transact insurance.
10However, during the period of deferment, no dividends shall be
11paid to shareholders or policyholders by the company whose
12premium charge was deferred.

13(2) Deferred premium charges shall be paid when the payment
14will not reduce capital or surplus below required minimums.

15(g) After all covered claims of insolvent insurers and expenses
16of administration have been paid, any unused premiums and any
17reimbursements or claims dividends from liquidators remaining
18in any category shall be retained by the association and applied to
19reduce future premium charges in the appropriate category.

20(h) The commissioner may suspend or revoke the certificate of
21authority to transact business in this state of a member insurer that
22fails to pay a premium when due and after demand has been made.

23(i) Interest at a rate equal to the current federal reserve discount
24rate plus 212 percent per annum shall be added to the premium of
25any member insurer that fails to submit the premium requested by
26the association within 30 days after the mailing request. However,
27in no event shall the interest rate exceed the legal maximum.

28(j) This section shall apply only to premium charges paid on or
29after January 1, 2017.

30

SEC. 3.  

Section 1063.14 of the Insurance Code is amended
31and renumbered, to immediately precede Section 1063.14 of the
32Insurance Code, to read:

33

1063.135.  

(a) The plan of operation adopted pursuant to
34subdivision (c) of Section 1063 shall contain provisions whereby
35each member insurer is required to recoupbegin delete over a reasonable length
36of timeend delete
begin insert in the year following the premium chargeend insert a sum reasonably
37calculated to recoup thebegin delete assessmentsend deletebegin insert premium chargeend insert paid by the
38member insurer under this article by way of a surcharge on
39 premiums charged for insurance policies to which this article
40applies. Amounts recouped shall not be considered premiums for
P9    1any other purpose, including the computation of gross premium
2tax or agents’ commission.

3(b) The amount of any surcharge shall be separately stated on
4either a billing or policy declaration sent to an insured. The
5association shall determine the rate of the surcharge and the
6collection period for each category and these shall be mandatory
7for all member insurers of the association who write business in
8those categories. Member insurers who collect surcharges in excess
9of premiums paid pursuant to Section 1063.45 for an insolvent
10insurer shall remit the excess to the association as an additional
11premium within 30 days after the association has determined the
12amount of the excess recoupment and given notice to the member
13insurer of that amount. The excess shall be applied to reduce future
14premium charges in the appropriate category.

15(c) The plan of operation may permit a member insurer to omit
16collection of the surcharge from its insureds when the expense of
17collecting the surcharge would exceed the amount of the surcharge.
18However, nothing in this section shall relieve the member insurer
19of its obligation to recoup the amount of surcharge otherwise
20collectible.

21(d) This section shall apply only to premium charges paid prior
22to January 1, 2017.

23(e) This section shall remain in effect only until January 1, 2020,
24and as of that date is repealed, unless a later enacted statute, that
25is enacted before January 1, 2020, deletes or extends that date.

26

SEC. 4.  

Section 1063.14 is added to the Insurance Code, to
27read:

28

1063.14.  

(a) (1) The plan of operation adopted pursuant to
29subdivision (c) of Section 1063 shall contain provisions whereby
30each member insurer is required to recoup in the year following
31the premium charge a sum calculated to recoup the premium charge
32paid by the member insurer under this article by way of a surcharge
33on premiums charged for insurance policies to which this article
34applies.

35(2) Amounts recouped shall not be considered premiums for
36any other purpose, including the computation of gross premium
37tax or agents’ commission.

38(b) (1) The amount of any surcharge shall be separately stated
39on either a billing or policy declaration sent to an insured. The
40association shall determine the rate of the surcharge and the
P10   1collection period for each category, and these shall be mandatory
2for all member insurers of the association who write business in
3those categories.

4(2) Each member insurer shall file a report in accordance with
5the provisions of the plan of operation indicating the amount of
6surcharges it has collected.

7(A) Member insurers who collect surcharges in excess of
8premium charges paid in the preceding year pursuant to Section
91063.5 shall remit the excess to the association as an additional
10premium within 30 days after the association has determined the
11amount of the excess recoupment and given notice to the member
12insurer of that amount. The excess shall be applied to reduce future
13premium charges in the appropriate category.

14(B) Member insurers who report surcharge collections that are
15less than what they paid in the preceding year’s premium charge
16shall receive reimbursement from the association for the shortfall
17in surcharge collection.

18(c) (1) The plan of operation may permit a member insurer to
19omit collection of the surcharge from its insureds when the expense
20of collecting the surcharge would exceed the amount of the
21surcharge.

22(2) A member insurer electing to omit collecting surcharges
23from any of its insureds shall not be entitled to any reimbursement
24from the association pursuant to subdivision (b).

25(3) However, nothing in this section shall relieve the member
26insurer of its obligation to recoup the amount of surcharge
27otherwise collectible.

28(d) This section shall apply only to premium charges paid on
29or after January 1, 2017.



O

    97