BILL NUMBER: AB 2710 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY MARCH 31, 2016
AMENDED IN ASSEMBLY MARCH 17, 2016
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. 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.
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.
This bill bill, with regard to premium
charges paid on or after January 1, 2017, would delete the
requirements that the rate of premium charges be initially based on
the written premium of each insurer and
insurer, that the premium charges be adjusted later as
provided, 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, 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.
This bill, commencing January 1, 2017, among other
things, bill would instead require each member
insurer to recoup the premium charge from its insureds in the year
following the charge, would charge. The bill,
with regard to premium charges paid on or after January 1, 2017,
among other things, would 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:
SECTION 1. Section 1063.5 of the Insurance Code is amended and
renumbered, to immediately precede Section 1063.5 of the Insurance
Code, to read:
1063.45. (a) (1) Each time an insurer becomes insolvent
then, to To the extent necessary to secure funds
for the association for payment of administrative expenses of
the association and covered claims of that insolvent
insurer insolvent insurers and also for payment
of reasonable costs of adjusting the claims, the association shall
collect premium payments from its member insurers sufficient to
discharge its obligations.
(2) The association shall allocate its claim payments and costs,
incurred or estimated to be incurred, to one or more of the following
categories:
(A) Workers' compensation claims.
(B) Homeowners' claims and automobile claims, including all of the
following:
(i) Automobile material damage.
(ii) Automobile liability (both personal injury and death and
property damage).
(iii) Medical payments.
(iv) Uninsured motorist claims.
(C) Claims other than workers' compensation, homeowners, and
automobile, as defined above.
(3) Separate premium payments shall be required for each category.
(4) The premium payments for each category shall be used to pay
the claims and costs allocated to that category.
(b) (1) The rate of premium charged shall be a uniform percentage
of net direct written premium in the preceding calendar year
applicable to that category.
(2) The rate of premium charges to each member insurer in the
appropriate categories shall initially be based on the written
premium of each insurer as shown in the latest year's annual
financial statement on file with the commissioner.
(3) The initial premium shall be adjusted by applying the same
rate of premium charge as initially used to each insurer's written
premium as shown on the annual statement for the second year
following the year on which the initial premium charge was based.
(4) (A) The difference between the initial premium charge and the
adjusted premium charge shall be charged or credited to each member
insurer by the association as soon as practical after the filing of
the annual statements of the member insurers with the commissioner
for the year on which the adjusted premium is based.
(B) Any credit due in a specific category to a member insurer as a
result of the adjusted premium calculation may
shall be refunded to the member insurer at the
discretion of the association if the member insurer has agreed with
the commissioner to no longer write insurance in that category but
has not withdrawn from the state and surrendered its certificate of
authority. However, in the case of an insurer that was a member
insurer when the initial premium charge was made and that paid the
initial assessment but is no longer a member insurer at the time of
the adjusted premium charge by reason of its insolvency or its
withdrawal from the state and surrender of its certificate of
authority to transact insurance in this state, any credit accruing to
that insurer shall be refunded to it by the association.
insurer.
(c) (1) For purposes of this section, "net direct written premiums"
means the amount of gross premiums, less return premiums, received
in that calendar year upon business done in this state, other than
premiums received for reinsurance.
(2) In cases of a dispute as to the amount of the net direct
written premium between the association and one of its member
insurers, the written decision of the commissioner shall be final.
(d) (1) The premium charged to any member insurer for any of the
three categories or a category established by the association shall
not be more than 2 percent of the net direct premium written in that
category in this state by that member insurer per year, starting on
January 1, 2003, until December 31, 2007, and thereafter shall be 1
percent per year, until January 1, 2015.
(2) Commencing January 1, 2015, the premium charged to any member
insurer for any of the three categories or a category established by
the association shall not be more than 2 percent of the net direct
written premium unless there are bonds outstanding that were issued
pursuant to Article 14.25 (commencing with Section 1063.50) or
Article 14.26 (commencing with Section 1063.70).
(3) If bonds issued pursuant to either article are outstanding,
the premium charged to a member insurer for the category for which
the bond proceeds are being used to pay claims and expenses shall not
be more than 1 percent of the net direct written premium for that
category.
(e) (1) The association may exempt or defer, in whole or in part,
the premium charge of any member insurer, if the premium charge 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. However, during the
period of deferment, no dividends shall be paid to shareholders or
policyholders by the company whose premium charge was deferred.
(2) Deferred premium charges shall be paid when the payment will
not reduce capital or surplus below required minimums. These
payments shall be credited against future premium charges to those
companies receiving larger premium charges by virtue of the
deferment.
(f) After all covered claims of the insolvent insurer and expenses
of administration have been paid, any unused premiums and any
reimbursements or claims dividends from the liquidator remaining in
any category shall be retained by the association and applied to
reduce future premium charges in the appropriate category.
However, an insurer that ceases to be a member of the association,
other than an insurer that has become insolvent or has withdrawn from
the state and has surrendered its certificate of authority following
an initial assessment that is entitled to a refund based upon an
adjusted assessment as provided above in this section, shall have no
right to a refund of any premium previously remitted to the
association.
(g) The commissioner may suspend or revoke the certificate of
authority to transact business in this state of a member insurer that
fails to pay a premium when due and after demand has been made.
(h) Interest at a rate equal to the current federal reserve
discount rate plus 21/2 percent per annum shall be added to the
premium of any member insurer that fails to submit the premium
requested by the association within 30 days after the mailing
request. However, in no event shall the interest rate exceed the
legal maximum.
(i) This section shall apply only to premium charges paid prior to
January 1, 2017.
(j) This section shall remain in effect only until January 1,
2020, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2020, deletes or extends
that date.
SEC. 2. Section 1063.5 is added to the Insurance Code, to read:
1063.5. (a) (1) To the extent necessary to secure funds for the
association for payment of the administrative expenses of the
association, covered claims of insolvent insurers, and for payment of
reasonable costs of adjusting the claims, the association shall
collect premium payments from its member insurers sufficient to
discharge its obligations.
(2) The association shall allocate its claim payments and costs,
incurred or estimated to be incurred, to one or more of the following
categories:
(A) Workers' compensation claims.
(B) Homeowners' claims and automobile claims, including all of the
following:
(i) Automobile material damage.
(ii) Automobile liability (both personal injury and death and
property damage).
(iii) Medical payments.
(iv) Uninsured motorist claims.
(C) Claims other than workers' compensation, homeowners', and
automobile, as defined above.
(3) Separate premium payments shall be required for each category.
(4) The premium payments for each category shall be used to pay
the claims and costs allocated to that category.
(b) (1) The rate of premium charged shall be a uniform
percentage of net direct written premium in the preceding calendar
year applicable to that category.
(2) (A) The rate of premium
charges to each member insurer in the appropriate categories shall be
based on the net direct written premium of each member insurer as
shown in the latest year's annual financial statement on file with
the commissioner.
(B) Any credit due in a specific category to a member insurer may
be used as an offset against any subsequent premium charge in that
category and may be refunded to the member insurer at the discretion
of the association if the member insurer has agreed with the
commissioner to no longer write insurance in that category but has
not withdrawn from the state and surrendered its certificate of
authority. However, in the case of an insurer that was a member
insurer when the premium charge was made and that paid the premium
charge but is no longer a member insurer by reason of its insolvency
or its withdrawal from the state and surrender of its certificate of
authority to transact insurance in this state, any credit accruing to
that insurer shall be refunded to it by the association.
(c) (1) For purposes of this section, "net direct written premiums"
means the amount of gross premiums, less return premiums, received
in that calendar year upon business done in this state, other than
premiums received for reinsurance.
(2) In cases of a dispute as to the amount of the net direct
written premium between the association and one of its member
insurers, the written decision of the commissioner shall be final.
(d) In charging premiums to member insurers, the association shall
adjust, if necessary, the net direct written premiums shown on a
member insurer's annual statement by excluding any premiums written
for any lines of insurance or types of coverage not covered by this
article under paragraph (3) of subdivision (c) of Section 1063.1.
(e) (1) The premium charged to any member insurer for any of the
three categories or a category established by the association shall
not be more than 2 percent of the net direct written premium unless
there are bonds outstanding that were issued pursuant to Article
14.25 (commencing with Section 1063.50) or Article 14.26 (commencing
with Section 1063.70).
(2) If bonds issued pursuant to either article are outstanding,
the premium charged to a member insurer for the category for which
the bond proceeds are being used to pay claims and expenses shall not
be more than 1 percent of the net direct written premium for that
category.
(f) (1) The association may exempt or defer, in whole or in part,
the premium charge of any member insurer, if the premium charge 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. However, during the
period of deferment, no dividends shall be paid to shareholders or
policyholders by the company whose premium charge was deferred.
(2) Deferred premium charges shall be paid when the payment will
not reduce capital or surplus below required minimums.
(g) After all covered claims of insolvent insurers and expenses of
administration have been paid, any unused premiums and any
reimbursements or claims dividends from liquidators remaining in any
category shall be retained by the association and applied to reduce
future premium charges in the appropriate category.
(h) The commissioner may suspend or revoke the certificate of
authority to transact business in this state of a member insurer that
fails to pay a premium when due and after demand has been made.
(i) Interest at a rate equal to the current federal reserve
discount rate plus 21/2 percent per annum shall be added to the
premium of any member insurer that fails to submit the premium
requested by the association within 30 days after the mailing
request. However, in no event shall the interest rate exceed the
legal maximum.
(j) This section shall apply only to premium charges paid on or
after January 1, 2017.
SEC. 3. Section 1063.14 of the Insurance Code is amended and
renumbered, to immediately precede Section 1063.14 of the Insurance
Code, to read:
1063.135. (a) The plan of operation adopted pursuant to
subdivision (c) of Section 1063 shall contain provisions whereby each
member insurer is required to recoup over a reasonable
length of time in the year following the premium
charge a sum reasonably calculated to recoup the
assessments premium charge paid by the member
insurer under this article by way of a surcharge on premiums charged
for insurance policies to which this article applies. Amounts
recouped shall not be considered premiums for any other purpose,
including the computation of gross premium tax or agents' commission.
(b) The amount of any surcharge shall be separately stated on
either a billing or policy declaration sent to an insured. The
association shall determine the rate of the surcharge and the
collection period for each category and these shall be mandatory for
all member insurers of the association who write business in those
categories. Member insurers who collect surcharges in excess of
premiums paid pursuant to Section 1063.45 for an insolvent insurer
shall remit the excess to the association as an additional premium
within 30 days after the association has determined the amount of the
excess recoupment and given notice to the member insurer of that
amount. The excess shall be applied to reduce future premium charges
in the appropriate category.
(c) The plan of operation may permit a member insurer to omit
collection of the surcharge from its insureds when the expense of
collecting the surcharge would exceed the amount of the surcharge.
However, nothing in this section shall relieve the member insurer of
its obligation to recoup the amount of surcharge otherwise
collectible.
(d) This section shall apply only to premium charges paid prior to
January 1, 2017.
(e) This section shall remain in effect only until January 1,
2020, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2020, deletes or extends
that date.
SEC. 4. Section 1063.14 is added to the Insurance Code, to read:
1063.14. (a) (1) The plan of operation adopted pursuant to
subdivision (c) of Section 1063 shall contain provisions whereby each
member insurer is required to recoup in the year following the
premium charge a sum calculated to recoup the premium charge paid by
the member insurer under this article by way of a surcharge on
premiums charged for insurance policies to which this article
applies.
(2) Amounts recouped shall not be considered premiums for any
other purpose, including the computation of gross premium tax or
agents' commission.
(b) (1) The amount of any surcharge shall be separately stated on
either a billing or policy declaration sent to an insured. The
association shall determine the rate of the surcharge and the
collection period for each category, and these shall be mandatory for
all member insurers of the association who write business in those
categories.
(2) Each member insurer shall file a report in accordance with the
provisions of the plan of operation indicating the amount of
surcharges it has collected.
(A) Member insurers who collect surcharges in excess of premium
charges paid in the preceding year pursuant to Section 1063.5 shall
remit the excess to the association as an additional premium within
30 days after the association has determined the amount of the excess
recoupment and given notice to the member insurer of that amount.
The excess shall be applied to reduce future premium charges in the
appropriate category.
(B) Member insurers who report surcharge collections that are less
than what they paid in the preceding year's premium charge shall
receive reimbursement from the association for the shortfall in
surcharge collection.
(c) (1) The plan of operation may permit a member insurer to omit
collection of the surcharge from its insureds when the expense of
collecting the surcharge would exceed the amount of the surcharge.
(2) A member insurer electing to omit collecting surcharges from
any of its insureds shall not be entitled to any reimbursement from
the association pursuant to subdivision (b).
(3) However, nothing in this section shall relieve the member
insurer of its obligation to recoup the amount of surcharge otherwise
collectible.
(d) This section shall apply only to premium charges paid on or
after January 1, 2017.