BILL NUMBER: AB 2884 AMENDED
BILL TEXT
AMENDED IN SENATE JUNE 8, 2016
AMENDED IN ASSEMBLY MARCH 30, 2016
INTRODUCED BY Committee on Insurance (Assembly Members Daly
(Chair), Bigelow, Calderon, Chu, Cooley, Cooper, Dababneh, Frazier,
Gatto, Gonzalez, and Rodriguez)
FEBRUARY 25, 2016
An act to amend Sections 660, 789, 1215.5, 1669, 1681,
1726, 1749.6, 1807.5, 10168.6, 10234.6, 10234.95,
10236.1, 10236.13, 10236.14, 10236.15, 11520.5,
and 11691 11691, and 12921.1 of, to repeal
Section 736.5 of, and to repeal and add Section 1682 of, the
Insurance Code, relating to insurance.
LEGISLATIVE COUNSEL'S DIGEST
AB 2884, as amended, Committee on Insurance. Insurance: licensees:
Internet: disclosures.
(1) Existing law defines "policy," to mean, among others, an
automobile liability, automobile physical damage, or automobile
collision policy insuring a single individual or individuals residing
in the same household, as the named insured, and under which the
insured vehicles designated under are of specified types including a
motor vehicle, as specified, and any other 4-wheel motor vehicle with
a load capacity of 1,500 pounds or less, for the purposes of various
requirements for a notice of cancellation of a policy. Existing law
further provides that the requirements for a notice of cancellation
of a policy do not apply to any policy issued under an automobile
assigned risk plan, any policy insuring more than 4 vehicles, and
to any policy covering, among other things,
garage, automobile sales agency, or public parking place operation
hazards.
This bill would, among other things, remove the exemption for any
policy insuring more than 4 automobiles.
(2) Existing law authorizes the Insurance Commissioner, under
specified circumstances, to examine the business and affairs of an
insurer. That examination is required to be at the expense of the
insurer, organization, or person examined by the commissioner, as
specified.
Existing law prohibits the revenue raised from the examination of
insurers in the 1996-97 fiscal year from exceeding the examination
fee revenue estimate for the 1996-97 Governor's Budget by more than
$2,000,000.
This bill would delete the provision relating to revenue raised
during the 1996-97 fiscal year.
(3) The Insurance Holding Company System Regulatory Act requires
each insurer that is authorized to do business in this state and that
is a member of an insurance holding company system to register with
the commissioner and to file a registration statement containing
specified information, including the capital structure and general
financial condition of the insurer and specified transactions between
the insurer and its affiliates.
The act provides that the transactions by registered insurers with
their affiliates are subject to various standards, including the
requirement that the terms be fair and reasonable.
The act provides that any insurer or any director, officer,
employee, or agent of the insurer that commits a willful violation of
the act is subject to criminal proceedings.
This bill would require that the terms also be consistent with the
current version of the NAIC Insurance Holding Company System Model
Regulation.
Because a willful violation of this provision would be subject to
criminal proceedings, the bill would create a state-mandated local
program.
(2)
(4) Existing law prohibits a person from soliciting,
negotiating, or effecting contracts of insurance, or acting in the
capacity of various types of insurance agents, unless the person
holds a valid license from the Insurance Commissioner authorizing the
person to act in that capacity. Existing law authorizes the
commissioner to deny an application for a license for various reasons
including if the applicant committed a felony or a misdemeanor as
shown by a plea of guilty or nolo contendere. Existing law also
requires an applicant to pass the qualifying examination for the
license prior to receiving a permanent license and allows the
applicant to retake the qualifying examination subject to reasonable
time limits limiting when a person who has failed the examination may
retake.
This bill would add that the commissioner may deny an application
for a license if the applicant has been convicted of a felony or
misdemeanor, as specified. The bill would also prohibit a person who
has failed any license qualification examination 10 times within the
previous 12-month period from enrolling in any further license
qualification examinations for a period of 12 months.
(3)
(5) Existing law requires a person who is licensed in
this state as an insurance agent or broker, advertises insurance on
the Internet, and transacts insurance in this state, to identify
certain information on the Internet, regardless of whether the
insurance agent or broker maintains his or her Internet presence or
if the presence is maintained on his or her behalf. The required
information includes, but is not limited to, his or her name as it
appears on his or her license, and any fictitious name approved by
the commissioner.
This bill would instead require that the person provide his or her
name as filed with the commissioner that has not been disapproved
pursuant to the provisions regarding the use of fictitious names.
(4) Existing law automatically terminates the license of a person
failing to meet various requirements and who has not been granted an
extension of time within which to comply by the commissioner until
the person demonstrates that he or she has complied with all of the
requirements, as specified.
This bill would add the failure by an insurance adjuster and a
public insurance adjuster to complete continuing education
requirements to the list of requirements for which the failure to
complete will result in an automatic termination of the license.
(5)
(6) Existing law prohibits an insurer from executing an
undertaking of bail except by and through a person holding a bail
license, as provided. Existing law also prohibits the commissioner
from suspending or revoking any license, issued as specified, without
first granting a hearing, as specified.
This bill would prohibit the commissioner from denying a license
to an applicant without first granting a hearing, as specified.
(6)
(7) Existing law provides that for the purpose of
determining certain benefits, that in the case of annuity contracts
under which an election may be made to have annuity payments commence
at optional maturity dates, the maturity date shall be deemed to be
the latest date for which election is permitted by the contract.
This bill would add that in the case of annuity contracts under
which the fixed maturity date is later than the later of the
anniversary of the contract next following the annuitant's 70th
birthday or the 10th anniversary of the contract, the maturity date
shall be deemed to be the later of the anniversary of the contract
next following the annuitant's 70th birthday or the 10th anniversary
of the contract.
(7)
(8) Existing law requires the commissioner to annually
prepare a consumer rate guide for long-term care insurance and to
include specified information, including a history of the rates of
all policies issued in California for the current year and for the 4
preceding years.
This bill would require the history of the rates of all policies
issued in California to be listed for the 9 preceding years.
(9) Existing law provides for the regulation of insurers,
including insurers issuing policies of long-term care insurance, by
the Insurance Commissioner. Existing law prohibits an insurer from
increasing the premium for an individual or group long-term care
insurance policy or certificate approved for sale unless the insurer
has received prior approval for the increase from the commissioner
and requires the insurer to submit to the commissioner for approval
all premium rate schedule increases, as specified. Existing law
further requires that approval of all premium rate schedule
increases, and approved premium rate schedule increases be subject to
various requirements, including filing updated projections annually
for the next 3 years, as specified.
This bill would require that for the above-described rate
schedules, the lifetime expected loss ratio be calculated as
specified. The bill would also modify the requirements that approved
premium rate schedule increases are subject to by requiring the
insurer to file composite rate projections if it is necessary to
maintain consistent premium rates for new certificates receiving a
rate increase.
(8)
(10) Existing law requires an insurer, in order to be
admitted in this state to transact specified workers' compensation
transactions, among other things, to deposit cash instruments or
approved interest-bearing securities or approved stocks readily
convertible into cash, investment certificates, or share accounts
issued by a savings and loan association doing business in this state
and insured by the Federal Deposit Insurance Corporation,
certificates of deposit, or savings deposits in a bank licensed to do
business in this state that is either domiciled in and with its
principal place of business in this state or that is a national
banking association with a trust office located in this state.
This bill would instead include a bank licensed to do business in
this state, or a trust company, licensed to do business and located
in this state that is either domiciled in and with its principal
place of business in this state or that is a national banking
association with a trust office located in this state.
(11) Existing law requires the Insurance Commissioner to establish
a program to investigate complaints and respond to inquiries
received regarding the handling of insurance claims and, when
warranted, to bring enforcement actions against insurers or
production agencies. Existing law requires the commissioner to
promulgate a regulation that sets forth the criteria that the
department shall apply to determine if a complaint is deemed to be
justified prior to the public release of a complaint against a
specifically named insurer or production agency.
This bill would authorize the commissioner to establish an
Internet-accessible complaint response system to distribute and
receive complaint information, as specified.
(12) The California Constitution requires the state to reimburse
local agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no yes .
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 660 of the Insurance Code is amended to read:
660. As used in this chapter:
(a) "Policy" means an automobile liability, automobile physical
damage, or automobile collision policy, or any combination thereof,
delivered or issued for delivery in this state, insuring a single
individual or individuals residing in the same household, as named
insured, and under which the insured vehicles therein designated are
of the following types only:
(1) A motor vehicle of the private passenger or station wagon type
that is not used as a public or livery conveyance for passengers,
nor rented to others; or
(2) Any other four-wheel motor vehicle with a load capacity of
1,500 pounds or less; provided, however, that this chapter shall not
apply to either of the following:
(A) Any policy issued under an automobile assigned risk plan.
(B) Any policy covering garage, automobile sales agency, repair
shop, service station, or public parking place operation hazards.
(3) A motorcycle.
(b) "Automobile liability coverage" includes only coverage of
bodily injury and property damage liability, medical payments, and
uninsured motorists coverage.
(c) "Automobile physical damage coverage" includes all coverage of
loss or damage to an automobile insured under the policy except loss
or damage resulting from collision or upset.
(d) "Automobile collision coverage" includes all coverage of loss
or damage to an automobile insured under the policy resulting from
collision or upset.
(e) "Renewal" or "to renew" means to continue coverage with either
the insurer which issued the policy or an affiliated insurer, as
defined in Section 1215, for an additional policy period upon
expiration of the current policy period of a policy, provided that if
coverage is continued with an affiliated insurer, it shall be the
same or broader coverage as provided by the present insurer, and the
insured shall be notified in writing at least 20 days prior to
expiration of the current policy period of all of the following:
(1) That the insurer has determined that it will not offer renewal
of the policy with the present insurer.
(2) That it is offering replacement in an affiliated insurer.
(3) That the insured may obtain in writing the reasons for the
change in insurers if he or she requests in writing not later than
one month following the expiration of the policy period the reason or
reasons for the change in insurers. Any policy with a policy period
or term of six months or less, whether or not made continuous for
successive terms upon the payment of additional premiums,
shall shall, for the purpose of this chapter be
considered as if written for a policy period or term of six months.
Any policy written for a term longer than one year, or any policy
with no fixed expiration date, shall for the purpose of this chapter,
be considered as if written for successive policy periods or terms
of one year.
(f) "Nonpayment of premium" means failure of the named insured to
discharge when due any of his obligations in connection with the
payment of premiums on a policy, or any installment of such premium,
whether the premium is payable directly to the insurer or its agent
or indirectly under any premium finance plan or extension of credit.
(g) "Cancellation" means termination of coverage by an insurer
(other than termination at the request of the insured) during a
policy period.
(h) "Nonrenewal" means a notice by the insurer to the named
insured that the insurer is unwilling to renew a policy.
(i) "Expiration" means termination of coverage by reason of the
policy having reached the end of the term for which it was issued or
the end of the period for which a premium has been paid.
SEC. 2. Section 736.5 of the Insurance
Code is repealed.
736.5. The provisions of Section 736 notwithstanding, the revenue
raised from the examination of insurers and other persons under this
article in the 1996-97 fiscal year shall not exceed the examination
fee revenue estimate for the 1996-97 Governor's Budget by more than
two million dollars ($2,000,000).
SEC. 2. SEC. 3. Section 789 of the
Insurance Code is amended to read:
789. (a) The commissioner shall have the administrative authority
to assess penalties against insurers, brokers, agents, and other
entities engaged in the transaction of insurance or any other person
or entity for violations of this article.
(b) Upon a showing of a violation of this article in any civil
action, a court may also assess the penalties prescribed in this
article.
(c) Whenever the commissioner has reasonable cause to believe or
determines after a public hearing that any insurer, agent, broker, or
other person or entity engaged in the transaction of insurance, has
violated this article the commissioner shall make and serve upon the
insurer, broker, agent, or other person or entity a notice of
hearing. The notice shall state the commissioner's intent to assess
the administrative penalties, the time and place of the hearing, and
the conduct, condition condition, or
ground upon which the commissioner is holding the hearing, and
assessing the penalties. The hearing shall occur within 30 days after
the notice is served. Within 30 days after the hearing the
commissioner shall issue an order specifying the amount of the
penalties to be paid. The penalties resulting from the hearing shall
be paid to the Insurance Fund.
(d) The powers vested in the commissioner by this section shall be
in addition to any and all powers and remedies vested in the
commissioner by law.
(e) Actions for injunctive relief, penalties specified in Section
789.3, damages, restitution, and all other remedies in law, may be
brought in superior court by the Attorney General, district attorney,
or city attorney on behalf of the people of California. The court
shall award reasonable attorney's fees and court costs to the
prevailing plaintiff who establishes a violation of this article.
SEC. 4. Section 1215.5 of the Insurance
Code is amended to read:
1215.5. (a) Transactions by registered insurers with their
affiliates are subject to the following standards:
(1) The terms shall be fair and reasonable.
reasonable and consistent with the current version of Section 19
of the NAIC Insurance Holding Company System Model Regulation,
subject to the requirements of this article.
(2) Charges or fees for services performed shall be reasonable.
(3) Expenses incurred and payment received shall be allocated to
the insurer in conformity with customary insurance accounting
practices consistently applied.
(4) The books, accounts, and records of each party to all
transactions shall be so maintained as to clearly and accurately
disclose the precise nature and details of the transactions,
including accounting information that is necessary to support the
reasonableness of the charges or fees to the parties.
(5) The insurer's policyholder's surplus following any dividends
or distributions to shareholder affiliates shall be reasonable in
relation to the insurer's outstanding liabilities and adequate to its
financial needs.
(b) The following transactions involving a domestic insurer or
commercially domiciled insurer, as defined in Section 1215.14, and
any person in its insurance holding company system, including
amendments or modifications of affiliate agreements previously filed
pursuant to this section, may be entered into only if the insurer has
notified the commissioner in writing of its intention to enter into
the transaction at least 30 days prior thereto, or a shorter period
as the commissioner may permit, and the commissioner has not
disapproved it within that period. The notice for amendments or
modifications shall include the reasons for the change and the
financial impact on the domestic insurer or commercially domiciled
insurer. Informal notice shall be reported, within 30 days after a
termination of a previously filed agreement, to the commissioner for
determination of the type of filing required, if any. The
commissioner shall require the payment of one thousand eight hundred
eighty-nine dollars ($1,889) as a fee for filings pursuant to this
subdivision, and the filings shall be on a form and in a format
prescribed by the NAIC. The payment shall accompany the filing.
(1) Sales, purchases, exchanges, loans, extensions of credit, or
investments, if the transactions are equal to or exceed:
(A) For a nonlife insurer, the lesser of 3 percent of the insurer'
s admitted assets or 25 percent of the policyholder's surplus as of
the preceding December 31st.
(B) For a life insurer, 3 percent of the insurer's admitted assets
as of the preceding December 31st.
(2) Loans or extensions of credit to a person who is not an
affiliate, if made with the agreement or understanding that the
proceeds of the transactions, in whole or in substantial part, are to
be used to make loans or extensions of credit to, to purchase assets
of, or to make investments in, any affiliate of the insurer, if the
transactions are equal to or exceed:
(A) For a nonlife insurer, the lesser of 3 percent of the insurer'
s admitted assets or 25 percent of the policyholder's surplus as of
the preceding December 31st.
(B) For a life insurer, 3 percent of the insurer's admitted assets
as of the preceding December 31st.
(3) Reinsurance agreements and pooling agreements and
modifications thereto in which the reinsurance premium or a change in
the insurer's liabilities, or the projected reinsurance premium or a
change in the insurer's liabilities in any of the next three years,
equals or exceeds 5 percent of the insurer's policyholder's surplus,
as of the preceding December 31st, including those agreements that
may require as consideration the transfer of assets from an insurer
to a nonaffiliate, if an agreement or understanding exists between
the insurer and nonaffiliate that any portion of the assets will be
transferred to one or more affiliates of the insurer.
(4) All management agreements, service contracts, tax sharing
agreements, and cost-sharing arrangements. However, subscription
agreements or powers of attorney executed by subscribers of a
reciprocal or interinsurance exchange are not required to be reported
pursuant to this section if the form of the agreement was in use
before 1943 and was not amended in any way to modify payments, fees,
or waivers of fees or otherwise substantially amended after 1943.
Payment or waiver of fees or other amounts due under subscription
agreements or powers of attorney forms that were in use before 1943
and that have not been amended in any way to modify payments, fees,
or waiver of fees, or otherwise substantially amended after 1943
shall not be subject to regulation pursuant to paragraph (2) of
subdivision (a).
(5) Guarantees when initiated or made by a domestic or
commercially domiciled insurer, provided that a guarantee that is
quantifiable as to amount is not subject to the notice requirements
of this paragraph unless it exceeds the lesser of one-half of 1
percent of the insurer's admitted assets or 10 percent of surplus as
regards policyholders as of the 31st day of December next preceding.
Further, all guarantees that are not quantifiable as to amount are
subject to the notice requirements of this paragraph.
(6) Derivative transactions or series of derivative transactions.
The written filing to the commissioner shall include the type or
types of derivative transactions, the affiliate or affiliates
engaging with the insurer in the derivative transactions, the
objective and the rationale for the derivative transaction or series
of derivative transactions, the maximum maturity and economic effect
of the derivative transactions, and any other information required by
the commissioner. Derivative transactions entered into pursuant to
this subdivision shall comply with the provisions of Section 1211.
(7) Direct or indirect acquisitions or investments in a person
that controls the insurer or in an affiliate of the insurer in an
amount that, together with its present holdings in those investments,
exceeds 2.5 percent of the insurer's policyholder's surplus. Direct
or indirect acquisitions or investments in subsidiaries acquired
under Section 1215.1, or in nonsubsidiary insurance affiliates that
are subject to the provisions of this article, or in subsidiaries
acquired pursuant to Section 1199, are exempt from this requirement.
(8) Any material transactions, specified by regulation, that the
commissioner determines may adversely affect the interests of the
insurer's policyholders.
(c) A domestic insurer may not enter into transactions that are
part of a plan or series of transactions with persons within the
holding company system if the purpose of those transactions is to
avoid the statutory threshold amount and thus avoid review. If the
commissioner determines that separate transactions were entered into
over any 12-month period to avoid review, the commissioner may
exercise his or her authority under Section 1215.11.
(d) The commissioner, in reviewing transactions under subdivision
(b), shall consider whether the transactions comply with the
standards set forth in subdivision (a) and whether they may adversely
affect the interests of policyholders.
(e) The commissioner shall be notified within 30 days of any
investment by the insurer in any one corporation if the total
investment in the corporation by the insurance holding company system
exceeds 10 percent of the corporation's voting securities.
(f) For purposes of this article, in determining whether an
insurer's policyholder's surplus is reasonable in relation to the
insurer's outstanding liabilities and adequate to its financial
needs, the following factors, among others, shall be considered:
(1) The size of the insurer, as measured by its assets, capital
and surplus, reserves, premium writings, insurance in force, and
other appropriate criteria.
(2) The extent to which the insurer's business is diversified
among the several lines of insurance.
(3) The number and size of risks insured in each line of business.
(4) The extent of the geographical dispersion of the insurer's
insured risks.
(5) The nature and extent of the insurer's reinsurance program.
(6) The quality, diversification, and liquidity of the insurer's
investment portfolio.
(7) The recent past and projected future trend in the size of the
insurer's investment portfolio.
(8) The recent past and projected future trend in the size of the
insurer's surplus, and the policyholder's surplus maintained by other
comparable insurers.
(9) The adequacy of the insurer's reserves.
(10) The quality and liquidity of investments in subsidiaries made
under Section 1215.1. The commissioner may treat those investments
as a disallowed asset for purposes of determining the adequacy of the
policyholder's surplus whenever, in his or her judgment, the
investment so warrants.
(11) The quality of the company's earnings and the extent to which
the reported earnings include extraordinary accounting items.
(g) No insurer subject to registration under Section 1215.4 shall
pay any extraordinary dividend or make any other extraordinary
distribution to its stockholders until 30 days after the commissioner
has received notice of the declaration thereof and has approved the
payment or has not, within the 30-day period, disapproved the
payment.
For purposes of this section, an extraordinary dividend or
distribution is any dividend or distribution which, together with
other dividends or distributions made within the preceding 12 months,
exceeds the greater of (1) 10 percent of the insurer's policyholder'
s surplus as of the preceding December 31st, or (2) the net gain from
operations of the insurer, if the insurer is a life insurer, or the
net income, if the insurer is not a life insurer, for the 12-month
period ending the preceding December 31st.
Notwithstanding any other provision of law, an insurer may declare
an extraordinary dividend or distribution that is conditional upon
the commissioner's approval. The declaration confers no rights upon
stockholders until the commissioner has approved the payment of the
dividend or distribution or until the commissioner has not
disapproved the payment within the 30-day period referred to in this
subdivision.
(h) Notwithstanding the control of a domestic insurer by any
person, the officers and directors of the insurer shall not thereby
be relieved of any obligation or liability to which they would
otherwise be subject to by law, and the insurer shall be managed to
ensure its separate operating identity consistent with the provisions
of this article. However, nothing in this article shall preclude a
domestic insurer from having or sharing a common management or
cooperative or joint use of personnel, property, or services with one
or more other persons under arrangements meeting the standards of
subdivision (a).
(i) The provisions of this section do not apply to any insurer,
information, or transaction exempted by the commissioner.
SEC. 3. SEC. 5. Section 1669 of the
Insurance Code is amended to read:
1669. The commissioner may, without hearing, deny an application
if the applicant has done one or more of the following:
(a) (1) Been convicted of a felony.
(2) Been convicted of a misdemeanor denounced by this code or by
other laws regulating insurance.
(3) A judgment, plea, or verdict of guilty or a conviction
following a plea of nolo contendere is deemed to be a conviction
within the meaning of this subdivision.
(b) Had a previous application for a professional, occupational,
or vocational license denied for cause by any licensing authority,
within five years of the date of the filing of the application to be
acted upon, on grounds that should preclude the granting of a license
by the commissioner under this chapter.
(c) Had a previously issued professional, occupational, or
vocational license suspended or revoked for cause by any licensing
authority, within five years of the date of the filing of the
application to be acted upon, on grounds that should preclude the
granting of a license by the commissioner under this chapter.
In the event the commissioner issues an order based on a plea that
does not at any time result in a judgment of conviction, the
commissioner shall vacate the order upon petition by the applicant.
SEC. 4. SEC. 6. Section 1681 of the
Insurance Code is amended to read:
1681. If an applicant fails the qualifying examination, he or she
may, subject to the provisions of Section 1682, retake a qualifying
examination.
SEC. 5. SEC. 7. Section 1682 of the
Insurance Code is repealed.
SEC. 6. SEC. 8. Section 1682 is added
to the Insurance Code, to read:
1682. (a) A person who has failed any license qualification
examination 10 times within the previous 12-month period shall not be
permitted to enroll in any further license qualification
examinations for a period of 12 months, beginning from the date of
the 10th license qualification examination failure.
(b) For the purpose of this section, "license qualification
examination" includes examinations for all types of licenses issued
by the commissioner pursuant to this chapter, Chapter 7 (commencing
with Section 1800) and Chapter 8 (commencing with Section 1831), and
Chapter 1 (commencing with Section 14000) and Chapter 2 (commencing
with Section 15000) of Division 5.
SEC. 7. SEC. 9. Section 1726 of the
Insurance Code is amended to read:
1726. (a) A person who is licensed in this state as an insurance
agent or broker, advertises insurance on the Internet, and transacts
insurance in this state, shall identify all of the following
information on the Internet, regardless of whether the insurance
agent or broker maintains his or her Internet presence or if the
presence is maintained on his or her behalf:
(1) His or her name as filed with the commissioner that has not
been disapproved pursuant to Section 1724.5.
(2) The state of his or her domicile and principal place of
business.
(3) His or her license number.
(b) A person shall be deemed to be transacting insurance in this
state when the person advertises on the Internet, regardless of
whether the insurance agent or broker maintains his or her Internet
presence or if it is maintained on his or her behalf, and does any of
the following:
(1) Provides an insurance premium quote to a California resident.
(2) Accepts an application for coverage from a California
resident.
(3) Communicates with a California resident regarding one or more
terms of an agreement to provide insurance or an insurance policy.
SEC. 8. Section 1749.6 of the Insurance Code is
amended to read:
1749.6. Any person failing to meet the requirements imposed by
Section 1749.3, 1749.31, 14090.1, or 15059.1 and who has not been
granted an extension of time within which to comply by the
commissioner shall have his or her license automatically terminated
until the time that the person demonstrates to the satisfaction of
the commissioner that he or she has complied with all of the
requirements of this article and all other laws applicable thereto.
If a person cannot perform the requirements of this article due to a
disability or inactivity due to special circumstances, the
commissioner shall provide a procedure for the person to place his or
her license on inactive status until the time that the person
demonstrates to the satisfaction of the commissioner that he or she
has complied with or made up all of the requirements of this article
for the period of disability or inactivity.
SEC. 9. SEC. 10. Section 1807.5 of
the Insurance Code is amended to read:
1807.5. Except as provided in Sections 1669 and 1738, the
commissioner shall not deny, suspend, or revoke any license, issued
under this article, without first granting a hearing, upon reasonable
notice to the applicant or licensee, except that he may temporarily
suspend a license for a period not exceeding 15 days pending the
hearing. Where a hearing is held under this section the proceedings
shall be conducted in accordance with Chapter 5 (commencing with
Section 11500) of Part 1 of Division 3 of Title 2 of the Government
Code, and the commissioner shall have all the powers granted pursuant
to that chapter.
SEC. 10. SEC. 11. Section 10168.6 of
the Insurance Code is amended to read:
10168.6. For the purpose of determining the benefits calculated
under Sections 10168.4 and 10168.5, the following apply:
(a) In the case of annuity contracts under which the fixed
maturity date is later than the later of the anniversary of the
contract next following the annuitant's 70th birthday or the 10th
anniversary of the contract, the maturity date shall be deemed to be
the later of the anniversary of the contract next following the
annuitant's 70th birthday or the 10th anniversary of the contract.
(b) In the case of annuity contracts under which an election may
be made to have annuity payments commence at optional maturity dates,
the maturity date shall be deemed to be the latest date for which
election shall be permitted by the contract, but shall not be deemed
to be later than the anniversary of the contract next following the
annuitant's seventieth birthday or the tenth anniversary of the
contract, whichever is later.
SEC. 11. SEC. 12. Section 10234.6 of
the Insurance Code is amended to read:
10234.6. (a) The commissioner shall, by June 1 of each year,
jointly design the format and content of a consumer rate guide for
long-term care insurance with a working group that includes
representatives of the Health Insurance Counseling and Advocacy
Program, the insurance industry, and insurance agents. The
commissioner shall annually prepare the consumer rate guide for
long-term care insurance that shall include, but not be limited to,
the following information:
(1) A comparison of the different types of long-term care
insurance and coverages available to California consumers and a
specimen outline of coverage for each product currently marketed by
each insurer listed in the rate guide.
(2) A premium history of each insurer that writes long-term care
policies for all the types of long-term care insurance and coverages
issued by the insurer in California.
(b) The consumer rate guide to be prepared by the commissioner
shall consist of two parts: a history of the rates for all policies
issued in California for the current year and for nine preceding
years, and a comparison of the policies, benefits, and sample
premiums for all policies currently being issued for delivery in
California.
(1) For the rate history portion of the rate guide required by
this section, the department shall collect, and each insurer shall
provide to the department, all of the following information for each
long-term care policy, including all policies, whether issued by the
insurer or purchased or acquired from another insurer, issued in
California for the current year and for nine preceding years:
(A) Company name.
(B) Policy type.
(C) Policy form identification.
(D) Dates sold.
(E) Date acquired (if applicable).
(F) Premium rate increases requested.
(G) Premium rate increases approved.
(H) Dates of premium rate increase approvals.
(I) Any other information requested by the department.
(2) For the policy comparison portion of the rate guide required
by this section, the department shall collect, and each insurer shall
provide to the department, the information needed to complete the
following form, along with any other information requested by the
department, for each long-term care policy currently issued for
delivery in California, including all policies, whether issued by the
insurer or purchased or acquired from another insurer: GRAPHIC
INSERT HERE: SEE PRINTED VERSION OF THE BILL]
If an insurer does not offer a policy for sale that fits the
criteria set forth in the sample premium portion of the policy
comparison section of the rate guide, the department shall include in
that section of the form for that policy a statement explaining that
a policy fitting that criteria is not offered by the insurer and
that the consumer may seek, from an agent, sample premium information
for the insurer's policy that most closely resembles the policy in
the sample.
The department shall use the format set forth
in this section for the policy comparison portion of the rate guide,
unless the working group convened pursuant to subdivision (a) designs
an alternative format and agrees that it should be used instead.
In compiling the policy comparison portion of the rate guide, the
department shall separate the group policies from the individual
policies available for sale so that group policies for all insurers
appear together in the guide and individual policies for all insurers
appear together in the guide.
The policy comparison portion of the rate guide shall contain a
cross-reference for each policy form listed indicating the page in
the rate guide where rate information on the policy form can be
found.
(c) The department shall publish, on the department's Internet Web
site, a premium history of each insurer that writes long-term care
policies for all the types of long-term care insurance and coverages
issued by the insurer in each state. Each insurer shall provide to
the department all of the information listed in paragraph (1) of
subdivision (b) for each long-term care policy, including all
policies, whether issued by the insurer or purchased or acquired from
another insurer, issued in the United States for the current year
and for the nine preceding years.
(d) Insurers shall provide the information required pursuant to
subdivisions (b) and (c) no later than July 31 of each year,
commencing in 2000.
(e) The consumer rate guide shall be published no later than
December 1 of each year commencing in 2000, and shall be distributed
using all of the following methods:
(1) Through Health Insurance Counseling and Advocacy Program
(HICAP) offices.
(2) By telephone using the department's consumer toll-free
telephone number.
(3) On the department's Internet Web site.
(4) A notice in the Long-Term Care Insurance Personal Worksheet
required by Section 10234.95.
(f) Notwithstanding any other provision of law, the data submitted
by insurers to the department pursuant to this section are public
records, and shall be open to inspection by members of the public
pursuant to the procedures of the California Public Records Act.
However, a trade secret, as defined in subdivision (d) of Section
3426.1 of the Civil Code, is not subject to this subdivision.
SEC. 12. SEC. 13. Section 10234.95
of the Insurance Code is amended to read:
10234.95. (a) Every insurer or other entity marketing long-term
care insurance shall:
(1) Develop and use suitability standards to determine whether the
purchase or replacement of long-term care insurance is appropriate
for the needs of the applicant.
(2) Train its agents in the use of its suitability standards.
(3) Maintain a copy of its suitability standards and make them
available for inspection upon request by the commissioner.
(b) The agent and insurer shall develop procedures that take into
consideration, when determining whether the applicant meets the
standards developed by the insurer, the following:
(1) The ability to pay for the proposed coverage and other
pertinent financial information related to the purchase of the
coverage.
(2) The applicant's goals or needs with respect to long-term care
and the advantages and disadvantages of insurance to meet these goals
or needs.
(3) The value, benefits, and costs of the applicant's existing
insurance, if any, when compared to the values, benefits, and costs
of the recommended purchase or replacement.
(c) (1) The issuer, and where an agent is involved, the agent,
shall make reasonable efforts to obtain the information set out in
subdivision (b). The efforts shall include presentation to the
applicant, at or prior to application, of the "Long-Term Care
Insurance Personal Worksheet," contained in the Long-Term Care
Insurance Model Regulations of the National Association of Insurance
Commissioners. The personal worksheet used by the insurer shall
contain, at a minimum, the information in the NAIC worksheet in not
less than 12-point type. The insurer may request the applicant to
provide additional information to comply with its suitability
standards.
(2) In the premium section of the personal worksheet, the insurer
shall disclose all rate increases and rate increase requests for all
policies, whether issued by the insurer or purchased or acquired from
another insurer, in the United States for the current year and for
nine preceding years.
(3) The premium section shall include a statement that reads as
follows: "A rate guide is available that compares the policies sold
by different insurers, the benefits provided in those policies, and
sample premiums. The rate guide also provides a history of the rate
increases, if any, for the policies issued by different insurers in
each state in which they do business, for the current year and for
the nine preceding years. You can obtain a copy of this rate guide by
calling the Department of Insurance's consumer toll-free telephone
number (1-800-927-HELP), by calling the Health Insurance Counseling
and Advocacy Program (HICAP) toll-free telephone number
(1-800-434-0222), or by accessing the Department of Insurance's
Internet Web site (www.insurance.ca.gov)." If the personal worksheet
is approved prior to the availability of the rate guide, the
worksheet shall indicate that the rate guide will be available
beginning December 1, 2000.
(4) A copy of the issuer's personal worksheet shall be filed and
approved by the commissioner. A new personal worksheet shall be filed
and approved by the commissioner each time a rate is increased in
California and each time a new policy is filed for approval by the
commissioner. The new personal worksheet shall disclose the amount of
the rate increase in California and all prior rate increases for the
nine preceding years in California as well as all prior rate
increases and rate increase requests or filings in any other state
for the nine preceding years. The new personal worksheet shall be
used by the insurer within 60 days of approval by the commissioner in
place of the previously approved personal worksheet.
(d) A completed personal worksheet shall be returned to the issuer
prior to the issuer's consideration of the applicant for coverage,
except the personal worksheet need not be returned for sale of
employer group long-term care insurance to employees and their
spouses and dependents.
(e) The sale or dissemination outside the company or agency by the
issuer or agent of information obtained through the personal
worksheet is prohibited.
(f) The issuer shall use the suitability standards it has
developed pursuant to this section in determining whether issuing
long-term care insurance coverage to an applicant is appropriate.
(g) Agents shall use the suitability standards developed by the
insurer in marketing long-term care insurance.
(h) If the issuer determines that the applicant does not meet its
financial suitability standards, or if the applicant has declined to
provide the information, the issuer may reject the application.
Alternatively, the issuers shall send the applicant a letter similar
to the "Long-Term Care Insurance Suitability Letter" contained in the
Long-Term Care Model Regulations of the National Association of
Insurance Commissioners. However, if the applicant has declined to
provide financial information, the issuer may use some other method
to verify the applicant's intent. Either the applicant's returned
letter or a record of the alternative method of verification shall be
made part of the applicant's file.
(i) The insurer shall report annually to the commissioner the
total number of applications received from residents of this state,
the number of those who declined to provide information on the
personal worksheet, the number of applicants who did not meet the
suitability standards, and the number who chose to conform after
receiving a suitability letter.
(j) This section shall not apply to life insurance policies that
accelerate benefits for long-term care.
SEC. 14. Section 10236.1 of the
Insurance Code is amended to read:
10236.1. (a) Benefits under individual long-term care insurance
policies issued before new premium rate schedules are approved under
Section 10236.11 shall be deemed reasonable in relation to premiums
if the expected loss ratio is at least 60 percent, calculated in a
manner that provides for adequate reserving of the long-term care
insurance risk.
(b) (1) For individual long-term care insurance policies issued
before new premium rate schedules are approved under Section
10236.11, and for which rate revisions are filed on or after January
1, 2010, benefits shall be deemed reasonable in relation to the
premium if the premium rate schedules have a lifetime expected loss
ratio of at least 60 percent of the premium scale in effect on
December 31, 2009, plus 70 percent of premium increases filed on or
after January 1, 2010, calculated in a manner that provides for
adequate reserving of the long-term care insurance risk. The
lifetime expected loss ratio shall be calculated using the discount
rate defined in paragraph (9) of subdivision (c).
(2) However, if the premiums in any rate revision filing
calculated in the manner provided in paragraph (1) produce a lifetime
expected loss ratio that is less than the highest lifetime expected
loss ratio for this policy form in the initial filing or that for
requested premium rates in any filing made after January 1, 2013, the
insurer shall reduce the premiums in the filing so that the current
lifetime expected loss ratio is equal to or greater than the highest
initially filed loss ratio or that for requested premium rates filed
after January 1, 2013. In the determination of a lifetime expected
loss ratio, a margin may reflect changes in the manner in which risks
are shared between the insurer and a block of policies due to
changes in this law effective January 1, 2013, and that margin shall
not be increased unless the manner in which risks are shared between
the insurer and the block of policies is changed further by law or
regulation. The determination of the lifetime expected loss ratio
shall be based on the actual distribution of policies in force at the
time of the first filing after January 1, 2013, and not any prior
assumed distribution.
(c) In evaluating the expected loss ratio, due consideration shall
be given to all relevant factors, including the following:
(1) Statistical credibility of incurred claims experience and
earned premiums.
(2) The period for which rates are computed to provide coverage.
(3) Experienced and projected trends.
(4) Concentration of experience within early policy duration.
(5) Expected claim fluctuation.
(6) Experience refunds, adjustments, or dividends.
(7) Renewability features.
(8) All appropriate expense factors.
(9) The discount rate used in the calculation of lifetime expected
loss ratios. All present and accumulated values used to
determine rate increases should use the maximum valuation
interest rate for contract reserves. If one rate increase filing
includes policy forms with different discount rates, separate
projections for each discount rate should be prepared and then
combined to create the total projection for the filings.
(10) Experimental nature of the coverage.
(11) Policy reserves.
(12) Mix of business by risk classification.
(13) Product features, such as long elimination periods, high
deductibles, and high maximum limits.
(d) Asset investment yield rate changes may not be used to justify
a rate increase unless the insurer can demonstrate that its return
on investments is lower than the maximum valuation interest rate for
contract reserves for those policies or the commissioner determines
that a change in interest rates is justified due to changes in laws
or regulations that are retroactively applicable to long-term care
insurance previously sold in this state.
(e) The experience on all similar long-term care policy forms
issued in this state by an insurer and its affiliates and retained
within the affiliated group shall be pooled together and the combined
experience shall be used as the basis for assumptions that satisfy
the requirements in subdivisions (a) and (b). Those assumptions and
requested rate increases may vary by policy form if actuarially
appropriate. Similar long-term care policy forms shall be classified
into one of the following benefit classifications: nursing facility
and residential care facility only, home care only, or comprehensive
long-term care benefits.
(f) Notwithstanding any other provision of this section, for rate
revisions filed on or after January 1, 2010, the commissioner may
approve an application for a rate revision based on less than a 70
percent loss ratio, but not less than a 60 percent loss ratio, for
the portion attributable to the rate increase if an insurer can
demonstrate that the rates are necessary to protect the financial
condition of the insurer, including avoidance of further reductions
in capital and surplus.
(g) This section applies only to long-term care insurance policies
issued before the approval of rate schedules under Section 10236.11.
SEC. 15. Section 10236.13 of the
Insurance Code is amended to read:
10236.13. No insurer may increase the premium for an individual
or group long-term care insurance policy or certificate approved for
sale under this chapter unless the insurer has received prior
approval for the increase from the commissioner.
The insurer shall submit to the commissioner for approval all
proposed premium rate schedule increases, including at least all of
the following information:
(a) Certification by an actuary, who is a member of the American
Academy of Actuaries and who meets the qualification standards of
that organization, that:
(1) If the requested premium rate schedule increase is implemented
and the underlying assumptions, which reflect moderately adverse
conditions, are realized, no further premium rate schedule increases
are anticipated.
(2) The premium rate filing is in compliance with the provisions
of this section.
(b) An actuarial memorandum justifying the rate schedule change
request that includes all of the following:
(1) Lifetime projections of earned premiums and incurred claims
based on the filed premium rate schedule increase, and the method and
assumptions used in determining the projected values, including
reflection of any assumptions that deviate from those used for
pricing other forms currently available for sale.
(A) Annual values for the five years preceding and the three years
following the valuation date shall be provided separately.
(B) The projections shall include the development of the lifetime
loss ratio. The lifetime expected loss ratio shall be calculated
using the discount rate provided by subdivision (c) of Section
10236.14.
(C) For policies issued with premium rate schedules approved under
Section 10236.11, the projections shall demonstrate compliance with
subdivision (a) of Section 10236.14. For all other policies, the
projections shall demonstrate compliance with Section 10236.1.
(D) If the commissioner determines that a premium rate increase is
justified due to changes in laws or regulations that are
retroactively applicable to long-term care insurance previously sold
in this state, then:
(i) The projected experience should be limited to the increases in
claims expenses attributable to the changes in law or regulations.
(ii) If the commissioner determines that potential offsets to
higher claims costs may exist, the insurer shall be required to use
appropriate net projected experience.
(2) Disclosure of how reserves have been incorporated in this rate
increase.
(3) Disclosure of the analysis performed to determine why a rate
adjustment is necessary, which pricing assumptions were not realized
and why, and what other actions taken by the company have been relied
on by the actuary.
(4) A statement that policy design, underwriting, and claims
adjudication practices have been taken into consideration.
(5) A statement that asset investment yield rate changes have not
been used to justify the rate increase unless the insurer can
demonstrate that its return on investments is lower than the maximum
valuation interest rate for contract reserves for those policies or
the commissioner determines that a change in interest rates is
justified due to changes in laws or regulations that are
retroactively applicable to long-term care insurance previously sold
in this state.
(6) If it is necessary to maintain consistent premium rates for
new certificates and certificates receiving a rate increase, the
insurer shall file composite rates reflecting projections of new
certificates.
(c) A statement that renewal premium rate schedules are not
greater than new business premium rate schedules except for
differences attributable to benefits, unless sufficient justification
is provided to the commissioner.
(d) Sufficient information for approval of the premium rate
schedule increase by the commissioner.
(e) (1) The insurer, at its discretion, may request a premium rate
schedule increase that is lower than the rate increase necessary to
provide the certification required by subdivision (a) or a series of
premium rate schedule increases with a present value of not more than
the rate increase necessary to provide the certification required by
subdivision (a). The commissioner may accept the premium rate
schedule increase or series of increases without submission of the
certification required by subdivision (a) if all of the following
apply:
(A) In the opinion of the commissioner, accepting the lower
premium rate schedule increase or increases is in the best interest
of California policyholders.
(B) The actuarial memorandum discloses to the commissioner the
rate increase necessary to provide the certification required by
subdivision (a).
(C) The rate increase filing satisfies all other requirements of
this section.
(D) The insurer discloses to policyholders affected by the
approved increases the filed increase, the approved premium rate
schedule increase or increases, and the amount and timing of any
subsequent rate schedule increases included in the rate increase
filing whether those subsequent rate schedule increases are approved
or not approved by the commissioner.
(2) The commissioner may approve a lower requested premium rate
schedule increase and may approve the initial increase or more than
just the initial increase requested pursuant to paragraph (1).
(3) If the amount of increase after all increases disclosed
pursuant to subparagraph (D) of paragraph (1), whether the increase
or increases are approved or not approved by the commissioner,
triggers the contingent benefit upon lapse, the commissioner shall
require the administration by an insurer of the contingent benefit
upon lapse as a condition of approval of a premium rate schedule
increase that is lower than the amount necessary to provide the
certification required by paragraph (1) of subdivision (a) or with
the initial increase and each subsequent increase in a series of
premium rate schedule increases. The commissioner may waive this
condition of approval if an insurer demonstrates that the waiver is
necessary to protect the financial condition of the insurer,
including avoidance of further reductions in capital and surplus.
(4) For purposes of paragraph (2) of subdivision (a) of Section
10236.14, the loss ratio calculation shall assume future premiums are
based on the total filed rate schedule increase or series of
increases disclosed pursuant to subparagraph (D) of paragraph (1),
whether the increase or increases are approved or not approved by the
commissioner.
(5) Premium rate schedule increases requested pursuant to
paragraph (1) or approved as described in paragraph (2) shall comply
with the provisions of Sections 10234.6 and 10234.95.
(f) The provisions of this section are applicable to all
individual and group policies issued in this state on or after July
1, 2002.
SEC. 16. Section 10236.14 of the
Insurance Code is amended to read:
10236.14. Approval of all premium rate schedule increases shall
be subject to the following requirements:
(a) (1) Premium rate schedule increases shall demonstrate that the
sum of the accumulated value of incurred claims, without the
inclusion of active life reserves, and the present value of future
projected incurred claims, without the inclusion of active life
reserves, will not be less than the sum of the following:
(A) The accumulated value of the initial earned premium times
58 percent. the maximum of both of the
following:
(i) 58 percent.
(ii) The lifetime expected loss ratio calculated using the initial
pricing assumption, actual distribution of policies issued, and the
discount rate provided by subdivision (c).
(B) Eighty-five percent of the accumulated value of prior premium
rate schedule increases on an earned basis.
(C) The present value of future projected initial earned premiums
times 58 percent. the maximum of both of the
following:
(i) 58 percent.
(ii) The lifetime expected loss ratio calculated using the initial
pricing assumption, actual distribution of policies issued, and the
discount rate provided by subdivision (c).
(D) Eighty-five percent of the present value of future projected
premiums not in subparagraph (C) on an earned basis.
(2) However, if the premiums in any rate revision filing
calculated in this manner produce a lifetime expected loss ratio that
is less than the highest lifetime expected loss ratio for this
policy form in the initial filing or that for requested premium rates
in any filing made after January 1, 2013, the insurer shall reduce
the premiums in the filing so that the current lifetime expected loss
ratio is equal to or greater than the highest initially filed loss
ratio or that for requested premium rates filed after January 1,
2013. In the determination of a lifetime expected loss ratio, the
margin for moderately adverse experience shall be reflected and shall
not be increased unless the manner in which risks are shared between
the insurer and block of policies has been changed by this law or
any future law or regulation. The determination of the lifetime
expected loss ratio shall be based on the actual distribution of
policies issued and not any assumed distribution prior to actual
sales.
(b) In the event the commissioner determines that a premium rate
increase is justified due to changes in laws or regulations that are
retroactively applicable to long-term care insurance previously sold
in this state, a premium rate schedule increase may be approved if
the increase provides that 70 percent of the present value of
projected additional premiums shall be returned to policyholders in
benefits and the other requirements applicable to other premium rate
schedule increases are met.
(c) All present and accumulated values used to determine rate
increases should use the maximum valuation interest rate for contract
reserves. The actuary shall disclose as part of the
actuarial memorandum the use of any appropriate averages.
If one rate increase filing includes policy forms with different
discount rates, se parate projections for each discount
rate should be prepared and then combined to create the
total projection for the filing.
(d) No request for a rate increase on any policy form approved
under Section 10236.11 shall be approved by the commissioner except
as follows: the experience on all similar long-term care policy forms
issued in this state by the insurer and its affiliates and retained
by the affiliated group that have been approved either prior to
approval under, or pursuant to, Section 10236.11 shall be pooled
together and the combined experience shall be used as the basis for
assumptions that satisfy the requirements in subdivision (a). Those
assumptions and requested rate increases may vary by policy form if
actuarially appropriate. Similar long-term care policy forms shall be
classified into one of the following benefit classifications:
nursing facility and residential care facility only, home care only,
or comprehensive long-term care benefits. An insurer is not precluded
from filing requests for premium rate schedule increases on all of
its policy forms if the combined experiences after pooling all
applicable policy forms satisfies the requirements of subdivision
(a).
(e) Notwithstanding any other provision of this section, for
applications for rate revisions filed on or after January 1, 2013,
the commissioner may approve the application if an insurer
demonstrates that the rates are necessary to protect the financial
condition of the insurer, including avoidance of further reductions
in capital and surplus.
(f) The provisions of this section are applicable to all
individual and group policies issued in this state on or after July
1, 2002.
SEC. 17. Section 10236.15 of the
Insurance Code is amended to read:
10236.15. Premium rate schedule increases that have been approved
shall be subject to the following:
(a) For each rate increase that is implemented, the insurer shall
file for approval by the commissioner updated projections, as defined
in paragraph (1) of subdivision (b) of Section 10236.13, annually
for the next three years and include a comparison of actual results
to projected values. The commissioner may extend the period to
greater than three years.
(b) (1) If the commissioner has determined that the actual
experience following a rate increase does not adequately match the
projected experience and that the current projections under
moderately adverse conditions demonstrate that incurred claims will
not exceed proportions of premiums specified in subdivision (a), the
commissioner may require the insurer to implement any of the
following:
(A) Premium rate schedule adjustments.
(B) Other measures to reduce the difference between the projected
and actual experience.
(2) In determining whether the actual experience adequately
matches the projected experience, consideration should be given to
paragraph (5) (6) of subdivision (b) of
Section 10236.13, if applicable.
(c) If the commissioner demonstrates, based upon credible
evidence, that an insurer has engaged in a persistent practice of
filing inadequate
premium schedules, the commissioner may, in addition to any other
authority of the commissioner under this chapter, and after the
insurer is afforded proper notice and due process, prohibit the
insurer from filing and marketing comparable coverage for a period of
up to five years or from offering all other similar coverages, and
may limit marketing of new applications to the products subject to
recent premium rate schedule increases.
(d) This section shall not apply to life insurance policies and
certificates that accelerate benefits for long-term care.
(e) The provisions of this section are applicable to all
individual and group policies issued in this state on or after July
1, 2002.
SEC. 13. SEC. 18. Section 11520.5 of
the Insurance Code is amended to read:
11520.5. No person shall transact in this state the business
described in this chapter without first procuring a certificate of
authority from the commissioner for such purpose. Application for
such certificate shall be made on a form prescribed by the
commissioner accompanied by a filing fee of one thousand seven
hundred seventy dollars ($1,770). The certificate shall not be
granted until the applicant conforms to the requirements of this
chapter and the laws of this state prerequisite to its issue. After
such issue the holder shall continue to comply with the requirements
of this chapter and the laws of this state. When a hearing is held
under this section the proceedings shall be conducted in accordance
with Chapter 5 (commencing with Section 11500) of Part 1,
Division 3, 1 of Division 3 of Title 2 of the
Government Code, and the commissioner shall have all of the powers
granted therein.
Subject to the annual fee provisions herein, every certificate of
authority issued or held under this chapter shall be for an
indefinite term and, unless sooner revoked by the commissioner, shall
terminate upon occurrence of any of the following:
(a) Upon the holder's ceasing to exist as a separate entity.
(b) Upon the winding up or dissolution, or expiration or
forfeiture of the corporate existence of a corporate holder thereof.
(c) Upon winding up or dissolution of a holder not a corporation.
(d) In any event upon surrender by the holder of its certificate
of authority and cancellation of the same by the commissioner.
The commissioner shall not cancel a surrendered certificate of
authority until he or she is satisfied by examination, or
otherwise, that the former holder has discharged its annuity
liabilities to residents of this state or satisfactorily reinsured
the same.
Notwithstanding the preceding provisions for a certificate of
authority of indefinite term, each holder of a certificate of
authority under this chapter shall owe and pay in advance to the
commissioner in lawful money of the United States an annual fee of
fifty-eight dollars ($58) on account of a certificate of authority
until its final termination or revocation. The fee shall be for
annual periods commencing on July 1st of each year and ending on June
30th of each year and shall be due on each March 1st and shall be
delinquent on and after each April 1st.
Each holder of a certificate of authority shall also be subject to
the payment in advance of the following fees, as appropriate:
(1) One hundred eighteen dollars ($118) for each amended
certificate of authority caused by a change of the name of the
holder.
(2) Eighty-nine dollars ($89) for the services and expenses of the
commissioner in connection with the filing of amended articles by a
holder.
(3) Three hundred fifty-four dollars ($354) for all services and
expenses of the commissioner in connection with the withdrawal of a
holder of a certificate of authority under this chapter.
(e) Upon the receipt of a notice of filing of a petition by or
against a certificate holder under the United States Bankruptcy Code
for bankruptcy or reorganization, the commissioner shall cease
imposing, billing, or collecting the annual fees due under this
chapter and this section to the certificate holder.
(f) Upon notice of the suspension of the corporate status of the
certificate holder for a period of 12 months by the Secretary of
State, the commissioner shall terminate the certificate of authority
and shall deem the certificate to be terminated.
SEC. 14. SEC. 19. Section 11691 of
the Insurance Code is amended to read:
11691. (a) (1) In order to provide protection to the workers of
this state in the event that the insurers issuing workers'
compensation insurance to employers fail to pay compensable workers'
compensation claims when due, except in the case of the State
Compensation Insurance Fund, every insurer desiring admission to
transact workers' compensation insurance, or workers' compensation
reinsurance business, or desiring to reinsure the injury,
disablement, or death portions of policies of workers' compensation
insurance under the class of disability insurance shall, as a
prerequisite to admission, or ability to reinsure the injury,
disablement, or death portion of policies of workers' compensation
insurance under the class of disability insurance, deposit cash
instruments or approved interest-bearing securities or approved
stocks readily convertible into cash, investment certificates, or
share accounts issued by a savings and loan association doing
business in this state and insured by the Federal Deposit Insurance
Corporation, certificates of deposit, or savings deposits in a bank
licensed to do business in this state, or approved letters of credit
that perform in material respects as any other security allowable as
a form of deposit for purposes of a workers' compensation deposit and
that meet the standard set forth in Section 922.5, or approved
securities registered with a qualified depository located in a
reciprocal state as defined in Section 1104.9, with that deposit to
be in an amount and subject to any exceptions as set forth in this
article. The deposit shall be made from time to time as demanded by
the commissioner and may be made with the Treasurer, or a bank or
savings and loan association authorized to engage in the trust
business pursuant to Division 1 (commencing with Section 99) or
Division 2 (commencing with Section 5000) of the Financial Code, or a
trust company. A deposit of securities registered with a qualified
depository located in a reciprocal state as defined in Section 1104.9
may only be made in a bank or savings and loan association
authorized to engage in the trust business pursuant to Division 1
(commencing with Section 99) or Division 2 (commencing with Section
5000) of the Financial Code, or a trust company, licensed to do
business and located in this state that is either domiciled in and
has a principal place of business in this state, or is a national
bank association with a trust office located in this state, that is a
qualified custodian as defined in paragraph (1) of subdivision (a)
of Section 1104.9, and that maintains deposits of at least seven
hundred fifty million dollars ($750,000,000). The deposit shall be
made subject to the approval of the commissioner under those rules
and regulations that he or she shall promulgate. The deposit shall be
maintained at a deposit value specified by the commissioner, but in
any event no less than one hundred thousand dollars ($100,000), nor
less than the reserves required of the insurer to be maintained under
any of the provisions of Article 1 (commencing with Section 11550)
of Chapter 1, relating to loss reserves on workers' compensation
business of the insurer in this state, nor less than the sum of the
amounts specified in subdivision (a) of Section 11693, whichever is
greater. The deposit shall be for the purpose of paying compensable
workers' compensation claims under policies issued by the insurer or
reinsured by the admitted reinsurer and expenses as provided in
Section 11698.02, in the event the insurer or reinsurer fails to pay
those claims when they come due. If the insurer providing the deposit
is domiciled in a state where a state statute, regulation, or court
decision provides that, with respect to covered claims within the
deductible amount that are paid by a guarantee association after the
entry of an order of liquidation under large deductible workers'
compensation policies, any part of the reimbursement proceeds, other
than the reasonable expenses of the receiver related to treatment of
deductible policy arrangements of insurance companies in liquidation,
owed by insureds on those deductible amounts, whether paid directly
or through a draw of collateral, are general assets of the estate,
then the amount of the insurer's deposit pursuant to this article
shall be calculated based on the gross amount of that insurer's
liabilities for loss and loss adjustment expenses under those
policies without regard to the deductible, and those reserves shall
not be reduced by any collateral or reimbursement obligations
insureds were required to provide under those policies.
(2) This section does not require that the deposit be calculated
based on gross amounts of liabilities described above if the
domiciliary state does not have an existing statute, regulation, or
court decision providing that the reimbursement proceeds described
above are general assets of the estate.
(b) Each insurer or reinsurer desiring to have the ability to
reinsure the injury, disablement, or death portions of policies of
workers' compensation under the class of disability insurance shall
provide prior notice to the commissioner, in the manner and form
prescribed by the commissioner of its intent to reinsure that
insurance. In the event of late notice, a late filing fee shall be
imposed on the reinsurer pursuant to Section 924 for failure to
notify the commissioner of its intent to reinsure workers'
compensation insurance.
(c) If the deposit required by this section is not made with the
Treasurer, then the depositor shall execute a trust agreement in a
form approved by the commissioner between the insurer, the
institution in which the deposit is made or, where applicable, the
qualified custodian of the deposit, and the commissioner, that grants
to the commissioner the authority to withdraw the deposit as set
forth in Sections 11691.2, 11696, 11698, and 11698.3. The insurer
shall also execute and deliver in duplicate to the commissioner a
power of attorney in favor of the commissioner for the purposes
specified herein, supported by a resolution of the depositor's board
of directors. The power of attorney and director's resolution shall
be on forms approved by the commissioner, shall provide that the
power of attorney cannot be revoked or withdrawn without the consent
of the commissioner, and shall be acknowledged as required by law.
(d) (1) The commissioner shall require payment in advance of fees
for the initial filing of a trust agreement with a bank, savings and
loan association, or trust company on deposits made pursuant to
subdivision (a); for each amendment, supplement, or other change to
the deposit agreement; for receiving and processing deposit schedules
pursuant to this section; and for each withdrawal, substitution, or
any other change in the deposit. The fees shall be set forth in the
department's Schedule of Fees and Charges.
(2) The commissioner shall require payment in advance of a fee for
the initial filing of each letter of credit utilized pursuant to
subdivision (a). In addition, the commissioner shall require payment
in advance of a fee for each amendment of a letter of credit. The
fees shall be set forth in the department's Schedule of Fees and
Charges.
(e) Any workers' compensation insurer that deposits cash or cash
equivalents pursuant to this section shall be entitled to a prompt
refund of those deposits in excess of the amount determined by the
commissioner pursuant to subdivision (a). The commissioner shall
cause to be refunded any deposits determined by the commissioner to
be in excess of the amount required by subdivision (a) within 30 days
of that determination. In the alternative, an insurer may use any
excess deposit funds to offset a demand by the commissioner to
increase its deposit due to the failure of a reinsurer to make a
deposit pursuant to this section.
(f) (1) An admitted insurer reinsuring business covered in this
article (hereafter referred to as reinsurer) shall identify to the
commissioner, in a form prescribed by the commissioner, amounts
deposited for credit in the name of each ceding insurer.
(2) All reinsurance agreements covering claims and obligations
under business covered by this article, and allowable for purposes of
granting a ceding carrier a deposit credit, shall include a
provision granting the commissioner, in the event of a delinquency
proceeding, receivership, or insolvency of a ceding insurer, any sums
from a reinsurer's deposit that are necessary for the commissioner
to pay those reinsured claims and obligations, or to ensure their
payment by the California Insurance Guarantee Association, deemed by
the commissioner due under the reinsurance agreement, upon failure of
the reinsurer for any reason to make payments under the policy of
reinsurance. The commissioner shall give 30 days' notice prior to
drawing upon these funds of an intent to do so. Notwithstanding the
commissioner's right to draw on these funds, the reinsurer shall
otherwise retain its right to determine the validity of those claims
and obligations and to contest their payment under the reinsurance
agreement. Prior to a reinsurer's deposit being drawn upon, in whole
or in part, by the department, the department shall provide a
reinsurer with an explanation of procedures that a reinsurer may use
to explain to the department why the use of the reinsurer's deposit
may not be appropriate under the reinsurance agreement.
(3) A reinsurer entering into a contract identified in paragraph
(2), beginning on or after January 1, 2005, may not cede claims or
obligations assumed from a ceding insurer unless the deposit securing
the ceded claims or obligations is governed by paragraph (2) or,
upon approval of the commissioner, would secure the ceded claims or
obligations in all material respects and in the same manner as a
deposit identified in paragraph (2) above.
(4) All sums received from the reinsurer by the commissioner for
those claims paid by the California Insurance Guarantee Association
shall be held separate and apart from and not included in the general
assets of the insolvent insurer, and shall be transferred to the
California Insurance Guarantee Association upon receipt by the
commissioner. In the event of a final judgment or settlement adverse
to the drawing of funds by the commissioner pursuant to paragraph (2)
or (3), the California Insurance Guarantee Association shall repay
funds it obtained to pay covered claims and shall, if necessary,
either levy a surcharge as needed or seek legislative approval to
levy the surcharge if the California Insurance Guarantee Association
is already levying the maximum surcharge permissible under law.
(g) If a reinsurer has not maintained deposits as required by
subdivision (a) in amounts equal to the amounts of deposit credits
claimed by its ceding insurers, the commissioner, after notifying the
reinsurer and its ceding insurers of the deposit shortfall and
allowing 15 days from the date of the notice for the deposit
shortfall to be corrected, may disallow all or a portion of the
reserve credits claimed by the ceding insurers. A ceding insurer
disallowed a reserve credit pursuant to this provision shall
immediately make the deposit required by this section.
(h) For interest-bearing securities that are debt securities and
include principal payment features prior to maturity that are
utilized pursuant to subdivision (a), all principal payments received
shall be retained as part of the deposit.
(i) Withdrawal of any amount of the deposit required under
subdivision (a) that results in a reduction of the required amount of
the deposit may only occur with the prior written consent of the
commissioner.
SEC. 20. Section 12921.1 of the
Insurance Code is amended to read:
12921.1. (a) The commissioner shall establish a program on or
before July 1, 1991, to investigate complaints and respond to
inquiries received pursuant to Section 12921.3, to comply with
Section 12921.4, and, when warranted, to bring enforcement actions
against insurers or production agencies, as those terms are defined
in subdivision (a) of Section 1748.5. The program shall include, but
not be limited to, the following:
(1) A toll-free telephone number published in telephone books
throughout the state, dedicated to the handling of complaints and
inquiries.
(2) Public service announcements to inform consumers of the
toll-free telephone number and how to register a complaint or make an
inquiry to the department.
(3) A simple, standardized complaint form designed to assure that
complaints will be properly registered and tracked.
(4) Retention of records on complaints for at least three years
after the complaint has been closed.
(5) Guidelines to disseminate complaint and enforcement
information on individual insurers to the public, that shall include,
but not be limited to, the following:
(A) License status.
(B) Number and type of complaints closed within the last full
calendar year, with analogous statistics from the prior two years for
comparison. The proportion of those complaints determined by the
department to require that corrective action be taken against the
insurer, or leading to insurer compromise, or other remedy for the
complainant, as compared to those that are found to be without merit.
This information shall be disseminated in a fashion that will
facilitate identification of meritless complaints and discourage
their consideration by consumers and others interested in the records
of insurers.
(C) Number and type of violations found, by reference to the line
of insurance and the law violated. For the purposes of this
subparagraph, the department shall separately report this information
for health insurers.
(D) Number and type of enforcement actions taken.
(E) Ratio of complaints received to total policies in force, or
premium dollars paid in a given line, or both. Private passenger
automobile insurance ratios shall be calculated as the number of
complaints received to total car years earned in the period studied.
(F) Any other information the department deems is appropriate
public information regarding the complaint record of the insurer that
will assist the public in selecting an insurer. However, nothing in
this section shall be construed to permit disclosure of information
or documents in the possession of the department to the extent that
the information and those documents are protected from disclosure
under any other provision of law.
(6) Procedures and average processing times for each step of
complaint mediation, investigation, and enforcement. These procedures
shall be consistent with those in Article 6.5 (commencing with
Section 790) of Chapter 1 of Part 2 of Division 1 for complaints
within the purview of that article, consistent with those in Article
7 (commencing with Section 1858) of Chapter 9 of Part 2 of Division 1
for complaints within the purview of that article, and consistent
with any other provisions of law requiring certain procedures to be
followed by the department in investigating or prosecuting complaints
against insurers or production agencies.
(7) A list of criteria to determine which violations should be
pursued through enforcement action, and enforcement guidelines that
set forth appropriate penalties for violations based on the nature,
severity, and frequency of the violations.
(8) Referral of complaints not within the department's
jurisdiction to appropriate public and private agencies.
(9) Complaint handling goals that can be tested against surveys
carried out pursuant to subdivision (a) of Section 12921.4.
(10) Inclusion in its annual report to the Governor, required by
Section 12922, detailed information regarding the program required by
this section, that shall include, but not be limited to: a
description of the operation of the complaint handling process,
listing civil, criminal, and administrative actions taken pursuant to
complaints received; the percentage of the department's personnel
years devoted to the handling and resolution of complaints; and
suggestions for legislation to improve the complaint handling
apparatus and to increase the amount of enforcement action undertaken
by the department pursuant to complaints if further enforcement is
deemed necessary to ensure proper compliance by insurers or
production agencies with the law.
(b) The commissioner shall promulgate a regulation that sets forth
the criteria that the department shall apply to determine if a
complaint is deemed to be justified prior to the public release of a
complaint against a specifically named insurer or production agency.
(c) The commissioner shall provide to the insurer or production
agency a description of any complaint against the insurer or
production agency that the commissioner has received and has deemed
to be justified at least 30 days prior to public release of a report
summarizing the information required by this section. This
description shall include all of the following:
(1) The name of the complainant.
(2) The date the complaint was filed.
(3) A succinct description of the facts of the complaint.
(4) A statement of the department's rationale for determining that
the complaint was justified that applies the department's criteria
to the facts of the complaint.
(d) An insurer shall provide to the department the name, mailing
address, telephone number, and facsimile number of a person whom the
insurer designates as the recipient of all notices, correspondence,
and other contacts from the department concerning complaints
described in this section. The insurer may change the designation at
any time by providing written notice to the Consumer Services
Division of the department.
(e) The commissioner may establish an Internet-accessible
complaints response system to distribute and receive complaint
information as described in subdivisions (a) and (c). Insurers shall
be required to submit and receive complaint information, including,
but not limited to, requested claim files, underwriting files,
correspondence, and other supporting documents, using any system
established by the commissioner pursuant to this subdivision.
(e)
(f) For the purposes of this section, notices,
correspondence, and other contacts with the designated person shall
be deemed contact with the insurer.
SEC. 21. No reimbursement is required by this act
pursuant to Section 6 of Article XIII B of the California
Constitution because the only costs that may be incurred by a local
agency or school district will be incurred because this act creates a
new crime or infraction, eliminates a crime or infraction, or
changes the penalty for a crime or infraction, within the meaning of
Section 17556 of the Government Code, or changes the definition of a
crime within the meaning of Section 6 of Article XIII B of the
California Constitution.