BILL ANALYSIS Ó SENATE COMMITTEE ON INSURANCE Senator Richard Roth, Chair 2015 - 2016 Regular Bill No: AB 2884 Hearing Date: June 22, 2016 ----------------------------------------------------------------- |Author: |Committee on Insurance | |-----------+-----------------------------------------------------| |Version: |June 8, 2016 | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |Yes | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant:|Erin Ryan | | | | ----------------------------------------------------------------- Subject: Insurance: licensees: Internet: disclosures SUMMARY Contains numerous technical and noncontroversial provisions related to insurance law. DIGEST Existing law 1. Defines an automobile insurance policy, and provides specified requirements for the cancellation or non-renewal of such a policy (Insurance Code §660 et seq.); 2. Exempts from the definition any policy insuring more than 4 vehicles; 3. Prohibits a person from soliciting, negotiating, or effecting contracts of insurance, or acting in the capacity of an insurance agent or broker unless the person holds a valid license issued by the Insurance Commissioner (IC); 4. Allows the IC, without hearing, to deny an application for a license if the applicant has committed a felony as shown by a plea of guilty or no lo contendere or a final judgement of conviction, or committed a misdemeanor denounced in the Insurance Code or other laws regulating insurance as shown by a plea of guilty or no lo contendere, or by a final judgement of conviction; AB 2884 (Committee on Insurance) Page 2 of ? 5. Requires an applicant for a license to pass a qualifying examination for licensure 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 test may retake it; 6. Requires a person licensed as an insurance agent or broker to submit any fictitious name for doing business that is different from the name on their license to the IC, and permits the IC to disapprove that name if it is misleading or too similar to another name already in use; 7. Requires an insurance agent or broker who advertises insurance on the Internet to include specified information, including the name on their license and any fictitious name approved by the IC; 8. Prohibits the IC from suspending or revoking a bail agent's license without first granting a hearing; 9. Specifies the procedure for calculating cash surrender benefits and paid up annuity benefits for individual annuity contracts; 10. Requires the IC to annually prepare a consumer rate guide for long-term care insurance and to include specified information from insurers regarding all policies, including rate history, for the current year and the 4 previous years; 11. Requires insurers or other entities marketing long-term care insurance to develop suitability standards to determine whether the purchase or replacement of long-term care insurance is appropriate for the needs of the applicant, including the applicant's ability to pay for the proposed coverage, the applicant's goals and needs, and the value, benefits and cost of the applicant's existing insurance; 12. Requires a long-term care insurer to disclose all rate increases and rate increase requests for all policies, whether issued by the insurer or purchased or acquired from another insurer, since January 1, 1990, and inform the consumer of the availability of the long-term care insurance rate guide; AB 2884 (Committee on Insurance) Page 3 of ? 13. Specifies the method of determining the reasonableness of benefits under long-term insurance policies in relation to expected loss ratios; 14. Provides for the regulation of grants and annuities societies by the IC, specifies qualifications for a certificate of authority, and requires specified fees; 15. Regulates the business of workers' compensation insurance, including the deposit of cash instruments or other forms of security; 16. Requires the IC to establish a program to investigate complaints and respond to inquiries by members of the public regarding the handling of insurance complaints, bring enforcement actions when warranted, and provide to the insurer or production agency a description of any complaint the IC has deemed justified at least 30 days prior to public release of a report summarizing the information This bill 1. Deletes the exemption in the definition of an automobile insurance policy for policies insuring more than 4 vehicles; 2. Deletes an obsolete section dealing with fees in the 1996-1997 fiscal year; 3. Clarifies that the IC may revoke or deny a license based on a guilty verdict for a felony charge; 4. Prohibits a person who has failed an examination for licensure 10 times within the previous 12 months from enrolling in any future examinations for 12 months from the date of the 10th failed examination; 5. Specifies that an insurance agent or broker who advertises insurance on the Internet shall list his or her name as filed with the IC as long as it has not been disapproved by the IC; 6. Prohibits the IC from denying a bail agent license without first granting the applicant a hearing; AB 2884 (Committee on Insurance) Page 4 of ? 7. Specifies that for annuities with fixed maturity dates under which the fixed maturity date is later than the later of the anniversary of the contract 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 two dates; 8. Requires the IC to include in the long-term care insurance rate guide the rates for all policies issued in California for the previous 9 years; 9. Specifies the method for calculating the discount rate in the calculation of lifetime expected loss ratios for long-term care insurance; 10. Prohibits the IC from billing or attempting to collect fees from a grants and annuities society upon receipt of a notice of filing of a petition of bankruptcy; 11. Requires the IC to cancel the certificate of authority of a grants and annuities society upon the suspension of its corporate status by the Secretary of State for a period of 12 months; 12. Make technical and clarifying changes to the regulation of workers' compensation insurer deposits of cash and other forms of security. 13. Allows the IC to establish an Internet-accessible complaints response system to distribute and receive complaint information from the public, and to require insurers to submit and receive complaint information through any system as established by the IC. COMMENTS 1. Purpose of the bill This is the CDI's annual "omnibus" bill to make noncontroversial statutory, technical and clarifying changes to the insurance law. 2. Background The following are CDI explanations of AB 2884 (Committee on Insurance) Page 5 of ? substantive changes made in this bill: a) Update the Definition of Policy for Private Passenger Auto Insurance. California Insurance Code (CIC) 660 was added to the code in 1968 and limited the definition of a "policy" by precluding any policy insuring more than four automobiles. This section has become outdated as it is not uncommon for modern households to have more than four automobiles available for personal, non-commercial use. In its current form, this section can result in an individual not being afforded the protections otherwise available under Proposition 103 due only to the number of owned personal use vehicles he/she desires to insure on the policy. This proposal will ensure availability of the required coverage to multi-vehicle households. b) Provide Consistency Regarding Judgements, Pleas, Verdicts, and Convictions. Insurance Codes 1668 and 1669 were meant to use similar standards to deny or revoke licenses, either through a hearing or summarily but CIC 1669 does not include the ability to summarily deny or revoke a license based on a guilty verdict for a felony charge. This inconsistency creates an unfair standard for individuals who enter in a plea of guilty or nolo contendere versus those who have received a guilty verdict by a jury, but have not received a final judgment. This proposal would make the language consistent and basis for punishment consistent between CIC 1668 and 1669. c) Set Statutory Limitations on Taking License Examinations to Prevent Question Harvesting. Individuals applying for an insurance producer, bail agent, life and disability insurance analyst, independent insurance adjuster or public insurance adjuster license must first pass a qualifying license examination. Depending on the license type, between 30 percent and 60 percent of these individuals end up taking the examination more than once as they are unable to pass the examination on the first attempt. However, CDI has found that there are undetected test takers harvesting examination questions and then selling the questions to education providers. This AB 2884 (Committee on Insurance) Page 6 of ? proposal would repeal Section 1681 of the CIC and amend Section 1682 of the CIC to place a limitation of 10 examinations taken in a 12-month period, including a waiting period of twelve months after failing an examination the tenth time in the twelve month period. Such a limitation will provide license applicants with an ample number of opportunities to pass the qualifying license examinations but at the same time discourage individuals in the business of examination harvesting to take CDI's license examinations. d) Technical Clean-up for Internet Advertising Required Information. There is a discrepancy in CIC 1724.5 and CIC 1726 regarding internet advertising required information for licensees. The first section states that the Commissioner can disapprove any name if it leads to confusion (except for the real name of a person). When that happens the licensee is given a "committed DBA (doing business as) name that they must, and can only, use in California. As it stands now, CIC 1726 states that they must post on the internet their name as it appears on their license (which is their real name - even if disapproved) and any DBAs. This proposal would require licensees to only post on the internet the name they have had approved by the Commissioner so that even if they are not going to use it, consumers can still look up a licensee by their DBA and find out who they actually are. This proposal cleans-up the conflicting code section so licensees can properly comply. e) Amend Insurance Code 1807.5 to Provide Consistency in the Statues Affecting Bail Agents. Insurance Code 1807.5, which applies specifically to bail agents, is inconsistent with disciplinary actions taken against other licensed agents and applicants. The intention of AB 2782 (Assembly Committee on Insurance) of 2010 was to clarify the requirement for hearings for bail agents, but instead it created ambiguity as to when it is referring to applicants or licensees and as to whether the IC can deny a license to an applicant. This proposal amends this section to ensure that bail agents are held to the same enforcement standards as other licensees. AB 2884 (Committee on Insurance) Page 7 of ? f) Amend the Annuity Nonforfeiture Law. The existing statute CIC 10168.6 clarifies what the maturity date in an annuity contract is deemed to be when applying the nonforfeiture tests described in CIC 10168.4 and CIC 10168.5 to a contract under which an election may be made to have annuity payments commence at optional maturity dates. By specifying a fixed maturity date at some artificially high age, insurers are currently able to sell contracts to California consumers which will effectively provide annuity benefits of a very limited duration, if at all, and which contain higher surrender charges than equivalent contracts with optional maturity dates or contracts which specify a reasonable maturity date. The proposed language would clarify that the deemed maturity date used in the nonforfeiture compliance testing will be the same for contracts which have a fixed maturity date beyond what is considered reasonable, and for optional maturity date contracts . The proposed change will help protect seniors from purchasing annuity contracts which contain high surrender charges that may apply for a period that exceeds their expected lifetimes. g) Update Inconsistency in the Long-Term Care Rate History Information. The consumer rate guide for long-term care described in CIC 10234.95 provides rate history data for the current year and preceding nine years per CIC 10234.6(c), but CIC 10234.6(b) and (b)(1) require the current year and preceding four years. CDI believes this discrepancy is a result of when hardcopies were still the norm and AB 1760, (Assembly Committee on Insurance, Chap. 415, Statutes of 2005) changed those sections to the past four years because the guide weighed 4 pounds, 10 ounces. That bill seems to have overlooked other sections, and with hardcopies currently being relatively obsolete, this bill will streamline all the relative sections in the code to provide long-term care rate history for the current year and preceding nine years. h) Grant and Annuities Forced Withdrawal. CDI bills all licensed Grants & Annuities Societies annually and then attempts to collect from the AB 2884 (Committee on Insurance) Page 8 of ? delinquent companies, but there have been non-responsive companies that have not withdrawn under CIC section 11520.5 but are no longer in business or functioning. In most cases they have been suspended by the Secretary of State. Continued invoicing of companies no longer in business results in unresolved accounts receivable that cannot be closed. This proposal would allow CDI to stop imposing or collecting periodic and annual fees from licensed Grants & Annuities Societies upon notice of a Bankruptcy filing or if their corporate status has been suspended by the Secretary of State for a period of twelve (12) months and further would permit the Certificate of Authority to expire. 1. Support None received. 2. Opposition None received. POSITIONS Support California Department of Insurance (sponsor) Oppose None received -- END --