BILL ANALYSIS Ó
SENATE COMMITTEE ON INSURANCE
Senator Richard Roth, Chair
2015 - 2016 Regular
Bill No: AB 2884 Hearing Date: June 22,
2016
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|Author: |Committee on Insurance |
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|Version: |June 8, 2016 |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Erin Ryan |
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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)
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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;
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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;
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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
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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
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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)
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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
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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
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