BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 2884| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- CONSENT Bill No: AB 2884 Author: Committee on Insurance Amended: 6/8/16 in Senate Vote: 21 SENATE INSURANCE COMMITTEE: 8-0, 6/22/16 AYES: Roth, Gaines, Berryhill, Glazer, Hall, Hernandez, Mitchell, Wieckowski NO VOTE RECORDED: Liu SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8 ASSEMBLY FLOOR: 79-0, 4/21/16 (Consent) - See last page for vote SUBJECT: Insurance: licensees: Internet: disclosures SOURCE: California Department of Insurance DIGEST: This bill contains numerous technical and noncontroversial provisions related to insurance law. ANALYSIS: 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.). AB 2884 Page 2 2) Exempts from the definition any policy insuring more than four 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 judgment of conviction, or committed a misdemeanor denounced in the California Insurance Code (CIC) or other laws regulating insurance as shown by a plea of guilty or no lo contendere, or by a final judgment of conviction. 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. AB 2884 Page 3 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 four 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. 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 AB 2884 Page 4 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 four 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 Page 5 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 nine 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)Makes 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. AB 2884 Page 6 Background This is the annual California Department of Insurance (CDI) omnibus bill. The following are CDI's explanations of substantive changes made in this bill: 1) Update the Definition of Policy for Private Passenger Auto Insurance. CIC Section 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. 2) Provide Consistency Regarding Judgments, Pleas, Verdicts, and Convictions. CIC Sections 1668 and 1669 were meant to use similar standards to deny or revoke licenses, either through a hearing or summarily but CIC Section 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 Sections 1668 and 1669. 3) 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. However, CDI has found that there are undetected test takers harvesting examination questions and then selling the questions to education providers. This proposal would place a limitation of 10 examinations taken in AB 2884 Page 7 a 12-month period, including a waiting period of 12 months after failing an examination the 10th time in the 12 month period. 4) Technical Clean-up for Internet Advertising Required Information. This proposal would require licensees to only post on the internet the name they have had approved by the IC so that even if they are not going to use it, consumers can still look up a licensee by their DBA ("doing business as") and find out who they actually are. This proposal cleans-up the conflicting code section so licensees can properly comply. 5) Amend Insurance Code Section 1807.5 to Provide Consistency in the Statues Affecting Bail Agents. CIC Section 1807.5, which applies specifically to bail agents, is inconsistent with disciplinary actions taken against other licensed agents and applicants. This proposal amends this section to ensure that bail agents are held to the same enforcement standards as other licensees. 6) Amend the Annuity Non-forfeiture Law. The existing statute CIC Section 10168.6 clarifies what the maturity date in an annuity contract is deemed to be when applying the non-forfeiture tests described in CIC Sections 10168.4 and 10168.5 to a contract under which an election may be made to have annuity payments commence at optional maturity dates. The proposed language would clarify that the deemed maturity date used in the non-forfeiture 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. 7) Update Inconsistency in the Long-Term Care Rate History Information. This bill streamlines all the relative sections in the code to provide long-term care rate history for the current year and preceding nine years. AB 2884 Page 8 8) Grant and Annuities Forced Withdrawal. CDI bills all licensed Grants & Annuities Societies annually and then attempts to collect from the 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. 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 12 months and further would permit the Certificate of Authority to expire. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: Yes SUPPORT: (Verified8/1/16) California Department of Insurance (source) OPPOSITION: (Verified8/1/16) None received ASSEMBLY FLOOR: 79-0, 4/21/16 AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, AB 2884 Page 9 O'Donnell, Olsen, Patterson, Quirk, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon NO VOTE RECORDED: Ridley-Thomas Prepared by: Erin Ryan / INS. / (916) 651-4110 8/3/16 19:40:22 **** END ****