BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 488| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 488 Author: Block (D) Amended: 1/4/16 Vote: 21 SENATE INSURANCE COMMITTEE: 8-0, 1/13/16 AYES: Roth, Gaines, Berryhill, Glazer, Hernandez, Liu, Mitchell, Wieckowski NO VOTE RECORDED: Hall SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8 SUBJECT: Public insurance adjusters SOURCE: California Department of Insurance DIGEST: This bill revises the eligibility requirements and regulations applicable to persons holding a license as a public insurance adjuster (PIA). ANALYSIS: Existing law: 1) Defines the term "public insurance adjuster" as: a) A person who, for compensation, acts on behalf of, or aids in any manner, an insured in negotiating for or effecting the settlement of a claim or claims for loss or damage under any SB 488 Page 2 policy of insurance covering real or personal property; or b) Any person who advertises, solicits business, or holds himself or herself out to the public as an adjuster of those claims; and c) Any person who, for compensation, investigates, settles, adjusts, advises, or assists an insured with reference to claims for those losses on behalf of any public insurance adjuster. 1) Requires a license to act as a PIA, and establishes three categories of licenses: PIA, nonresident PIA, and interim PIA. 2) Excludes various persons from the licensing requirement. 3) Requires applicants for a PIA license to meet age, residency, character, and other requirements; have sufficient experience in the handling of loss claims under insurance contracts; pass an examination; and pay a fee. 4) Requires applicants for a nonresident license to meet the same criteria for a PIA license, except residency, and to appoint the Insurance Commissioner (IC) as an agent for service of process. 5) Requires applicants for an interim license to be employed and supervised by a licensee, and meet most other the requirements for applicants, but they are not required to have prior experience or pass an exam. 6) Requires specified fees and examinations for application and renewal of a license. SB 488 Page 3 7) Exempts some licensees, not including PIAs, from license renewal if the requirement arises while the licensee is serving in the military, and holds the license in force during the period of service until the end of the license year for which he or she is released from service. 8) Requires PIAs to enter into a written contract on a form approved by the IC before acting on behalf of the client. 9) Requires PIA contracts to include specified disclosures, information, and provisions, including a provision allowing the client to cancel the contract, without penalty and obligation, by the third business day after the client signs the contract. 10) Provides that if a PIA misrepresents or conceals a material fact from the insured prior to execution of the contract, the insured is entitled to rescind the contract without time limit. 11) Prohibits PIAs from soliciting clients between 6:00 p.m. and 8:00 a.m.; during a "loss-producing occurrence"; and, for residential properties, during a seven-day period after a disaster. 12) Defines "disaster" to mean either a loss-producing event that damages or destroys more than 25 dwellings, or an earthquake, flood, fire, hurricane, riot, storm, tidal wave, or other similar sudden or catastrophic occurrence for which a state of emergency has been declared by the President or the Governor or for which a local emergency has been declared by the executive officer or governing body of any city, county, or city and county. This bill: 1) Redefines "public insurance adjuster" to mean any person, for compensation, that: SB 488 Page 4 a) Acts or aids, solely in relation to first party claims arising under insurance contracts that insure the real or personal property of the insured, on behalf of an insured in negotiating for, or effecting the settlement of, a claim for loss or damage covered by an insurance contract. b) Advertises for employment as a PIA of insurance claims or solicits business or represents himself or herself to the public as a PIA of first party insurance claims for losses or damages arising out of policies of insurance that insure real or personal property. c) Directly or indirectly solicits business, investigates, or adjusts losses, or advises an insured about first party claims for losses or damages arising out of policies of insurance that insure real or personal property for another person engaged in the business of adjusting losses or damages covered by an insurance policy, for the insured. 1) Provides that the definition does not prohibit a PIA from handling third-party claims if liability is not in dispute. 2) Eliminates some categories of persons exempt from the licensing requirements including specified public employees, charitable organizations, and admitted insurers. 3) Adds to the categories of persons exempt from the licensing requirements a person that negotiate or settles claims arising under a life or health insurance policy or an annuity contract, a health care provider or employee who files claims on behalf of patients, and a person who settles subrogation claims between insurers. SB 488 Page 5 4) Clarifies that unlicensed employees or agents of a licensee may not conduct business for the licensee that would require a license. 5) Revises application requirements and requires live scan fingerprinting. 6) Requires applicants to complete a 20-hour prelicensing course of study, but exempts applicants licensed in another state. 7) Repeals the provisions relating to interim licenses; establishes an apprentice PIA license effective for no more than 12 months; limits apprentices to participation in the factual investigation, tentative closing, and solicitation of losses; and requires apprentice compensation be on a salaried or hourly basis. 8) Requires applicants for PIA license to have at least two years of experience in the handling of loss claims under insurance contracts, except that applicants who have served 12 months under the new apprenticeship program are deemed to have met the requirement. 9) Requires organization applicants to designate a licensed individual to be responsible for compliance with insurance laws. 10) Revises the eligibility requirements for nonresident licenses so that, absent a history of certain types of misconduct, a license will be granted if the person is licensed and is in good standing in his or her home state, has paid the necessary fees, and meets the standard financial responsibility requirements. 11) Requires the contract with the insured to contain a notice SB 488 Page 6 that the PIA may not base a fee on any amount paid to the insured by the insurer prior to the contract. 12) Tolls the three-business-day cancellation period until the client receives a copy of the signed contract and extends it to five calendar days for claims resulting from a "catastrophic disaster" as defined in this bill. 13) Permits PIAs to solicit clients between 6:00 p.m. and 8:00 a.m. if requested by the policyholder. 14) Defines "loss-producing occurrence" and clarifies that a loss-producing occurrence is ongoing whenever any specified circumstances are still present such as emergency responders are still present on the property or an evacuation order is still in effect. 15) Eliminates the definition of "disaster" and defines the phrase "catastrophic disaster" as an event that results in large numbers of deaths and injuries; causes extensive damage or destruction of facilities that provide and sustain human needs; produces an overwhelming demand on state and local response resources and mechanisms; causes a severe long-term effect on general economic activity; and severely affects state, local, and private sector capabilities to begin and sustain response activities; and also provides that a catastrophic disaster shall be declared by the U.S. President or the Governor. 16) Clarifies that a PIA may not solicit clients until seven days have elapsed from the conclusion of a loss-producing occurrence if the property is included in an area subject to a catastrophic disaster, but may provide written materials without making personal contact. 17) Adjusts provisions related to application and renewal fees. SB 488 Page 7 18) Adds PIAs to the list of licensees exempt from examination and fees on renewal if the requirement arises while serving in the military. 19) Makes various technical changes and removes obsolete references. Background Insurance adjusters investigate the circumstances of an insurance claim, evaluate the covered losses, and negotiate settlements according to the policy and applicable law. Adjusters may be hired by an insurer or a claimant. PIAs represent commercial and noncommercial insureds (policyholders and others who are protected under the contract) in the negotiation or settlement of claims involving real or personal property. PIAs are typically paid on a contingency fee basis taking a portion of the settlement proceeds. They serve the consumer in a position of trust and confidence and are regulated by California Department of Insurance (CDI). SB 488 makes comprehensive revisions to PIA licensing laws many of which conform to the model act adopted by the National Association of Insurance Commissioners. Its most significant provisions clarify when PIAs should not be soliciting clients, establish new standards of reciprocity for nonresident licensees with states that have similar licensing requirements, enhance consumer protections related to the service contract between the PIA and the client, and establish a new apprenticeship program. Recent amendments reflect negotiations among the author, CDI, and the California Association of Public Insurance Adjusters (CAPIA). All known opposition has been removed, however, several trade associations that have taken a neutral position on the bill continue to have concerns about some of the provisions related to the apprentice license and services provided to third-party claimants, as well as a concern that the bill does not address potential delays in the filing of a notice of a claim by insureds represented by PIAs. SB 488 Page 8 FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: Yes SUPPORT: (Verified1/19/16) California Department of Insurance (source) California Association of Public Insurance Adjusters NCFIA Anti-Fraud Alliance United Policyholders OPPOSITION: (Verified1/19/16) None received ARGUMENTS IN SUPPORT: CDI supports SB 488 because it SB 488 Page 9 clarifies several provisions that would build stronger consumer protections related to fees, representation agreements, and losses arising from catastrophes. The CAPIA supports the bill because it conforms California law to the National Association of Insurance Commissioners Public Adjusters Licensing Model Act relative to apprentice PIAs, non-resident licensees and other technical issues, including the definition of a disaster. Prepared by:Hugh Slayden / INS. / (916) 651-4110 1/20/16 15:39:59 **** END ****