BILL ANALYSIS
AB 409
Page 1
Date of Hearing: April 22, 2009
ASSEMBLY COMMITTEE ON INSURANCE
Joe Coto, Chair
AB 409 (Garrick) - As Amended: April 1, 2009
SUBJECT : California Insurance Guarantee Association
SUMMARY : Corrects erroneous drafting relating to the method
that the California Insurance Guarantee Association (CIGA) uses
to assess its member insurers for the necessary funds to pay the
claims of insolvent insurers. Specifically, this bill :
1)Clarifies that an adjustment to the initial payment charged to
an insurer will be calculated in the second year following the
year in which the initial payment calculation was based.
EXISTING LAW :
1)Provides for the establishment of CIGA, which is charged with
paying defined "covered claims" of insolvent insurers.
2)Requires every insurer that writes property-casualty insurance
to be a member of CIGA.
3)Establishes three separate accounts within CIGA: workers'
compensation; automobile and homeowners; and all other lines.
4)Requires CIGA, to the extent necessary to carry out its
purposes, to initially collect the funds it needs from member
insurers based on a uniform percentage of the member insurer's
direct written premium from the prior year.
5)Requires CIGA to make an adjustment to its initial collection
once final information on the assessment year's direct written
premium is made available.
FISCAL EFFECT : The bill is not tagged fiscal, and the statutory
changes conform to current practices.
COMMENTS :
1)Purpose. According to the author, "Section 1063.5 of the
Insurance Code sets forth the process by which the California
Insurance Guarantee Association calculates premium assessments
AB 409
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on member insurers in the event of an insolvency, and the
process the association uses to "true up" each insurer's
assessment to recognize the actual amount of premium collected
by the insurer in the year subject to the assessment. Section
1063.5 contains a drafting mistake that causes the statute to
be inconsistent with the intent of the statute and the process
that CIGA has used since inception."
2)Background. When it is required to assess its member
insurers, CIGA makes the initial assessment based on the
latest annual statement available. For example, if an
assessment was made in the year 2000, that assessment is based
on the insurer's latest annual statement of earned premium in
1999. CIGA then calculates the adjusted premium for the
assessment made in 2000 up or down to reflect the premium
actually collected by the insurer in 2000. That adjustment
cannot be calculated until the insurer's annual statement is
filed in 2001, which contains the accurate information on
premiums collected by the insurer in the year 2000. This is
the process required by the original provision of Section
1063.5, enacted in 1981, and it is the process CIGA has
consistently utilized since that time.
However, amendments to this section enacted in 1987 created
confusion. The 1987 amendments mistakenly require the premium
adjustment to be calculated on the annual statement for the
second year following the year in which the initial premium
change "is made," rather than the second year following the
year in which the initial premium surcharge "was based." The
intent of AB 409 is to conform the statute to the proper
procedure, which fortunately has been the practice all along.
REGISTERED SUPPORT / OPPOSITION :
Support
California Insurance Guarantee Association
Opposition
None received.
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086