BILL ANALYSIS
AB 601
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Date of Hearing: April 22, 2009
ASSEMBLY COMMITTEE ON INSURANCE
Joe Coto, Chair
AB 601 (Garrick) - As Introduced: February 25, 2009
SUBJECT : Automobile insurance: special assessments.
SUMMARY : Reduces a special assessment on automobile insurers
that pays for consumer services provided by the California
Department of Insurance (CDI) from 30 cents to 20 cents per
vehicle insured. Specifically, this bill :
1)Extends the sunset on the annual special purpose assessment on
automobile insurers from January 1, 2010, until January 1,
2015.
2)Reduces the annual special purpose assessment on automobile
insurers from 30 cents to 20 cents per vehicle during the
period July 1, 2010, to December 31, 2014.
3)Provides that the existing ratios between the allocations of
funds shall remain in effect. This means that effective July
1, 2010, 2/3 of the 20-cent assessment (or 13.33 cents) shall
be used to pay for consumer service functions of CDI related
to automobile insurance. These include services to consumers
through the rating and underwriting services bureau, the
claims services bureau, the investigations bureau, and legal
services in support of those bureaus.
4)Requires that effective July 1, 2010, 2/3 of every 10-cent
assessment (or 6.67 cents) shall be used to improve the
consumer functions of CDI related to automobile insurance,
including the rating and underwriting services bureau, the
claims services bureau, the investigations bureau, legal
services to support these bureaus, and to respond to consumer
complaints and information requests through the department's
toll-free telephone number, and to offer information about
automobile insurance rates to the public.
5)Expresses the intent of the Legislature that CDI spend down
the reserve for this special purpose assessment during the
period July 1, 2010, and December 31, 2014, while ensuring
that the ratios between the allocations of funds remain in
effect.
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EXISTING LAW :
1)Requires insurers to pay the CDI an annual special purpose
assessment of 30 cents for each vehicle insured in this state
to be expended as follows:
a) 20 cents of the assessment shall be used to pay for
consumer service functions of the California Department of
Insurance (CDI) that are related to automobile insurance.
These include services to consumers through the rating and
underwriting services bureau, the claims services bureau,
the investigations bureau, and legal services in support of
those bureaus.
b) 10 cents of the assessment shall be used to improve the
consumer functions of CDI related to automobile insurance,
including the rating and underwriting services bureau, the
claims services bureau, the investigations bureau, legal
services to support these bureaus, and to respond to
consumer complaints and information requests through the
department's toll-free telephone number, and to offer
information about automobile insurance rates to the public.
c) Provides that the CDI and the Department of Motor
Vehicles may propose to the budget committees of the
Legislature that 5 cents of the 10 cents assessment (noted
above) be used to inform consumers about the existence of
California's low-cost automobile insurance program. This
expenditure requires budget approval.
2)Sunsets the authority for the 30 cents per insured vehicle
special assessment on January 1, 2010.
FISCAL EFFECT : Undetermined.
COMMENTS :
1)Background. Current law requires each insurer doing business
in California to pay an annual special purpose assessment of
30 cents for each vehicle it insures in the state. The
statute provides that insurers may pass along the assessment
to policyholders as a surcharge.
The funds collected from this assessment enable the California
AB 601
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Department of Insurance (CDI) to carry out auto
insurance-related consumer protection and education activities
including responding to consumer complaints of alleged unfair
claims practices, investigating suspected violations of law,
pursuing administrative actions against licensees for
misconduct, developing and disseminating informational
materials and conducting outreach efforts for the California
Low Cost Automobile Insurance Program. The assessment is
scheduled to sunset on January 1, 2010.
When the assessment was originally established in 1999 (by SB
940 -Speier, Chapter 884, Statutes of 1999), the highest
priority was for CDI to use the funds to eliminate an existing
backlog of auto insurance-related cases in the Investigations
Division. The funds were also to be used to improve program
functions for responding to consumer complaints and providing
auto insurance rate information. In 2005, AB 1183 -Vargas,
Chapter 717, Statutes of 2005, made it possible for the CDI to
use 5 cents toward informing consumers about the state's
low-cost auto insurance program.
2)Need for bill. According to the author and the sponsor, the
CDI, this bill is needed to extend the life of a program that
provides vital auto insurance-related consumer protection and
education activities, and to reduce assessments during 2010 to
2014.
The author and sponsor state that after an 18-month review of
CDI operations, the department found the assessment to be
higher than needed to implement the program, and so they
recommend the reduction from 30 cents to 20 cents per insured
vehicle. That reduction will save an estimated $3 million per
year. It is reported that CDI has decreased the backlog, and
that the department can draw down the current fund reserve to
subsidize expenditures for the next 5 years. CDI also states
that the combination of the current fund reserve and the new
revenue will permit the department to maintain the same level
of program services to the public.
REGISTERED SUPPORT / OPPOSITION :
Support
California Department of Insurance (Sponsor)
AB 601
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Opposition
None received.
Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086