BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Ronald Calderon, Chair
AB 800 (Duvall) Hearing Date: July 9, 2009
As Amended:June 16, 2009
Fiscal: Yes
Urgency: No
SUMMARY Would eliminate the option to conduct several
significant classes of transactions with the California DOI by
paper in favor of electronic transactions and makes numerous
other changes, including changes needed to increase the
conformity of the California Department of Insurance (CDOI) law
with the Producer Licensing Model Act of the National
Association of Insurance Commissioners (NAIC).
DIGEST
Existing law
1. Provides that no person can solicit, negotiate or effect
contracts of insurance unless they hold a valid Department of
Insurance (DOI) license.
2. States no application for an insurance license shall be deemed
filed unless it "has been actually delivered to", with the
proper fee paid, "an office of the insurance commissioner during
office hours".
3. States, in the Uniform Electronic Transactions Act, that a
party that agrees to conduct a transaction by electronic means
may refuse to conduct other transactions by electronic means
and additionally states that "this subdivision may not be varied
by agreement".
4. All California state agencies are subject to Government Code
rules that payments required by law to be made and applications
required by law to be filed can be made by delivery through the
United States mail, with timeliness of submittal ascertainable
by the cancellation mark stamped on the envelope.
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(Duvall) , Page 2
5. Allows licensees of, and persons applying for licenses issued
by, the DOI Producer Licensing Bureau to conduct their licensing
business via paper documents that are delivered to DOI either
through the mail or personal delivery. Additionally, current
law requires DOI to mail new license certificates and license
renewal notices in paper.
6. Declares minors ineligible for licensure to act as a fire and
casualty broker-agent, or a life agent without defining "minor.
7. Does not expressly state that applicants for bail agent,
independent insurance adjuster, public insurance adjuster,
surplus line broker and life and disability analyst licenses
must submit to criminal and administrative background questions
as a condition for license renewal whereas other licensees of
the DOI's Producer Licensing Bureau are required to complete
these questions for license renewal. Additionally, all
applicants for licenses issued by DOI's Producer Licensing
Bureau must respond to criminal and administrative background
questions and provide fingerprints to undergo a criminal history
check as a condition for initial licensure.
8. Prohibits California nonresident organizations to endorse
California resident agents to their license. Additionally,
current law requires a California nonresident organization to
endorse at least one person from its home state.
9. Applications for insurance licenses by natural persons are
required to contain the residence address, the principal
business address, and the mailing address of the applicant;
organizational license applications are required to contain the
principal business address, and the mailing address.
10. Requires a California nonresident licensee, other than those
licensees from states that require more pre-licensing hours than
California, applying for a California resident fire and casualty
license to have completed 40 hours of pre-licensing education in
their former resident state to be exempt from California's
pre-licensing education requirement. A California nonresident
licensee, other than those licensees from states that require
more pre-licensing hours than California, applying for a
California life-only agent license must complete 20 hours of
pre-licensing education.
11. Requires the Insurance Commissioner to send a written notice
setting forth the time and place of the examination to an
AB 800
(Duvall) , Page 3
applicant for licensure a reasonable time before they are
required to appear for a qualifying examination.
12. Requires a person licensed as a personal lines broker-agent to
complete 20 hours of continuing education courses during each
two-year license term.
13. References the non-existent "National Association of Securities
Dealers" and requires the Commissioner to administer a written
qualifying exam as a condition to granting the variable contract
authority on a life agent license.
This bill
1. Recasts the prohibition on insurance licensure by underage
individuals by stating a "person under 18 years of age "is
not eligible to apply for a license."
2. Clarifies that responding to criminal and administrative
background questions is required for license renewal by all
individuals and entities issued licenses by the California
DOI's Producer Licensing Bureau.
3. Eliminates the ability of licensed individuals and
organizations and unlicensed individuals and organizations
seeking licenses or certificates to conduct their licensing
related activity via paper documents personally delivered to
the DOI or deposited in the US Mail as provided in the
Government Code. Specifies that "no application for a
license shall be deemed filed" unless "submitted by a means
of electronic service approved by the commissioner".
4. Permits California resident agents to transact on behalf of
California nonresident organizations and specifies that a
California nonresident organization must name at least one
person to perform duties under its license from a state
other than California.
5. Adds the requirement that all DOI applications, whether
submitted by natural persons or organizations, shall contain
the email address "to which the applicant wants the
commissioner to direct all license-related correspondence".
6. Provides that whenever an organization licensed as a life
agent or fire and casualty broker agent desires to inform
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(Duvall) , Page 4
the DOI of a change in who is authorized to transact
business under its license, it shall immediately file the
form indicating the change, which form "must be submitted by
a means of electronic service approved by the commissioner."
7. Recasts the examination and testing provisions to specify
that instead of written notice being provided to an
applicant by the Commissioner, the applicant shall schedule
and reschedule his or her qualifying examination using an
electronic service approved by the Commissioner.
8. For purposes of various license renewals, authorizes the
DOI to send license renewal notices to its licensees via
mailed paper document or electronically.
9. Makes numerous technical changes relating to individuals
and organizations providing DOI with e-mail addresses to
facilitate the electronic transmittal of license-related
information, including adding a requirement that the DOI be
immediately notified "using an electronic service approved
by the commissioner" of any change in the licensees email
address.
10. Waives the pre-licensing education requirement for
California resident applicants who recently moved from
another state and hold a current California nonresident
license, but continues to require them to a specified course
on ethics and the California Insurance Code.
11. Increases the two-year continuing education requirement for
Personal Line Broker-Agents from 20 to 24 hours.
12. Replaces a reference to the non-existent "National
Association of Securities Dealers" (NASD) with the current
"Financial Industry Regulatory Authority" (FINRA) and
eliminates the requirement for a qualifying written exam to
grant the variable contract authority on a life agent
license.
13. Revises a provision added to the code last year stating the
Commissioner "shall mail" an application for renewal of a
title marketing representative not less than 60 days before
a current certificate will expire to make it permissive
("may") and to authorize the renewal application to be sent
electronically or to a mailing address.
AB 800
(Duvall) , Page 5
COMMENTS
1. Purpose of the bill according to the Sponsor This is
an omnibus bill sponsored by the California Department of
Insurance (DOI).
As stated by the DOI in its support materials, AB 800:
a. Provides for CDI to carry out more of its
producer licensing activities electronically. This
bill requires individuals and organizations applying
for, or renewing, licenses or certificates of
registration to conduct their licensing business
online, and allows CDI to electronically send license
renewal notices to its licensees. It also makes
technical changes relating to
individuals/organizations providing CDI with current
e-mail addresses and to facilitate the electronic
transmittal of license-related information. On-line
applications are timelier, more accurate and cost
effective, and this bill eliminates some of the key
remaining statutory barriers that prevent CDI from
fully carrying out its producer licensing activities
electronically.
b. Clarifies a minor is a person who is under
18 years of age. Current insurance law specifies a
minor is not eligible for a producer license, but
does not define minor, leaving open the possibility
of a person under 18 years of age applying for and
being issued a producer license. This bill closes
this loophole and aligns California insurance code's
definition of a minor with that in the PLMA.
c. Clarifies that completing criminal and
administrative background questions is required for
license renewal by all individuals/entities issued
licenses by CDI's Producer Licensing Bureau. Current
law requires all license applicants to complete
criminal and administrative background questions as a
condition for first-time licensure, but is unclear
that all licensees are required to complete these
questions as a condition for license renewal. This
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bill ensures CDI has access to the information needed
for license renewal determinations on all its
producer license types.
d. Waives the pre-licensing education
requirement for California resident applicants who
hold a current California nonresident license. This
bill aligns California law with the PLMA regarding
the pre-licensing education requirement, but still
requires applicants who hold a nonresident license to
complete 12 hours of education on California
insurance code and ethics. All states except
California provide a waiver to their non-resident
licensees who apply for a resident license. This
bill is needed to avoid the possibility of other
states implementing retaliatory actions on California
resident licensees who move to another state and seek
a resident license in that state.
e. Makes several changes relating to
organizational licenses to align with the PLMA .
This bill permits nonresident organizations to
endorse California resident agents to their license.
This change will end the need for organizations to
work around the current restriction by registering a
branch office as a foreign corporation, which results
in being licensed as a resident organization in more
than one state. This bill also makes other technical
changes relating to organizational licenses.
f. Increases the two-year continuing education
requirement for Personal Lines Broker-Agents to 24
hours. California's current 20-hour continuing
education requirement is inconsistent with the
personal lines broker-agent continuing education
requirement specified in the PLMA, as well as
California's Life-Only and Accident and Health
license lines. This bill remedies the
inconsistencies.
g. Eliminates the continuing education
exemption under specified conditions: This bill
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(Duvall) , Page 7
discontinues the continuing education exemption for
licensees 70 years of age and licensed for 30
continuous years who are licensed for the first time
after December 31, 2009. The grandfather clause does
not effectively eliminate the exemption until the
year 2040. The PLMA does not recognize waivers to
education requirements based upon age and years of
service. This bill aligns California law with the
PLMA. .
h. Eliminates obsolete provisions in California
insurance code. This bill replaces the
non-existent "National Association of Securities
Dealers" (NASD) with the current "Financial Industry
Regulatory Authority" (FINRA). It also eliminates
the requirement for a qualifying written exam to
grant the variable contract authority on a life agent
license. Due to a prior law change, life agents must
only prove they passed a specified securities
examination in order to have the variable contract
authority. This bill eliminates the obsolete
reference to the exam requirement.
2. The bill has numerous provisions as described above.
It's most notable effect, however, will be to reduce the
ability of licensees and applicants for licensure to
transact business with the DOI by means of paper; many
transactions under this bill are required to be conducted
by the licensees and applicants in electronic form, while
the DOI reserves the right to conduct transactions
electronically or by conventional mail.
3. Background The American system of insurance regulation
is vested in the 50 individual states. The regulators in
the various states work on common issues of the national
insurance marketplace through the mechanism of the National
Association of Insurance Commissioners (NAIC).
California's Department of Insurance is an active member of
the NAIC.
4. In 1999, the Congress passed and the President signed
the Gramm-Leach-Bliley Act (GLBA). GLBA required that
within 3 years of its effective date a majority of states
had to either enact uniform laws for licensure of
individuals and entities transacting insurance in the state
or enact reciprocity laws to facilitate the licensure of
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(Duvall) , Page 8
non-resident individuals and entities for sale and
solicitation of insurance in those states. If this GLBA
uniformity/reciprocity requirement was not met, states
faced the possibility of partial federal preemption of
their licensing activity. The NAIC opted to pursue state
reciprocity with uniformity remaining a longer term goal
for non-resident (and resident) producer licensing.
5. To provide states a model for meeting reciprocity, the
NAIC adopted the Producer Licensing Model Act (PLMA) in
2000. The PLMA is the primary vehicle for states not only
to achieve reciprocity, but also to take major steps toward
reaching uniformity. With respect to reciprocity, the PLMA
provides for streamlined administrative licensing
requirements, reciprocal recognition of continuing
education, and reciprocity for surplus lines and limited
lines producers, and creates uniform standards for key
areas of producer licensing. Among other provisions, PLMA
provides for the following:
a. Creates uniform definitions for various terms,
including "minor"
b. Promotes a uniform application process for
both resident and non-resident applications by
reference to the use of the NAIC Uniform Application.
c. Establishes uniform exemptions from completing
pre-licensing education and examinations for licensed
producers who apply for a non-resident license.
d. Encourages the use of the NAIC's State
Producer Licensing Database (SPLD) and the electronic
processing of applications.
6. While the PLMA does promote the use of electronic
processing of applications, it does not require that states
rely exclusively on electronic filings and applications for
the conduct of insurance licensing-related transactions as
many provisions of this bill will do. Specific examples
are the processes for applying for licensure, notification
of changes to persons authorized to transact insurance
under an organizational license and applying for a
qualifying examination testing date.
7. The provision eliminating the right of applicants for
insurance licenses and licensees with respect to certain
other transactions to decline to conduct business
electronically, and the requirement that all applications
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(Duvall) , Page 9
for insurance licensure include an email address "to which
the applicant wants the commissioner to direct all
license-related correspondence" appears to conflict with
the Uniform Electronic Transactions Act. More specifically
it appears to be in conflict with the right UETA provides
to choose not to conduct transactions electronically and
also to be in conflict with the UETA provision that this
right for consumers "may not be varied by agreement".
8. While this eliminates the ability for licensees and
applicants for licenses to apply via paper documents for
transactions described in paragraph 6 above, this bill
defers to the Insurance Commissioner the specific details
of the electronic application and filing process which must
be utilized, describing the required process as "a means of
electronic service approved by the commissioner. (See for
example, p 4, lines 23 and 24; p. 5, lines 25 and 26; p. 6,
lines 28 and 29) This makes it impossible to evaluate the
impact of the change upon possible barriers to licensing
whether based upon language, access to technology, visual
disability or otherwise.
9. In general, the experience of the NAIC with the use of
electronic licensing procedures has been that electronic
processing is highly typical for licensing and renewals of
non-residents but less typical for licensure of a state's
own residents. As the NAIC evaluates uniformity among
state licensing practices, it is the application data
fields requirements which it is looking for. A summary of
its producer licensing checklist includes a note under
"Application" heading that a state using these data fields
but only accepting electronic applications as this bill
proposes is "compliant", suggesting this is not the norm.
10. The bill retains to the Commissioner the power to
continue to provide many specified notices via mailed paper
documents while authorizing their distribution
electronically at the Commissioner's option. For licensees
of the Commissioner, however, this act revises the DOI's
basic licensing statute to require all applications for
licensure to require that an email address be provided "to
which the applicant wants the commissioner to direct all
license-related correspondence". No specific information
has been provided to explain how this all electronic
transactions model of insurance licensure and oversight
will work in practice nor how the new process will
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(Duvall) , Page 10
accommodate itself to the variety of possible applicants.
11. Many of the provisions of this bill, in particular the
PLMA conforming provisions and the correction of outdated
code language and references appear appropriate and
non-controversial.
12. Revising the commissioner's duty from "shall" to "may"
with respect to advising a title market representative of
its pending renewal requirement in advance of expiration is
consistent with how other such notice obligations are set
forth for the commissioner in the insurance code.
13. Support . California Department of Insurance
14. California Advocates for Nursing Home Reform (CANHR)
has communicated a "Support if Amended" position, and
recommends amending the bill to preserve the option for
persons applying for licensure and ongoing oversight to
choose to conduct those activities via paper or electronic.
CANHR states that while elimination of the option to
conduct these activities by paper-based transactions may be
of no consequence to some, "it cannot be assumed that it
won't create a barrier or hardship to entrance for others".
Regarding the requirement that applications for licensure
must include an email address, CANHR expresses concern that
without such an address an application can be denied. It
suggest that "restricting access to participation
exclusively to those individuals who are Internet savvy is
not good public policy".
15. Questions Should AB 800 be revised to facilitate the
Department's ability to transact its licensing business
electronically without eliminating the public's current
option for conducting paper transactions and while
retaining the ability of consumers to opt for transacting
business in paper or electronically?
16. Suggested Amendments . None
17. Prior Legislation In recent years, the Legislature has
been receptive to easing barriers to entry into the
insurance business where it can be done so in a way to
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(Duvall) , Page 11
avoid adverse consumer events. IN 2007, AB 720 (De Leon)
and AB 797 (Coto) were approved to provide various limited
lines of insurance to simplify the ability of license
applicants to target narrow business niches serving
distinctive clienteles. SB 396 (Calderon) of the current
session is intended to enhance the level of detail in a
currently required report on the experience under the new
licensing law to improve understanding of its effects.
POSITIONS
Support
California Department of Insurance
Support if Amended
California Advocates for Nursing Home Reform
Oppose
None
Principal Consultant: Kenneth Cooley (916) 651-4102