BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Ronald Calderon, Chair
AB 1011 (Jones) Hearing Date: June 30, 2010
As Amended: September 3, 2009
Fiscal: Yes
Urgency: No
VOTES: Asm. Floor(06/02/09)77-01/Pass
Asm. Appr. (05/28/09)13-03/Pass
Asm. Health
(04/28/09)18-0/Pass
Asm. RLS. (04/20/09)10-0/Pass
SUMMARY Would broaden the responsibilities of the Office of
the Insurance Commissioner with respect to the voluntary climate
change-related efforts of insurance companies.
DIGEST
Existing law
1. Existing law confers on the office of the Insurance
Commissioner comprehensive responsibility for monitoring the
California marketplace conduct of insurers, for monitoring their
solvency, for ensuring the adequacy of their rates and capital
structure, and enforcing compliance with California law
applicable to their operations.
This bill
1. Proposes to add a comprehensive "California Green Insurance
Act of 2010" as a new Division of the Insurance Code
comprised of six parts:
a. Part 1 - General Provisions: Would make various
findings and declarations regarding the issue of global
warming and its potential for adversely affecting
AB 1011 (Jones), Page 2
California industry, including insurance, and making
general statements regarding the ability of the insurance
industry to increase incentives that promote the use of
low-emission vehicles, to spur construction of green
buildings and to make various kinds of green investments
and various intent statements;
b. Part 2 - Green Automobile Insurance Provisions:
Would require insurers to notify the Commissioner
electronically if they offer premium reductions for
low-emission vehicles and direct the Commissioner to
conduct hearings on the risks, costs and claims of such
vehicles, and authorizing the development by the
Commissioner of instructions, procedures and regulations
to implement this part;
c. Part 3 - Green Building Insurance Provisions: Would
require admitted property insurers to offer "Green
Replacement Coverage" (permitting replacement of
conventional building materials with specified "green"
alternatives) would require such insurers to notify the
Commissioner electronically if they offer premium
reductions for green upgrades or coverage, would require
such insurers to offer coverage for solar and wind
distributed energy generation systems as part of
residential policies and would direct the Commissioner
to conduct hearings on the risks, costs and claims of
such green buildings and energy systems, and would
authorize development by the Commissioner of
instructions, procedures and regulations to implement
this part;
d. Part 4 - Green Workers Compensation Insurance
Provisions: Would require the Insurance Commissioner to
conduct hearings on the health impacts of green buildings
for purposes of establishing the appropriate workers'
compensation benchmark;
e. Part 5 - Green Insurance Tax Credit and Investment
Provisions: Would establish a new program for investment
in qualified "green investments" as follows:
i. For each year, on or after January 1,
2011, there shall be allowed, as a credit against
the amount of tax, as defined in Section 28 of
Article XIII of the California Constitution, an
AB 1011 (Jones), Page 3
amount equal to 20 percent of the amount of each
qualified investment made by a taxpayer during the
taxable year into a specified financial institution
that is certified by the Department of Insurance;
ii. For purposes of determining any tax that
may be imposed under specified law on a taxpayer not
organized under the laws of this state, the amount
of the credit allowed by subdivision (a) shall be
treated as a tax paid under Section 12201 or Section
28 of Article XIII of the California Constitution;
iii. Notwithstanding any other provision of
this part, no credit shall be allowed under this
section unless the Department of Insurance certifies
that the investment qualifies for the credit under
this section and certifies the total amount of the
credit allocated to the taxpayer pursuant to this
section;
iv. No credit shall be allowed by this
section unless the applicant for certification as a
qualifying financial institution and the taxpayer
provide satisfactory substantiation to, and in the
form and manner requested by, the Department of
Insurance;
v. Qualifying environmental financial
institutions shall do all of the following:
1. Apply to the Department of
Insurance for certification of its status as an
environmental financial institution;
2. Apply to the Department of
Insurance, on behalf of the taxpayer, for
certification of the amount of the investment
and the credit amount allocated to the
taxpayer, obtain the certification, and retain
a copy of the certification;
3. Obtain the taxpayer's California
company identification number for tax
administration purposes and provide that
information to the Department of Insurance,
with the application required in paragraph(2);
4. Provide an annual listing to the
State Board of Equalization, in the form and
manner agreed upon by the State Board of
Equalization and the Department of Insurance,
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of the names and taxpayer's California company
identification numbers of any taxpayer who
makes any withdrawal or partial withdrawal of a
qualified investment before the expiration of
60 months from the date of the qualified
investment.
vi. The Insurance Commissioner may develop
instructions, procedures, and standards for
applications, and for administering the criteria for
the evaluation of applications, under this section.
The Insurance Commissioner may, from time to time,
issue regulations to implement the provisions of
this section;
vii. In the case where the credit allowed by
this section exceeds the "tax," the excess may be
carried over to reduce the "tax" for the next four
years, or until the credit has been exhausted,
whichever occurs first;
viii. The State Board of Equalization shall, as
requested by the Department of Insurance and the
California Organized Investment Network or its
successor, advise and assist in the administration
of this section.
f. Part 6 - Green Insurance Industry Mitigation
Provisions: Would require admitted insurers to notify the
Commissioner electronically of their use of electronic
commerce and its cost savings, and authorize the
Commissioner to conduct public hearings on climate
change and its risks for insurers, on insurer paper and
electrical consumption, and would authorize the
Commissioner to conduct hearings regarding these varied
matters and to develop instructions, procedures and
regulations to implement this part;
COMMENTS
1. Purpose of the bill As amended on September 3, 2009, this
bill proposed a wide-ranging program for Department of
Insurance monitoring, collaboration, and initiatives related
to climate change and "green" innovations that touched
AB 1011 (Jones), Page 5
essentially all lines and all admitted California insurers.
2. The September 3, 2009 version of the bill had numerous
problematic features: these included:
3. Lack of specificity to indicate the intended scope, features
and limits of the numerous (apparent) new delegations of
authority being conferred.
a. Examples include:
i. Coordination with state agencies,
development of emission standards with NAIC and
environmental regulators, consultation with
specified entities on "green building standards"
(but not including entities in California's
building code adoption process).
ii. Section 13912 and Prop 103 rating
factor cross-over
4. Lack of documentation for the existence and characteristics
of Environmental Financial Institutions (EFI's) as a
bonafide and recognized class of entity seem to be a weak
point in this bill. It may be that simply by tweaking the
COIN/CFDI concept (CIC 926.1 & 926.2 and CIC 12939 &
12939.1) specific green outcomes such as support for infill
projects near transit oriented development might be
feasible.
5. Repeated reference to industry collective behavior (without
hedging it with qualifications that head off the possible
problem of antitrust market conduct.)
6. Philosophy issues of how "new products" emerge, i.e. by fiat
or by innovation at the individual company level. As
examples, Firemans Fund and Travelers have both been fairly
innovative on the climate change products and ideas front.
They are doing the work to conceptualize new products , and
figure out how they can be priced. For such leading edge
companies, the requirement that they disclose publicly their
claims and loss statistics, actually hurts their ability to
bring a new idea to market and build scale based on sale of
its "uniqueness". This in turn points out why the
philosophy matters - it affects how one views allowing
innovators to maintain their data and information as
proprietary trade secrets and confidential.
7. Frequent reference to "Applications" but no application
process: The bill repeatedly makes reference to the
Commissioners authority over various applications but,
substantively, no provision sets up an application process.
See for example Sections 13912, 13924 and 13953.
8. Mandate to Offer Green Product Insurance - Use of "green
products" may carry with it an implied obligation to warrant
AB 1011 (Jones), Page 6
their performance. Plenty of "inventors" want to see their
product ideas gain widespread adoption, but there is a
legitimate consumer stake in making sure "innovative
products" are durable, fit for their intended purpose, meet
expected performance standards, and do not cause other
problems. A simple mandate to use "green products" does not
address this consumer issue and, on some level, if the
commercial adequacy, reliability and performance is not
well-established, there can potentially be integrity issues
as to why someone is steering the customer to a particular
product.
9. Solar and Wind distributed generation: This specialty topic,
and the intended scope of "derivatives" and "projects" will
need vetting with insurers and the DOI
10. The issue of climate change as it affects insurance and
insurers is one which has been a constant topic of
discussion at the quarterly meetings of the National
Association of Insurance Commissioners for the last 5 to 8
years. From a global business perspective, insurers are
looking to understand the risks to their business these
potential trends, if realized, may pose and then to plan to
mitigate those impacts.
11. Author's Amendments to be Offered in Committee The author of
AB 1011 has advised the committee he will offer amendments
in committee which:
a. Significantly narrow "Part 1 - General
Provisions"
b. Strike from the bill::
i. Part 2 - Green Automobile Insurance
Provisions;
ii. Part 3 - Green Building Insurance
Provisions;
iii. Part 4 - Green Workers Compensation
Insurance Provisions; and
iv. Part 6 - Green Insurance Industry
Mitigation Provisions.
c. Retain the proposed Green Insurance Investment
Tax Credit program in a form substantially similar to
AB 1011 (Jones), Page 7
that now in Part 5 of the bill as described above,
except:
i. Qualification for the tax credit
shall not be based on investment in a qualifying
"environmental financial institution" (a term
that has no accepted common definition), but
rather upon certification of the investment as a
green investment according to procedures of the
Department of Insurance.
ii. A cap is imposed on the aggregate
amount of qualified investments made by all
taxpayers pursuant to this bill of five million
dollars ($5,000,000).
d. Adds a new provision to amend California's
Organized Investment Network (COIN) Law which is a
program administered by the Department of Insurance to
encourage investment by insurers into low and moderate
income California communities to permit and recognize
"green investments" in such communities under the COIN
program and makes technical conforming changes.
e. For purposes of the COIN law, authorized
"green investments" by insurers serving low and
moderate income communities would include investments
that:
i. Emphasize renewable energy
projects, economic development, and affordable
housing focused on infill sites so as to reduce
the degree of automobile dependency and promote
the use and reuse of existing urbanized lands
supplied with infrastructure for the purpose of
accommodating new growth and jobs; and
ii. Investments that can help
communities grow through new capital investment
in the maintenance and rehabilitation of existing
infrastructure so that reuse and reinvention of
city centers and existing transportation
corridors and community space, including projects
offering energy efficiency improvements and
renewable energy generation, including, but not
limited to solar and wind power, mixed-use
development, affordable housing opportunities,
multimodal transportation systems, and
transit-oriented development, can advance
AB 1011 (Jones), Page 8
economic development, jobs and housing.
12. Background As proposed to be amended, AB 1011 eliminates
mandates upon insurers and would instead provide new
channels for green investment, in the form of capital to
flow into both low and moderate income communities and other
projects not required to be in such communities.
13. With regard to investments in low and moderate income
communities, existing California law, the California
Organized Investment Network (COIN) law seeks to promote
such investments. With the proposed amendments, AB 1011
makes the link between the idea of compact growth, which can
promote reduced dependency on the automobile, and areas of
California with significant low and moderate income
communities exist where the available capital to improve
inner city and infill sites may be a barrier to jobs and
community improvement. The amendments broaden the COIN law
to expand the kinds of projects which can qualify under its
terms but does not alter its current low and moderate income
community focus. According to information on the Department
of Insurance website, such "community development
investments" offer a very important benefit to businesses:
"Community development investment has what we
term as a "double bottom line". While all
businesses have a conventional bottom line to
measure their fiscal performance - financial
profit or loss - enterprises which seek a second
bottom line look to measure their performance in
terms of positive social impact.
A review of previous data submitted showed that
while some insurance companies have done a great
job of investing in community development in low
to moderate income areas, others have not
invested at all or not up to their potential."
14. With respect to the non-COIN law portion of the existing
bill's tax credit investment program (Part 5), the
amendments revise the program so it is based on the
identification of specific investments in an approval
process with the Department of Insurance. This change was
necessary because as currently amended, the bill assumed the
existence of a class of financial institution termed
AB 1011 (Jones), Page 9
"environmental financial institutions" and built the program
around investments in these entities. There is, however, no
such class of special purpose environmental financial
institutions. The amendments also reduce the financial scope
of the proposed tax credit program by imposing a cap on the
annual amount of aggregate investments at 5 million dollars.
The current bill did not specify a cap.
15. Support >
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17. Questions >
18. Suggested Amendments . >
19. Prior and Related Legislation >
POSITIONS
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Consultant: Kenneth Cooley (916) 651-4102