BILL ANALYSIS
AB 1837
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 1837 (Gaines)
As Amended August 10, 2010
Majority vote
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|ASSEMBLY: |58-1 |(May 28, 2010) |SENATE: |32-0 |(August 18, |
| | | | | |2010) |
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Original Committee Reference: INS.
SUMMARY : Allows a domestic insurer that has a nonadmitted
affiliate in another state to provide specified services to the
nonadmitted affiliate.
The Senate amendments :
1)Clarify the scope of the functions that the domestic insurer
may provide in California to its out-of-state nonadmitted
affiliate.
2)Provide that the nonadmitted insurer's board of directors may
not have a majority of directors who are also on the board of
the domestic insurer.
3)Add the authority for the domestic insurer to assist the
nonadmitted affiliate in executing its investment strategy,
provided that the domestic does not establish the strategy or
determine liquidity needs for the nonadmitted affiliate.
4)Add double-jointing language to avoid chaptering out problems
with AB 1708.
AS PASSED BY THE ASSEMBLY , this bill:
1)Authorized a nonadmitted insurer that is affiliated with a
California domestic insurer to have common directors, provided
that the directors do not perform management functions for the
nonadmitted affiliate, and provided that the common directors
do not constitute a majority of the nonadmitted affiliate's
board.
2)Authorized a California domiciled insurer to provide the
following administrative services to its nonadmitted
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affiliate:
a) Computer operations, as specified, that are unrelated to
the underwriting process;
b) Clerical and administrative staffing support, provided
that the staff providing these services to not have contact
or interaction with policyholders of the nonadmitted
affiliate;
c) Human resources, provided that hiring and firing
decisions, employee discipline, and compensation decisions
are handled directly by the nonadmitted affiliate;
d) Claims adjusting, as described in a specified Insurance
Code section, provided that the notices, decisions, and
payments are made directly by the nonadmitted insurer; and,
e) Investing services, provided that decisions on
investment goals, risk assumptions, diversification and
liquidity needs are made directly by the nonadmitted
affiliate.
3)Specified that nothing in the above provisions permits the
nonadmitted insurer to conduct activity that constitutes the
"transaction" of insurance, or a violation of specified
sections of the Insurance Code.
FISCAL EFFECT : This bill is tagged non-fiscal.
COMMENTS : A "nonadmitted insurer" is an insurer that is not
licensed to do business in California. However, because
Californians often need insurance that the licensed companies
are not providing, nonadmitted insurers can sell insurance under
limited, controlled conditions. If, however, an out-of-state
nonadmitted insurer is owned, controlled, operated and managed
totally by a California-based parent insurer, it creates a
fiction that the nonadmitted insurer is really an out-of-state
company. At its worst, excessive operational control is no more
than an effort to dodge the insurance licensing laws of
California.
AB 1837 represents a carefully balanced listing of ministerial
functions that serve to level the playing field for nonadmitted
insurers as between nonadmitted insurers owned by California
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companies, and nonadmitted insurers owned by non-California
companies.
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086
FN: 0006043