BILL ANALYSIS
AB 2404
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 2404 (Hill)
As Amended August 18, 2010
Majority vote
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|ASSEMBLY: |72-0 |(May 20, 2010) |SENATE: |26-10|(August 23, |
| | | | | |2010) |
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Original Committee Reference: INS.
SUMMARY : Requires insurance policies that will refund premiums on
other than a pro rata basis to disclose that fact in writing, and
authorizes the Insurance Commissioner (IC) to postpone a market
conduct examination of an insurer up to an additional three years
if certain conditions are met.
The Senate amendments :
1)Specify that the disclosure requirements of the bill are
prospective and apply only to policies issued or renewed after
January 1, 2012.
2)Require any maximum fees to be disclosed in connection with an
insurance policy that includes a provision to refund premium
other than on a pro rata basis.
3)Provides that the disclosure shall not be required if the policy
provision permits but does not require the insurer to refund
premium other than on a pro rata basis, and the insurer refunds
premium on a pro rata basis.
EXISTING LAW :
1)Provides that an insured person is entitled to a return of his
or her premium if the policy is canceled, rejected, surrendered,
or rescinded, unless the insurance contract specifies otherwise.
2)Prohibits any contract for individual automobile liability or
homeowners' multi-peril insurance from containing a provision
which mandates that the premium for the policy shall be fully
earned upon the happening of any contingency except the
expiration of the policy itself.
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3)Provides that the IC, whenever he or she deems it necessary,
shall examine the business and affairs of an insurer, or when
requested by petition by 25 shareholders, policyholders, or
creditors.
4)Requires the IC to conduct an examination of every insurer
admitted in this state at least once every five years. In
connection with this examination, the IC may examine or
investigate any person or the business of any person, insofar as
the examination or investigation is necessary or material to the
examination of the insurer.
AS PASSED BY THE ASSEMBLY , this bill:
1)Required any insurance policy that includes a provision to
refund premium other than on a pro rata basis, including the
assessment of cancellation fees, to separately disclose that
fact in writing. The writing would be required to include a
description of the cancellation process and the actual fees or
penalties to be applied.
2)Required the above noted disclosure to be provided prior to, or
concurrent with, the application and prior to each renewal.
3)Authorized the IC to postpone a market conduct examination for
up to an additional three years if information derived from a
market analysis indicates the prior examination of the insurer
resulted in no significant negative findings, the number of
consumer complaints regarding the insurer is in the lowest
quartile of complaints for insurers in that line of business,
and the market analysis identifies no other issues of
significant concern.
FISCAL EFFECT : Minor absorbable workload to the California
Department of Insurance (CDI) to continue oversight of California
insurers with regard to premium refunds and market conduct
examinations.
COMMENTS : The purposes of this bill are to require the disclosure
of cancellation assessments or fees at insurance policy inception
or renewal, and to allow the IC to postpone the conduct of a
market conduct examination of any insurer for an additional three
years if certain conditions are met.
Current law requires the disclosure of the cancellation fees
within the terms of the policy. Current law requires the CDI to
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conduct market examinations of licensed insurers at least once
every five years. This latter requirement is the same regardless
of a company's premium volume, number of consumer complaints, or
the findings of previous market conduct examinations.
The author and the CDI, the bill's sponsor, state that based on
the number of consumers contacting CDI annually to complain about
unknown penalties/fees for canceling a policy, the existing
disclosure method for some lines of insurance appears inadequate.
The recent Budget reductions and spending authority limitations
mean that departmental resources are more limited. On-site market
conduct examinations serve an important purpose, and help protect
consumers. With limited resources, consumers would be better
protected if resources were directed to the state's largest
insurers and places where consumer complaints exist. A risk-based
approach to the examination process would enhance CDI's regulatory
oversight activities by enabling CDI to focus limited staff
resources on problematic insurers and those that have the highest
market shares. The bill would not affect CDI's authority to
conduct a market conduct examination at any time the Department
has reason to believe any insurer is engaging in unlawful
behavior.
Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086
FN: 0006403