BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Ronald Calderon, Chair
SB 1105 (Denham) Hearing Date: April 7, 2010
As Introduced: February 17, 2010
Fiscal: Yes
Urgency: No
SUMMARY Would modify an existing 30 cent per vehicle insured
special assessment, two-thirds of goes to auto insurance-related
consumer service functions of the DOI and one-third to auto
insurance-related activities in the DOI's rating and
underwriting services bureau, the claims services bureau and the
investigations bureau, to permit the assessment to be determined
by the Commissioner in an amount not to exceed thirty cents.
DIGEST
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
SB 1105 (Denham), Page 2
through the department's toll-free telephone number, and
to offer information about automobile insurance rates
to the public.
2. Authorizes insurers to pass the assessment to their
policyholders as a surcharge.
3. Restricts the ability of the Insurance Commissioner to raise
"fees" in excess of 10 percent per year but does not impose
similar restrictions on raising "assessments".
This bill
1. Would specify that the amount of the special assessment for
these purposes shall be in an amount determined by the
Commissioner but not to exceed thirty cents ($0.30) for each
vehicle insured under an auto insurance policy in this
state.
2. Would require that the funds continue to be apportioned to
the two categories of DOI operations on the same 2/3rds
versus 1/3rd basis.
COMMENTS
1. Purpose of the bill According to the sponsor, the
Department of Insurance, current law, which specifies that
this assessment is to be thirty cents ($0.30) for each
insured vehicle under an auto insurance policy, does not
enable the Insurance Commissioner to adjust the assessment
rate to align with workload needs. The DOI notes this
differs from how other assessments for fraud are
administered under California Insurance Code (CIC) Sections
1872.8, 1872.85, 1872.86 & 1874.8 where the Commissioner is
granted authority to set the rate, up to a specified
maximum.
2. The DOI has proposed SB 1105 to permit the Insurance
Commissioner to adjust the rate in accordance with
operational needs, but not to exceed 30 cents per insured
SB 1105 (Denham), Page 3
vehicle per year, while maintaining the ratio of program
funding set out in current law:
a. 2/3 to auto insurance
investigative/enforcement activities, and;
b. 1/3 to auto insurance consumer outreach
activities including those related to the Low Cost
Auto Insurance program.
3. According to the DOI, when the current assessment was
enacted in 1999, a significant backlog of auto insurance
complaint investigations existed which has now been reduced.
Since the funds cannot be used except for the purposes
specified in current law, the mandatory 30 cent assessment
is resulting in a significant reserve that continues to
accrue.
4. Background The current 30 cent per insured auto assessment
was originally enacted in 1999 as a fee that was dedicated
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.
5. The primary DOI units supported by these fees are as
SB 1105 (Denham), Page 4
follows:
a. Rating and Underwriting Services Bureau: If
a consumer is denied a policy, this bureau handles the
complaint;
b. Claims Services Bureau: If a consumer is
denied payment under an existing policy, this bureau
handles the complaint;
c. Investigation Bureau: If it is alleged an
agent or broker has cheated a consumer, this bureau
handles the complaint;
6. Existing law, also enacted in 1999 as part of the same bill,
provided that the Insurance Commissioner must follow
specified procedures to increase or decrease any fee to
reflect changed workload and prohibiting any fee increase
from exceeding 10 percent in a single year.
7. In 2007, the Legislature reclassified this annual 30 cents
per insured vehicle per year charge from a fee to a special
assessment. (SB 1407 (Aghazarian), enacted as Chapter 335,
Statutes of 2007).
8. As a special assessment, while an Insurance Commissioner
could adjust the assessment downwards to reflect changes in
the workload of the affected units, it appears the reduction
in the assessment could be restored without being subject to
the limitation on increasing fees no more than 10% in a
single year.
9. Support California Department of Insurance believes the
assessment for this program should operate in the same
manner as the other assessments for antifraud efforts in
that a Commissioner should have the flexibility to move them
up or down, as needed to match program workloads, subject to
staying within a maximum amount.
10. Opposition None
SB 1105 (Denham), Page 5
11. Question
a. Since these charges were reclassified as
assessments rather than fees by Chapter 335 of the
Statutes of 2007, it appears they are no longer
subject to the annual 10 percent cap on fee increases
found in CIC Section 12978. Accordingly, if an
Insurance Commissioner, exercising the authority
granted by this bill acts to significantly reduce this
special assessment, and in a subsequent year
determines that changes in consumer protection warrant
an increase in the assessment that exceeds 10 percent
of the reduced assessment amount, that would allowed
as long as it stays under the 30 cents per insured
vehicle cap.
If the Committee disagrees with affording future
Insurance Commissioners this flexibility, an amendment
that prohibits a special assessment from being
increased more than 10 percent without the prior
approval of the Legislature would be in order.
12. Suggested Amendments None
13. Prior and Related Legislation
a. AB 601 (Garrick), Chapter 247, Statutes of
2009: extended the sunset on these assessments from
1/1/2010 to 1/1/2015.
b. AB 1401 (Aghazarian), Chapter 335, Statutes of
2007: Revised various DOI fee provisions to, among
other things, substitute references to special purpose
assessments for the former "fee" terminology to reduce
the risk of retaliatory taxation by other states.
POSITIONS
Support
SB 1105 (Denham), Page 6
California Department of Insurance (Sponsor)
Oppose
None
Consultant: Kenneth Cooley (916) 651-4102