BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
SB 712 (Committee on Insurance)
As Amended April 5, 2011
Hearing Date: April 26, 2011
Fiscal: Yes
Urgency: No
TW
SUBJECT
Insurance
DESCRIPTION
This bill would require every admitted property and casualty
insurer, unless exempt, to annually submit a Statement of
Actuarial Opinion with supporting documents and an Actuarial
Opinion Summary, as specified. This bill would exempt from
public disclosure required under the California Public Records
Act all actuarial reports, workpapers, or opinion summaries
submitted in support of the Statement of Actuarial Opinion, and
such records would not be subject to subpoena or discovery, or
be admissible in evidence in any private party civil action.
This bill also would make technical corrections to various
Insurance Code statutes.
BACKGROUND
The California Department of Insurance (CDI) participates in an
insurance regulator accreditation program developed by the
National Association of Insurance Commissioners (NAIC). This
accreditation program provides uniformity among the member state
insurance departments as well as consumer protections.
Periodically, NAIC develops uniform insurance standards which
are included in NAIC's model laws. Each member of the
accreditation program must then adopt the model laws in order to
maintain its accreditation.
Last year, NAIC adopted new requirements under its Property and
Casualty Opinion Model Law which require property and casualty
insurers to annually submit actuarial documents to their
respective state departments of insurance. In order to maintain
(more)
SB 712 (Committee on Insurance)
Page 2 of ?
its accreditation in the NAIC program, California must adopt
these requirements.
Accordingly, this bill would adopt the NAIC Property and
Casualty Opinion Model Law and require property and casualty
insurers to submit annual actuarial documents to CDI, as
specified.
CHANGES TO EXISTING LAW
Existing law generally requires insurers to provide annual,
quarterly, and supplemental financial statements in conformity
with the standards adopted by the National Association of
Insurance Commissioners. (Ins. Code Sec. 900 et seq.)
Existing law provides that the commissioner shall examine every
domestic insurer before issuing to it a certificate of
authority, other than renewal, to transact any class of
insurance in California. (Ins. Code Sec. 730(a).) When
scheduling and determining the nature, scope, and frequency of
examinations, the commissioner shall consider, among other
things, actuarial opinions. (Ins. Code Sec. 730(b).)
Existing law provides that a commissioner may make public any
final or preliminary examination report, any examiner or company
workpapers or other documents, or any other information
discovered or developed during the course of any examination in
the furtherance of any legal or regulatory action which the
commissioner may deem appropriate. (Ins. Code Sec. 735.5(a).)
However, all working papers, recorded information, documents,
and copies thereof produced by, obtained by, or disclosed to the
commissioner or any other person in the course of an examination
made shall be given confidential treatment and are not subject
to subpoena and shall not be made public by the commissioner or
any other person, except to the extent provided in subdivision
(a). (Ins. Code Sec. 735.5(c).)
Existing law requires admitted life and disability insurers to
submit annual actuarial opinions or statements, as specified.
(Ins. Code Secs. 10489.15. and 10506.4(d)(1)(B).)
Existing law exempts from public disclosure any memorandum or
material submitted in support of a life or disability insurer's
actuarial opinion unless: (1) the insurer consents in writing
to disclosure; (2) the American Academy of Actuaries provides a
written request and statement for the materials, which are
SB 712 (Committee on Insurance)
Page 3 of ?
required for professional disciplinary proceedings and that the
Academy observes the commissioner's confidentiality
requirements; or (3) the insurer uses the confidential material
as part of its marketing efforts, releases the material to any
government agency other than a state insurance department, or
releases the material to any news medium. (Ins. Code Sec.
10489.15(c)(8)(A).)
Existing law provides that the confidential material related to
a life or disability insurer's actuarial opinion shall be
subject to subpoena on the commissioner's consent or after
notice to the commissioner and all other interested parties and
a hearing in which the superior court determines that the need
for the subpoena outweighs the interests of the insurer or
actuary in preventing disclosure of the material and the public
interest and any ongoing investigation or proceeding conducted
by the commissioner will not be unnecessarily jeopardized by
compliance with the subpoena. (Ins. Code Sec.
10489.15(c)(8)(B).)
Existing law generally requires records maintained by public
agencies to be accessible to the public. (Gov. Code Sec. 6250
et seq.) Existing law exempts from public disclosure
applications submitted by insurance companies to state agencies.
(Gov. Code Sec. 6254(d)(1).)
This bill would require admitted property and casualty insurers,
unless exempt, to submit an annual Statement of Actuarial
Opinion, with an Actuarial Report and underlying workpapers, and
Actuarial Opinion Summary, as specified. Admitted insurers not
domiciled in California would be required to submit an Actuarial
Opinion Summary upon request of the commissioner.
This bill , in the event the admitted property and casualty
insurer fails to provide an acceptable Actuarial Report, would
authorize the commissioner to engage, at the expense of the
insurer, a qualified actuary to review the Actuarial Opinion and
prepare the supporting Actuarial Report.
This bill would authorize the commissioner to adopt regulations
related to the terms and conditions required by the Property and
Casualty Annual Statement Instructions of the National
Association of Insurance Commissioners.
This bill would provide that the Statement of Actuarial Opinion
shall be a public record and open to inspection, as specified.
SB 712 (Committee on Insurance)
Page 4 of ?
This bill would exempt from disclosure required under the
California Public Records Act all admitted property and casualty
insurer Actuarial Reports, workpapers, or Actuarial Opinion
Summaries submitted in support of the Statement of Actuarial
Opinion, and such records would be confidential by law and
privileged and would not be subject to subpoena or discovery, or
be admissible in evidence in any private party civil action.
This bill would not limit the commissioner's authority to
release the Actuarial Report or Actuarial Opinion Summary and
supporting documents to the American Academy of Actuaries'
Actuarial Board for Counseling and Discipline (ABCD) if the
documents are required for the purpose of professional
disciplinary proceedings and the ABCD establishes
confidentiality procedures sufficient to satisfy the
commissioner. This bill also would not limit the commissioner's
authority to use these documents in furtherance of any
regulatory or legal action brought as part of the commissioner's
official duties.
This bill would authorize the commissioner to disclose
documents, as specified,
to the insurance department of this or any other state or
country, or to law enforcement officials of this or any other
state or agency of the federal government at any time, or to the
National Association of Insurance Commissioners, provided the
recipient of the report or matters relating thereto agrees in
writing to hold it confidential and in a manner consistent with
this article, unless the prior written consent of the company to
which it pertains has been obtained.
This bill would make various technical corrections to Insurance
Code statutes.
COMMENT
1. Stated need for the bill
The author writes:
Effective January 1, 2010, the NAIC �National Association of
Insurance Commissioners] added a requirement for states to
adopt the NAIC Property and Casualty Opinion Model Law. The
NAIC, during an interim annual review of CDI �California
Department of Insurance] last year noted, as a finding, that
SB 712 (Committee on Insurance)
Page 5 of ?
California had not codified the NAIC Property and Casualty
Opinion Model Law. It is imperative that California adopt
this Model Law to preserve its NAIC accreditation status. The
status of CDI as an accredited insurance regulator allows our
Reports of Examination to be accepted by other states, and
allows other states to rely on us for other regulatory
functions related to financial surveillance. Losing
accreditation would seriously impede the CDI's ability to
protect California consumers, as well as negatively impact the
state's domestic insurance industry.
SB 712 only codifies those elements of the NAIC Actuarial
Opinion Model Law (Property and Casualty) which the �CDI] has
identified as necessary in order to retain California's NAIC
accreditation.
2. Exempting actuarial supporting documents from public
disclosure under the California Public Records Act (CPRA)
This bill would require, pursuant to NAIC standards, property
and casualty insurers to submit annual Statements of Actuarial
Opinions, Actuarial Reports, Actuarial Opinion Summaries, and
supporting documents to CDI. However, this bill would provide
an exemption from disclosure under the CPRA for Actuarial
Reports, workpapers, or Actuarial Opinion Summaries submitted in
support of the Statement of Actuarial Opinion.
The California Constitution, declares the people's right to
transparency in government. (Cal. Const., art. I, sec. 3.)
Further, the CPRA governs the disclosure of information
collected and maintained by public agencies. (Gov. Code Sec.
6250 et seq.) Generally, all public records are accessible to
the public upon request, unless the record requested is exempt
from public disclosure. (Gov. Code Sec. 6254.) Existing law
exempts from public disclosure applications, examination,
operating, or condition reports, preliminary drafts, and notes
submitted by insurers to state agencies. (Gov. Code Sec.
6254(d)(1), (2).) Further, the CPRA exempts from public
disclosure corporate financial records and corporate proprietary
information including trade secrets. (Gov. Code Sec. 6254.15.)
The author argues that the exemption under the CPRA provided by
this bill for actuarial supporting documents is necessary
because this exemption is required by the NAIC in order for the
CDI to maintain its accreditation. Accreditation by the NAIC
SB 712 (Committee on Insurance)
Page 6 of ?
was designed to improve the supervision of insurers by state
regulators. NAIC adopts model laws which provide minimum
standards to be adopted by the states in order to maintain the
NAIC accreditation of a state's insurance regulator. CDI states
that adopting the minimum standards contained in the NAIC
Actuarial Opinion Model Law ensures an effective, efficient
national system of solvency regulation. The NAIC recommends
model laws for all states, which may or may not provide other
adequate proprietary information protections. Accordingly, the
NAIC model law recommends a blanket exemption from public
disclosure for the actuarial supporting documents which may
otherwise be disclosed under sunshine laws or public records
disclosure statutes. Since actuarial supporting documents
necessarily contain insurance rates and other proprietary
information, this bill would exempt this information from public
disclosure.
Staff notes that this bill does not contain legislative findings
required by Section 3 of Article I of the California
Constitution, which provides that measures which limit access
must contain findings demonstrating the interest protected by
the limitation and the need to protect that interest. In order
to remedy this, the following amendment is suggested:
Suggested Amendment :
On page 10, below line 33 insert:
"SEC. 9. The Legislature finds and declares that Section 2 of
this act imposes a limitation on the public's right of access
to the writings of public officials and agencies within the
meaning of Section 3 of Article I of the California
Constitution. Pursuant to that constitutional provision, the
Legislature makes the following findings to demonstrate the
interest protected by this limitation and the need for
protecting that interest:
In order to protect proprietary information, it is necessary
to enact legislation that the actuarial supporting documents
provided pursuant to this act are kept confidential."
3. Designating actuarial supporting documents as confidential to
protect proprietary information
This bill would provide that Actuarial Reports, workpapers, or
Actuarial Opinion Summaries submitted in support of the
SB 712 (Committee on Insurance)
Page 7 of ?
Statement of Actuarial Opinion shall be confidential by law and
privileged. Existing law, under the CPRA, exempts from public
disclosure information received in confidence from the insurer
by any state agency. (Gov. Code Sec. 6254(d)(4).) Further,
existing law provides that working papers, including actuarial
opinions, obtained by a commissioner during the insurer
certification examination process are confidential unless the
commissioner deems public disclosure appropriate, as specified.
(Ins. Code Sec. 735.5.) Although life and disability insurers
are subject to different confidentiality provisions under
Insurance Code Section 10489.15 than those provided under the
examination process under Insurance Code Section 735.5, staff
notes that the examination confidentiality provisions were
enacted one year after the life and disability confidentiality
provisions.
Unlike the confidentiality provisions for life and disability
insurers, this bill does not provide these same instances for
when actuarial supporting documents may lose confidential
status. Instead, these documents would be subject to release by
the commissioner for professional disciplinary proceedings or
regulatory actions commenced by the commissioner. This bill
also would authorize the commissioner to disclose documents, as
specified, to the insurance department of this or any other
state or country, or to law enforcement officials of this or any
other state or agency of the federal government at any time, or
to the National Association of Insurance Commissioners, provided
the recipient of the report or matters relating thereto agrees
in writing to hold it confidential and in a manner consistent
with this article, unless the prior written consent of the
company to which it pertains has been obtained. These
provisions track the confidentiality provisions provided during
the examination process. The author argues that "�t]he various
documents related to the actuarial report or actuarial opinion
summary must be privileged and treated as confidential by law
because they contain significant proprietary information."
4. Exempting actuarial documents from production pursuant to
subpoenas, discovery, and as trial evidence
Under this bill, Actuarial Reports, workpapers, or Actuarial
Opinion Summaries submitted in support of the Statement of
Actuarial Opinion would not be subject to production pursuant to
a subpoena, discovery, or admissible as evidence in any private
party civil action. Existing law provides that all documents,
including actuarial opinions, produced by, obtained by, or
SB 712 (Committee on Insurance)
Page 8 of ?
disclosed to the commissioner or any other person in the course
of an insurer certification examination are not subject to
subpoena and shall not be made public by the commissioner or any
other person unless the commissioner deems public disclosure
appropriate, as specified. (Ins. Code Sec. 735.5(c).)
On the other hand, confidential memoranda submitted in support
of actuarial opinions by life and disability insurers to CDI are
subject to subpoena on the commissioner's consent or after
notice to the commissioner and all other interested parties and
a hearing in which the court determines the following: (1) that
the need for the subpoena outweighs the interests of the insurer
or actuary in preventing release of the confidential memorandum
and other material; and (2) the public interest and any ongoing
investigation or proceeding conducted by the commissioner will
not be unnecessarily jeopardized by compliance with the
subpoena. (Ins. Code Sec. 10489.15(8)(B).) As noted in Comment
3, these subpoena provisions were enacted one year prior to the
subpoena protections provided for certification examination
documents.
As with documents provided during the insurer certification
examination process, this bill would not provide any
circumstance under which the actuarial supporting documents
could be subject to subpoena, discovery, or admissible as trial
evidence. Again, CDI argues that the actuarial supporting
documents contain proprietary information and should not be
disclosed.
Support : None Known
Opposition : None Known
HISTORY
Source : California Department of Insurance
Related Pending Legislation : None Known
Prior Legislation : None Known
Prior Vote : Senate Committee on Insurance (Ayes 6, Noes 0)
**************
SB 712 (Committee on Insurance)
Page 9 of ?