BILL ANALYSIS �
SB 1212
Page 1
Date of Hearing: August 28, 2012
ASSEMBLY COMMITTEE ON JUDICIARY
Bob Wieckowski, Chair
SB 1212 (Calderon) - As Amended: August 23, 2012
As Proposed to Be Amended
SENATE VOTE : Not relevant
SUBJECT : INSURANCE: ELECTRONIC TRANSMISSION
KEY ISSUE : SHOULD INSURERS BE AUTHORIZED TO ELECTRONICALLY
PROVIDE CERTAIN NOTICES AND OTHER COMMUNICATIONS TO AUTOMOBILE
AND PROPERTY-CASUALTY POLICYHOLDERS IF THE POLICYHOLDER HAS
AFFIRMATIVELY GIVEN CONSENT AND THE INSURER HAS COMPLIED WITH
OTHER CONSUMER SAFEGUARDS?
FISCAL EFFECT : According to the Assembly Appropriations
Committee, the California Department of Insurance (CDI) believes
this legislation will result in an increase in consumer
complaints related to renewals and coverage issues due to
electronic renewal notices not being received. CDI estimates
that costs associated with that workload would be approximately
$170,000 per year (Insurance Fund).
SYNOPSIS
This bill, sponsored by the Personal Insurance Federation of
California (PIF), seeks to authorize insurers selling automobile
and property-casualty policies to electronically provide certain
notices, offers of renewal, and other communications to
consumers if the named insured has affirmatively given consent
and the insurer has complied with other requirements to
authorize electronic transmission. Among these requirements are
that the insurer must: (1) advise the insured that opt-in is
voluntary, (2) allow the insured to opt-out at any time, (3)
provide a method that the insured can update or verify his or
her email address with the insurer, and (4) maintain a process
that can verify the electronic transmission of the document to
the named insured. Proponents of the bill, primarily insurers,
contend that it represents a step forward in conforming
California law to national and interstate policy and to bring
California into the digital age and offers consumers the choice
of whether to receive their documents at a stationary physical
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location or an electronic one that can follow them wherever they
go. The California Department of Insurance and a number of
consumer advocates have opposed the bill unless amended. The
attached mock-up reflects amendments which, it is believed,
remove or substantially limit opponents' concerns.
SUMMARY : Authorizes insurers, if certain conditions are met, to
electronically provide offers of coverage or renewal of certain
motor vehicle and property-casualty policies. Specifically,
this bill :
1)Authorizes an insurer to electronically provide statutory
notice and offer to renew requirements for certain automobile
and property-casualty insurance policies if the insurer
complies with a number of requirements, including but not
limited to all of the following:
a) Seeks and acquires the affirmative consent of the named
insured verbally, in writing, or electronically, and the
named insured has not withdrawn that consent, prior to
providing the document by electronic transmission.
b) Advises the named insured that opting in to electronic
transmission is voluntary, and provides a method such as a
toll-free telephone number, e-mail address, or Internet Web
site address that the named insured can use to confirm the
legitimacy of an e-mail from an insurer, report a change in
the named insured's e-mail address, or otherwise
communicate with an insurer.
c) Obtains the e-mail address to which a named insured who
has consented to electronic transmission wishes to receive
such transmissions, and informs the named insured if the
transmission is undeliverable when sent to the e-mail
address provided by that person.
d) Maintains a process or system that can demonstrate that
the e-mail or document was sent by electronic transmission
to the named insured.
e) Allows any named insured to at any time opt out of
receipt by electronic transmission of the documents
permitted to be provided electronically by this bill.
2)Requires the insurer to retain a record of the named insured's
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consent to receive specified documents electronically with the
policy information so that the record of consent is
retrievable upon request by the Department of Insurance while
the policy is in force and for five years thereafter.
EXISTING LAW :
1)Establishes the Uniform Electronic Transactions Act (UETA)
which authorizes the transaction of business, commerce,
contracts, and governmental affairs by electronic means.
(Title 2.5 of Part 2 of Division 3 of the Civil Code,
commencing with Section 1633.1.)
2)Specifies conditions and procedures that must be met for the
authorized electronic transmission of any written notice
required to be given or mailed to a consumer by an insurer,
including requirements for confirmation and manner of
transmission. (Insurance Code 38.5; Civil Code Section
1633.15.)
3)Notwithstanding the above, specifies certain transactions
which are prohibited from being conducted by electronic means
(Civil Code Section 1633.3), including, but not limited to:
a) An offer to renew private passenger automobile
insurance. (Insurance Code Section 663.)
b) An offer to renew a policy of property, liability, or
other casualty insurance on risks located in California.
(Insurance Code Section 678.)
c) An offer to renew a commercial policy of property,
liability, or other casualty insurance on risks located in
California. (Insurance Code Section 678.1.)
d) A notice of reduced earthquake insurance coverage at the
time of renewal of a residential property insurance policy.
(Insurance Code Section 10086.)
4)Requires a motor vehicle insurer, prior to expiration of a
private passenger automobile insurance policy, to deliver or
mail to the named insured either a written or verbal offer of
renewal, or a written notice of nonrenewal. Further requires
a written confirmation notice to be delivered or mailed if a
previous verbal offer to renew is rejected by the
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policyholder. (Insurance Code Section 663.)
5)Requires an insurer, at least 45 days prior to expiration of a
policy of property or other casualty insurance on risks
located in this state, to deliver or mail either an offer of
renewal or a notice of nonrenewal of the policy containing
prescribed content. (Insurance Code Section 678.)
6)Provides that if an insurer, at renewal, exercises its
authority to modify the terms and conditions of an existing
earthquake insurance policy, then the insurer must provide the
named insured with the renewal notice in a stand-alone
disclosure document at the mailing address shown on the policy
or application. (Insurance Code Section 10086.)
COMMENTS : This bill seeks to authorize insurers selling
automobile and property-casualty policies to electronically
provide certain notices, offers of renewal, and other
communications to consumers if the named insured has
affirmatively given consent and the insurer has complied with
other requirements to authorize electronic transmission. Among
these requirements are that the insurer must: (1) advise the
insured that opt-in is voluntary, (2) allow the insured to
opt-out at any time, (3) provide a method that the insured can
update or verify his or her email address with the insurer, and
(4) maintain a process that can verify the electronic
transmission of the document to the named insured.
Author's Statement: The author has provided the following
statement in support of the bill:
California adopted its version of the Uniform Electronic
Transactions Act (UETA) in 1999. UETA grants electronic
signatures and records legal equality with paper and ink
documents. California, however, excluded many documents,
including some insurance documents. This had the
practical effect denying consumers the option to choose
to receive electronic versions of notices of renewal and
other documents related to home, auto, commercial and
earthquake policies. Shortly thereafter, Congress and the
President announced a national policy encouraging
electronic delivery of documents by passing the
Electronic Signatures in Global and National Commerce Act
(ESIGN) (15 U.S.C. 7001 et seq.). Congress affirmed UETA
as a national standard and specifically intended ESIGN to
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apply to insurance. Federal and national policy
encourages electronic insurance transactions.
But California continues to refuse to apply UETA to many
of its insurance documents. These exclusions potentially
harm consumers whose circumstances are better served
through electronic communications. Forcing consumer to
rely on the postal service unfairly discriminates against
consumers that travel or change addresses frequently, or
who live in areas with scarce postal services.
In particular, SB 1212 would authorize the electronic
transmission of offers of renewal for auto and
residential insurance policies (Ins. Code �� 663 and
678), notices of conditional renewal for commercial
policies (Ins. Code � 678.1), and offers of renewal and
disclosures related to earthquake coverage (Ins. Code �
10086). SB 1212 represents another step forward in
conforming California law to national and interstate
policy and to bring California into the digital age.
More importantly, it offers consumers the choice of
whether to receive their documents at a stationary
physical location or an electronic one that can follow
them wherever they go.
As this Committee has seen in recent years with respect to
legislation seeking to authorize greater electronic transmission
of important documents, proponents generally believe that
current technology is reliable and secure enough to ensure that
documents sent by email are in fact received by the intended
recipient without problem. However, a number of concerns still
remain, and may always remain, because of the nature of the
technology and the human nature of those who use it. For
example, actual receipt of emailed documents can be compromised
by: (1) SPAM blockers that filter out legitimate business
messages; (2) the actions of people who change their email
addresses or service providers but do not know who to notify at
the insurance company of their new email address; (3)
technological problems, such as when a computer server is down
when an important email message is sent; and (4) the real threat
of computer viruses or scams that makes consumers reluctant to
open emails from senders not immediately recognizable.
For these reasons and others, California law in many instances
still requires written notices and other documents to be mailed
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to an individual's home or designated mailing address to ensure
delivery and/or receipt for legal purposes. This may reflect
the judgment that a person's mailing address is less transitory
in nature than his or her email address, which by comparison is
more likely to change over time and of which there may be
several rather than a single primary one. In addition, the U.S.
Postal Service generally will automatically forward mail to a
new mailing address, while that is not necessarily true of email
unless the user successfully arranges it.
As a matter of policy, laws that require mail delivery reflect
the idea that some documents are too important to be transmitted
solely by electronic means, in many cases because of the risk
they pose to the consumer if he or she unknowingly fails to
receive the document through email or other electronic means.
For example, under Insurance Code Section 10086, at the time of
renewal of a residential property insurance policy, an insurer
may modify the policy to reduce earthquake insurance coverage,
but is required to provide the insured with a renewal notice in
a stand-alone disclosure document. This document must include
specific language notifying the insured that the insurer has
renewed the homeowner's policy with earthquake insurance
coverage that is reduced from the previous policy purchased.
The homeowner has an important interest in receiving a hard-copy
notification in this case because the notice is communicating
the insurer's unilateral decision to reduce earthquake insurance
coverage at the time of renewal.
For these reasons, the August 23 amendments to the bill clarify
that offers of policy renewal pursuant to Section 663, 678, and
678.1 may be provided electronically if the insurer complies
with specified procedural safeguards, but that notices of
nonrenewal under those sections must still be in writing and
delivered or mailed to the consumer. In addition, any offer of
earthquake coverage or renewal or any disclosure pursuant to
Section 10086 may be provided electronically if the insurer
complies with the same specified procedural safeguards.
Author's Proposed Amendments: In order to address concerns
raised by the California Department of Insurance (CDI) and other
consumer advocates, the author proposes to amend the bill as
reflected in the attached mock-up which, it is believed, may
remove or substantially reduce the opposition.
ARGUMENTS IN OPPOSITION : A number of consumer advocates,
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including Consumer Watchdog, Consumer Federation of California,
and Consumer Action, oppose the bill unless amended to add
additional safeguards to ensure that consumers receive important
insurance renewal notices and other documents. According to
these opponents:
Renewal notices are important documents that may include
changes in the terms and conditions of coverage for a
consumer's most important assets. For this reason, the
Legislature excluded them from UETA, as well as required
that they be issued in a specified time frame to provide
policyholders with the opportunity to make thoughtful and
informed decisions on their insurance products.
Common sense safeguards can be easily employed to help
ensure consumers receive their important insurance
renewal notices and, as California moves forward with
e-commerce changes to the business of insurance, and to
ensure e-commerce public policies continue to be
consistent and protective of consumers and their rights.
Previous Legislation : AB 328 (Calderon), Ch. 433, Stats. 2009,
authorizes certain required notices and communications by
insurers to their insured to be provided electronically with the
consent of the parties, as specified. Among other things, this
bill also requires an insurer to maintain a system for
electronically confirming a policyholder's decision to opt in to
an agreement to conduct transactions electronically, and a
system that will allow the policyholder to electronically opt
out of the agreement to conduct business electronically.
REGISTERED SUPPORT / OPPOSITION :
Support
Personal Insurance Federation of California (sponsor)
Association of California Insurance Companies
California Chamber of Commerce
Californians Against Waste
Association of California Life & Health Insurance Companies
(ACLHIC)
American Council of Life Insurers (ACLI)
Insurance Agents & Brokers of the West (IBA West)
Opposed (prior to proposed amendments)
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California Department of Insurance
Consumer Watchdog
Congress of California Seniors
California Advocates for Nursing Home Reform
Consumer Action
Consumer Federation of California
United Policyholders
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334