BILL ANALYSIS �
-----------------------------------------------------------------
|SENATE RULES COMMITTEE | AB 2734|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
-----------------------------------------------------------------
THIRD READING
Bill No: AB 2734
Author: Assembly Insurance Committee
Amended: 8/18/14 in Senate
Vote: 21
SENATE INSURANCE COMMITTEE : 10-0, 6/25/14
AYES: Monning, Corbett, Correa, DeSaulnier, Lieu, Mitchell,
Nielsen, Roth, Torres, Vidak
NO VOTE RECORDED: Gaines
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 78-0, 5/15/14 (Consent) - See last page for
vote
SUBJECT : Insurance: omnibus
SOURCE : Department of Insurance
DIGEST : This bill is the Assembly Insurance Committees
omnibus bill and contains numerous technical and
noncontroversial provisions related to insurance law.
Senate Floor Amendments of 8/18/14 clarify the definition of
disabled veteran business enterprises for Department of
Insurance (CDI) reporting purposes and make minor changes.
ANALYSIS :
Existing law:
CONTINUED
AB 2734
Page
2
1. Requires major insurers to report data biennially to the
Insurance Commissioner (IC) relating to their contracting
with women, minority, and disabled-veteran owned businesses,
as specified;
2. Defines a "surplus lines broker" as a person licensed to
place insurance with non-admitted insurers, covering risks
other than aircraft and certain marine and transportation
risks;
3. Requires every surplus line broker to pay a tax of 3% of the
gross premiums charged, less return premiums upon business
done under the authority of his/her license during the
preceding calendar year, as specified;
4. Requires every surplus line broker whose annual tax for the
preceding calendar year was $5,000 or more to make monthly
installment payments on account of the annual tax on business
done during the calendar year;
5. Authorizes the IC to relieve a surplus line broker of
his/her obligation to make monthly payments if the broker
establishes to the IC's satisfaction that he/she has ceased
to transact business in this state, or that his/her annual
tax for the current year will be less than $5,000;
6. Imposes an annual tax on each insurer doing business in this
state. The tax rate applied to the basis of the annual tax
is 2.35%. The tax imposed on insurers is in lieu of all
other taxes and licenses, except as specified;
7. Authorizes the IC to relieve an insurer of its obligation to
make prepayments if the insurer establishes to the IC's
satisfaction that either the insurer has ceased to transact
insurance in this state, or that the insurer's annual tax for
the current year will be less than $5,000;
8. Exempts a nonprofit cooperative assessment association from
the requirements of the Insurance Code, provided that the
association limits the financial protection benefits it
provides to its members to wage loss benefits;
9. Prohibits insurers that write private passenger automobile
CONTINUED
AB 2734
Page
3
insurance from discriminating against applicants for, or
cancelling, insurance based on specified factors, including
geographic area, or from using geographic area, in and of
itself, as the basis of charging a higher premium;
10.Requires automobile insurers to submit annual reports to the
IC on loss experience, as specified, for the geographic, as
defined, including statistical data by zip code area;
11.Specifies that the IC may not take action on an application
to become a certified reinsurer, as specified, until at least
90 days after posting the application for public comment on
the CDI Web site;
12.Generally allows insurers to cede risk through placing of
reinsurance, and requires reinsurers to provide security for
the payment of their reinsurance obligations; and
13.Provides that if an assuming insurer has permanently
discontinued underwriting new business secured by a trust for
at least three full years, the IC may authorize a reduction
in the required trusteed surplus, as specified, but not less
than 50% of the assuming insurer's liabilities attributable
to reinsurance.
This bill:
1. Clarifies, in the biennial report relating to contracting
with women, minority, and disabled-veteran owned businesses,
that required information on contracting with California
businesses is to be determined by a headquarters address in
California, rather than having a majority of its workforce in
California;
2. Raises, from $5,000 to $20,000, the annual tax threshold
that triggers an obligation on the part of a surplus line
broker to make monthly installment payments;
3. Raises, from $5,000 to $20,000, the annual tax threshold
that triggers an obligation on the part of insurers
transacting insurance in this state to make prepayments of
the annual tax for the current calendar year;
4. Allows the Locomotive Engineers and Conductors Mutual
CONTINUED
AB 2734
Page
4
Protective Association (LECMPA), a nonprofit cooperative
assessment association, to provide its members with limited
accidental death benefits, in addition to the loss of wages
benefit currently authorized, prohibits these associations
from membership in an insurance guarantee association, and
requires a specified notice on each policy issued by the
association;
5. Allows automobile insurers to submit the report on loss
experience for geographic areas biennially instead of
annually, and requires statewide summary data be submitted
annually;
6. Reduces from 90 days to 30 days the period after which the
IC may take action on an application to become a certified
reinsurer;
7. Allows the IC to reduce the required trusteed surplus for
reinsurers who have ceased writing new business for three
years, under certain circumstances, to not less than 30% of
the reinsurer's liabilities attributable to reinsurance, as
specified; and
8. Makes other minor technical changes to the Insurance,
Revenue and Taxation and Vehicle Codes.
Background
AB 53 (Solorio, Chapter 414, Statutes of 2012) required major
California insurers to submit a biennial report to the IC
regarding the implementation of their efforts to increase
procurement from women, minority, and disabled veteran business
enterprises. In its first year of implementation in 2013, many
insurance companies were unable to properly determine if a
supplier was a "California business" because insurance companies
and organizations that certify diverse suppliers do not track
the location of vendor employees.
According to the CDI, there are very few insurance taxpayers
that fall below the $20,000 quarterly filing threshold proposed
by this bill, and the administrative costs associated with
retaining the $5000 standard does not justify keeping the
standard that low.
CONTINUED
AB 2734
Page
5
The Insurance Code requires any entity that sells "insurance" in
California to be "admitted" (licensed) to transact insurance in
the state, subject to a number of exceptions. Among these
exceptions are membership-type mutual benefits societies of
various forms. The premise of these exemptions is that the
organizations have their members' interests as their primary
function, and do not need a regulatory structure to ensure
proper behavior toward those members. The exemption statute
that governs LECMPA limits the benefits it may offer for
California members to wage loss benefits, despite the fact that
48 other states allow accidental death benefits. There is no
controversy about expanding the scope of benefits that can be
paid by LECMPA, but the statute must be amended to authorize it.
The CDI engages in a substantial amount of statistical analysis
on a broad range of issues. The CDI's view is that the Private
Passenger Auto Liability Data Call and Private Passenger Auto
Damage Data Call requirement for annual submissions is
unnecessarily burdensome on both the CDI and the insurers. The
same analytical results can be achieved if the data were filed
on an every-other-year basis.
The proposed changes to the Credit for Reinsurance Law make
California's law more consistent with the National Association
of Insurance Commissioners Credit for Reinsurance Model Law and
Regulations. This proposal would change California's 90 day
notice period for certified reinsurer applications to the 30 day
notice period provided for in the Model. This bill also allows
the IC to consider the reduction of the minimum required for
trusteed surplus to no less than 30% of a reinsurer's
liabilities covering U.S. ceding insurers when a reinsurer has
ceased writing new business for three years. Currently,
California law states that the minimum required trusteed surplus
cannot be reduced to an amount less than 50%. The variations in
California's law can unnecessarily complicate multi-state
review.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 8/19/14)
Department of Insurance (source)
CONTINUED
AB 2734
Page
6
ASSEMBLY FLOOR : 78-0, 5/15/14
AYES: Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom,
Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian
Calderon, Campos, Chau, Ch�vez, Chesbro, Conway, Cooley,
Dababneh, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox,
Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon,
Gorell, Gray, Grove, Hagman, Hall, Harkey, Roger Hern�ndez,
Holden, Jones, Jones-Sawyer, Levine, Linder, Logue, Lowenthal,
Maienschein, Medina, Melendez, Mullin, Muratsuchi, Nazarian,
Nestande, Olsen, Pan, Patterson, Perea, John A. P�rez, V.
Manuel P�rez, Quirk, Quirk-Silva, Rendon,
Ridley-Thomas, Rodriguez, Salas, Skinner, Stone, Ting, Wagner,
Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, Atkins
NO VOTE RECORDED: Mansoor, Vacancy
AL:k 8/19/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****
CONTINUED