California Legislature Takes Action on Several Insurance-Related Bills

The California legislature took action on several insurance-related bills recently, including a controversial bill dealing with the issue of broker compensation.

SB 938 (Dunn) would “require that an agent or broker acting on behalf of a client in a transaction involving commercial insurance, as defined, use reasonable care, skill, and diligence in performing services on behalf of the client, and would provide that the agent or broker owes the client the duties of good faith, honesty, loyalty, and integrity.”

In addition, the bill “would impose specified requirements on an agent or broker acting on behalf of a client with respect to making inquiries of insurers, obtaining coverage, disclosing information to the client, and charging fees to the client.”

The bill was defeated in the Senate Banking, Finance and Insurance Committee 2 to 5.

“This is excellent news for California’s independent producer community. We are pleased that the Senate Insurance Committee agreed that the proposals made by Commissioner Garamendi were unnecessary and would have placed unjust burdens on agents and brokers throughout our state,” said Alliance Executive Director Ken Nigohosian in a press release.

“Unfortunately, this is not the end of the story, as the commissioner’s proposed agent-broker fiduciary regulations are still pending. We will continue to battle against the commissioner’s apparent quest to eradicate non-existent problems in the insurance industry,” Nigohosian continued.

Although the bill was defeated in the Committee, it was also granted reconsideration, rendering the possibility that at press time, it could be heard again in committee the following week.

SB 603 (Speier) was passed by the Senate Banking, Finance and Insurance Committee on a partisan vote of 6 to 4. This bill will prohibit the use of credit information and restrict the use of prior losses by insurers in underwriting or rating. “We think that’s unfortunate because credit scoring as we see it in other states, is a really good tool for insurers to use to accurately price products and assess risk,” said Nicole Mahrt, Western region public affairs director for the American Insurance Association.

“Several studies have shown the correlation between risk and credit scores,” Mahrt added. “It’s simply a tool so that folks that manage their credit and present the lower risk do not pay higher rates to subsidize those that present the higher risk. The industry has traditionally supported the NCOIL model and there’s another measure that is sponsored by another trade association that the industry is in support of that would implement NCOIL. It would bring many new consumer safeguards and protections that actually don’t exist now.”

Also in the Banking, Finance and Insurance Committee, SB 150 (Escutia) was passed on a 6 to 4 vote. The bill would restrict how insurers can make adverse underwriting decisions and require several additional notices on adverse underwriting decisions. “It would raise costs to insurers because of the notifications,” Mahrt said. “It also amends part of Prop 103 which is how good driver discounts are applied.”

Both measures will now move to the Senate Appropriations Committee.

Garamendi’s much-touted mandated community investment bill (AB 925) was dropped by its author, Assembly Member Mark Ridley-Thomas (Los Angeles). The bill would have mandated insurers to invest in community development projects across the state. Ridley-Thomas withdrew the bill from consideration during the current legislative session, rendering it a two-year bill likely to rear its ugly head again next year.

Finally, Governor Arnold Schwarz-enegger’s appointment of Andrea Hoch to head up the Division of Workers’ Compensation received a four-year confirmation by the Senate Rules Committee almost one year after her initial appointment, despite fierce opposition from organized labor groups and applicants’ attorneys.

“I think her confirmation is a good thing,” Mahrt said. “I think she’s a really good competent administrator and has worked well with the bureaucracy. She’s done a lot of really good work under very difficult circumstances. Obviously though we’re going to have to look at how the changes come together and what those will be.”