Calif.’s AB 975 Hearing Postponed Indefinitely

AB 975, legislation that would clarify the definition of broker in the California Insurance Code, was not heard in the Assembly Insurance Committee May 4, according to the American Agents Alliance. The hearing on AB 975 has not been rescheduled for a future date.

“The concept of the bill is to create a brighter line in regard to when someone’s acting as a broker and when somebody’s acting as an agent,” said John Norwood, managing partner at Norwood & Mattoch, a lobbying firm for Insurance Agents and Brokers of the West. “The insurance code says that an agent represents the insurance company transacting insurance on behalf of a company and a broker is transacting insurance not on behalf of a company but on behalf of the consumer or the insured. That’s pretty clear in terms of statute, but in terms of practice, things get blurred somewhat. There’s been a debate over the last number of years whether some people that are holding themselves out as brokers are actually acting as agents.”

Sponsored by Assembly Speaker Fabian Núñez, AB 975 would have amended the Insurance Code to say the following: “An insurance broker is a person who, for compensation and on behalf of another person, transacts insurance other than life insurance with, but not on behalf of, an insurer. An insurance broker must have access to two or more insurance markets not under common control. An insurance broker may not hold himself or herself out as the representative of any insurance company.”

The American Agents Alliance expressed its support for the bill earlier by sending a letter to the Assembly Insurance Committee and by encouraging its members to send e-mails to Núñez. “The Alliance has long battled in the legislative and regulatory arenas for clear, concise parameters under which a producer would be deemed to be acting as a broker. We believe AB 975 is a positive step toward that end,” Alliance representatives said in a statement.

But because the bill failed to be heard by the committee, it is now a two-year bill, which means the Assembly will have to pass the legislation by Jan. 30, 2006 to become law by the beginning of 2007.

“As of now, AB 975 is a two-year bill, which provides time to study the various proposals and continue discussions with the various factions debating this complex and contentious issue,” said Ken Nigohosian, executive director of the Alliance. “Since the bill is now a two-year bill, it is hard to say how the industry will be affected because we do not know what changes, if any, will be made to AB 975. [But] the Alliance plans to continue to remain front and center in discussions, making sure the interests of our members and the rest of California’s independent producers are represented.”

Norwood said that IBA West and a number of other producer groups met recently to discuss the legislation, stating that producers are taking an active role in the legislative process to clarify the definition of broker. He also said that IBA West will continue to participate in those discussions.

“This issue … is a key issue to the producer community that we’ve been involved over the last few years,” he said. “Whatever’s done with this issue affects all of us.”

Norwood said that there are other ways for the bill to be considered this year, including the possibility of negotiating the issue and placing it in another bill. Another option is to add an urgency clause to the bill, he said.