New financial privacy requirements and legislation aimed at cutting workers’ compensation costs are the two most significant public policy measures that impacted the property/casualty insurance industry during the 2003 California legislative session. The session ended Sept. 12, and the Legislature will reconvene on Jan. 4.
Also, during the session insurers defeated several onerous proposals that would have unfairly restricted how companies underwrite and rate auto and homeowners policies, according to the Association of California Insurance Companies (ACIC).
“By debunking myths on the homeowners insurance rating and underwriting process, insurers avoided costly, extreme legislation that could have further damaged the California homeowners insurance market,” said ACIC president Sam Sorich. “Otherwise, policyholders may have been forced to pay more for homeowners insurance coverage and coverage may have been less available.”
Senate Bill 1, which takes effect July 1, 2004, establishes new financial privacy standards for insurers and other financial institutions. ACIC opposed the bill as it places restrictions on the exchange of information with affiliated companies and makes it difficult for companies to provide a broad range of services to their California customers.
“SB 1 is one of the nation’s most restrictive state privacy measures,” Sorich said. “The new law also creates severe inconsistencies with the national standards, forcing insurers and other financial institutions to develop ‘California-only’ systems to comply with the new law.”
The scope of the new California privacy law is already being called into question by Congress. A bill to renew the Fair Credit Reporting Act (FCRA) passed by the Senate Banking Committee earlier this week contains a provision that would preclude state legislators from enacting laws that are more restrictive than the FCRA provisions dealing with affiliate sharing.
In the last hours of the legislative session, lawmakers approved two bills that would provide some of the necessary cost savings needed to stabilize the states workers’ comp system. Gov. Davis has announced that he will sign the bills, which have an estimated immediate cost savings of $5.3 billion, with the potential for further savings in the coming years.
Major features of AB 227 and SB 228 include: a pharmaceutical fee schedule, limits for chiropractic and physical therapy visits to 24 per claim, repeal of the mandate for vocational rehabilitation, implementation of a fee schedule for outpatient surgery facilities, new medical utilization guidelines, repeal of the current presumption of correctness in favor of the treating physician, and authority for the California Insurance Guaranty Association is authorized to issue bonds to assure that workers’ comp claims are paid.
“Both bills were a good first step in providing immediate relief and reforms to significantly reduce system costs,” Sorich said. “More will need to be done to ensure that workers’ compensation is a viable marketplace in California and that changes to the system are administered properly to realize the potential cost savings. Permanent partial disability benefits, legal costs and administrative costs still need to be addressed and reduced.”
Underwriting and Rating
ACIC joined forces with minority business groups, neighborhood associations, construction and mortgage banker groups to oppose SB 691 and SB 64, the two most troublesome homeowners insurance bills introduced in 2003. Both bills stalled this session and will be carried over into the 2004 session.
SB 64 would have severely restricted underwriting practices for homeowners’ policies and was amended to give the insurance commissioner the authority to approve underwriting guidelines. Because the bill was defeated in the Assembly Insurance Committee, the insurance commissioner issued an emergency regulation to interpret underwriting guidelines that ACIC successfully challenged in the Sacramento Superior Court. SB 691 would have prohibited insurers from using credit information in any form for underwriting or rating purposes in homeowners’ policies.
“These bills would only provide new hurdles and obstacles to consumers attempting to find affordable insurance,” Sorich said. “Lawmakers should consider alternative, reasonable and more balanced approaches to better serve consumers and companies at a time when the California insurance marketplace is challenged with increasing costs and availability.”
SB 841 allows insurers to use portable persistency as an optional rating factor. ACIC supported the bill, which went into effect on Aug. 3.
Other Bills Signed into Law
SB 515 amends the Anti-SLAPP (strategic lawsuits against public participation) statute to prohibit its use by businesses in cases brought on behalf of the general public. ACIC urged the governor to veto the bill.
AB 1049 would prohibit an insurer from making an adverse underwriting decision based on an individual inquiring about the scope or nature of coverage under a homeowners policy and the inquiry did not result in the filing of a claim. This bill would not significantly affect insurers’ administrative procedures.
AB 1181 would require that when an auto policy is issued, and in each renewal notice of an auto policy, rating information should be disclosed regarding the information that was applied in determining the premium that was charged for the policy. The notice would include information on annual mileage, years of driving experience, vehicle use, zip code, driver-related discounts applied, and vehicle-related discounts or surcharges applied. Information regarding traffic convictions and at-fault accidents would be provided separately and upon the policyholder’s request.
AB 1191 has two sets of requirements. First, upon nonrenewal of a homeowners policy, an insurer would be required to list: the reasons for the non-renewal, a telephone number for the insurer’s representative who handles consumer complaints, and a telephone number for the insurance department in case the consumer is dissatisfied with the insurers’ response. Second, insurers would be required to disclose, upon the request of the insured: the increase or decrease in premium as compared to the prior year’s premium, the reasons for the change, and the appropriate phone numbers for the insurer and the DOI should the consumer have additional questions.
Awaiting Gov.’s Action
SB 551 would reflect current insurance department regulations regarding an insurer’s ability to refer claimants to body repair shops.
SB 1055 is a budget trailer bill that would increase the salvage title fee from $3 to $15, creating an illegal tax on insurers and imposing other DMV fees. ACIC opposes the bill.
The governor has until Oct. 12 to sign or veto bills, including the two workers’ compensation measures.
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