Bill to Implement Federal Financial Services Reform

THIS WEEK IN SACRAMENTO

Prepared by Norwood & Associates

September 26, 2003

Governor Acting on Legislation

Governor Davis is now in the process of reviewing and acting on legislation that has been sent to his desk. The bills he is considering will become law automatically after October 12 unless he signs or vetoes the legislation before that date.

Fewer bills made it to the Governor's desk than normal because of this year's unexpected recall election and worsening fiscal crisis. The Legislature sent the Governor 977 bills this year, 550 less than last year. The Governor has worked his way through more than half of those bills.

The Governor has not yet acted on some of the most controversial legislation, such as SB 2 (Burton), which mandates that large and mid-size employers provide health insurance coverage for their employees. While the Governor has disclosed his intentions regarding other high profile bills, such as signing the workers' compensation insurance reform package, he has not stated his intentions regarding the insurance mandate.

It is interesting to note that the recall election is on October 7, five days before the October 12 legislative action deadline. Thus, the Governor may put off some decisions until after the recall election. If the Governor is recalled, he will stay in office until such time as the Secretary of State certifies the election. That process could take anywhere from a few days to a few weeks if things run smoothly, or much longer if there are allegations of voting irregularities and resulting litigation.

Governor Signs Identity Theft and Privacy Legislation

Governor Davis this week signed or stated his intention to sign legislation protecting consumers from identity theft and other privacy related legislation.

· The Governor said he will sign SB 25 (Bowen), which would require any person who uses a credit report to extend credit to take reasonable steps to verify the consumer's identity if the credit report contains a security alert. This bill would also prohibit entities from making public an individual's social security number or using social security numbers as passwords or on an identification card.

· SB 27 (Figueora): This bill would require businesses to either: 1) disclose to customers, upon request, what categories of personal information the business shares with third parties for marketing purposes, or 2) provide customers with the ability to opt-out of having their information shared for marketing purposes. Chapter 505.

· SB 186 (Murray): This bill would allow consumers, the Attorney General and internet service providers to businesses that send "spam," or unsolicited email. Penalties could go as high as $1 million per incident. The bill contains an existing business relationship exemption. Chapter 487.

· SB 602 (Figueroa): Establishes the Identity Theft Prevention and Assistance Act that provides various protections and support for victims of identity theft. The bill also increases law enforcement tools and caps the fee for a consumer to freeze his or her credit filed at $10. Businesses would also be prohibited from collecting information for marketing purposes by swiping a driver's license. Chapter 533.

· SB 684 (Alpert): This bill would help identity theft victims get the documents they need to clear their name from the companies that opened new accounts or extended credit to a thief. Chapter 534.

· SB 752 (Alpert): Assists victims of "criminal identity theft" clear their names through the comparison of the thumbprints of the thief and victim. Chapter 467.

The Governor also took action to try and salvage California privacy legislation that is being thwarted by Congress and the federal courts. Governor Davis said he will "put on hold" SB 33 (Figueroa), which would have aligned the state's existing "do not call list" with a similar list compiled by the federal government. Two federal courts have halted the federal "do not call" list. Accordingly, the Governor said he would work with the Attorney General to implement California's "do not call" registry, established by legislation enacted two years ago.

Earlier this year, the Governor signed SB 1 (Speier), the nation's toughest financial privacy law. That law is currently in danger of being preempted by federal legislation pending in Congress. The Fair Credit Reporting Act, as passed by the U.S. House of Representatives, would gut the state's law. The Governor sent a letter to Congress urging them to adopt SB 1 as a model for the nation rather than gut it.

Workers' Compensation Insurance Pure Premium Rates To Be Debated

The authors and supporters of the workers' compensation insurance reform package just passed by the Legislature claim it will produce savings of about $6 to 7 billion annually. Several insurers, however, say those guesstimates are simply too optimistic. They conclude there are verifiable savings of only $2-3 billion. The difference between the two camps is the difference between rolling premium rates backwards, or simply slowing the rate of premium increases.

These polar extremes will be hashed out on Monday when the Department of Insurance holds a hearing in San Francisco regarding pure premium advisory rates. The Commissioner is expected to make a recommendation next month on the pure premium rate. The rate is advisory and covers only claims, not administration. Insurers use the advisory pure premium rate as a guideline, and then add in their own administrative costs.

The Workers' Compensation Insurance Rating Bureau and the California Commission on Health and Safety and Workers' Compensation have been reviewing the conference committee legislation and crunching numbers. They will provide their opinions on Monday as to how much the legislation will save. The Department of Insurance's own actuaries will then make their own determination, and the Commissioner will issue an advisory pure premium rate that could indicate whether rates fall, stabilize, or increase next year.

The political battle that occurred this year to achieve the reform package is not the end of the story. Even if the Commissioner adopts a pure premium rate reflecting the high end of the reform packages cost savings, it will only reduce premiums to last summer's levels. The Commissioner is already joining Republicans in calling for further legislation next year to address issues that were off the table this year: requiring more objectivity in the permanent disability rating system, rationalizing the penalty structure and requiring an evidence based system regarding the mandate to "cure and relieve." In addition, several loopholes have surfaced in the legislation as employers and insurers read the details of the compromise that was thrown together in the waning days of the Legislative Session. These loopholes will become the subject of debate next year as well.

The issue has also become a hot potato in the recall election. In Wednesday's debate, Arnold Schwarzenegger called the workers' compensation insurance reform package "pre-election bogus" and called for much more drastic reforms to reduce premiums significantly and improve the business climate in California. Senator Richard Alarcon, one of the conference committee's co-chairs, later took issue with that assessment and defended the bills as "landmark reform legislation [that] will reduce premiums for employers while protecting the rights of injured workers."

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