THIS WEEK IN
Prepared by Norwood & Associates
AFL-CIO Continues Attack on Broker-Agent Fees &
Rate Regulation
Labor and its allies are
continuing their assault on the insurance industry, calling for the elimination
of commissions paid by the State Fund (SCIF), the capping of agent/broker
commissions paid by other insurers, and the institution of a Proposition 103-type
rate regulatory scheme for workers’ compensation.
At one of two hearings held
by the Senate Labor and Industrial Relations Committee this week, a
representative of labor, testifying in opposition to the Governor’s proposal
(SBx4 3), encouraged the members of the committee to cap broker-agent
commissions and re-regulate the insurance industry. Using the WCIRB’s
“Distribution of Workers’ Compensation Payments in 2002” pie chart as a
reference, the AFL-CIO representative pointed out that general expenses and
taxes paid by insurers amounted to 7.7%, while agent and broker fees amounted
to 8.5%. Committee members did not
respond, nor was there any further discussion on the issue.
In addition, the California
Injured Worker’s Coalition and the California Applicant Attorneys’ Association,
allies of the AFL-CIO, are circulating flyers promoting the regulation of
workers’ compensation insurers.
Specifically, the flyers advocate an insurer rate approval system and
mandatory rate reductions.
Meanwhile, the lobbyist for
the Insurance Agents and Brokers Legislative Council (ABL) and insurer trades
have been meeting with committee members, leadership and the staff in the
Governor’s office to point out the flaws in labor’s arguments. ABL has also undertaken an all-out grassroots
campaign that has already generated some 500 letters to legislators and
resulted in meetings with legislators in their local district offices.
Workers’ Comp Meetings—Labor/Employers Meet with
Governor’s Staff
Meetings between various
groups continued this week, furthering the prospect of developing comprehensive
workers’ compensation reform.
The “Big 5”—Assembly Speaker
Fabian Nuñez, Senate President Pro Tempore John
Burton, Assembly Minority Leader Kevin McCarthy, and Senate Minority Leader Jim
Brulte—reportedly have been meeting on almost a daily
basis. The Senate Labor and Industrial Relations
Committee held two hearings, one informational and one bill hearing. In addition, it has been reported that
meetings have been taking place between Assemblyman Juan Vargas (D-Chula
Vista), chair of the Assembly Insurance Committee, and Assemblyman Rick Keene
(R-Chico) to develop their own bi-partisan proposal.
The most notable meeting
however, occurred on Thursday afternoon in the Governor’s office. Four representatives of labor and four
representatives of the employer community met with the Governor’s staff to
discuss a compromise proposal.
The representatives for the
employer community reportedly included Jack Stewart and Willie Washington from
the California Manufacturers and Technology Association, Allan Zaremberg and Charles Bacci from
the California Chamber of Commerce, and Tim East from the Walt Disney Company. Tom Rankin of the AFL-CIO, Liberty Sanchez of
the California Teamsters Association, Brian Hatch of the California
Professional Firefighters, and Jay Hansen of the
The meeting, which lasted
approximately four hours, was a result of prior meetings between labor and
employer groups. The Governor’s office
attended a meeting last week between the two parties and essentially has become
the arbitrator of the negotiation process.
It is anticipated that this was the beginning of a series of meetings
that will take place between these parties.
In addition, the staffs of the “Big 5” are reportedly meeting over the
weekend and on Monday, which is a legislative holiday, in preparation for
further meetings.
Senate Committee Holds Two Hearings on Workers’
Compensation
As reported earlier, the
Senate Labor and Industrial Relations Committee held two hearings this week on
workers’ compensation. The first hearing
was informational only and focused on the issue of medical utilization control. In an effort to identify necessary changes to
the delivery of medical care in the workers’ compensation system, the committee
heard testimony from representatives of the Division of Workers’ Compensation,
the California Applicant Attorneys’ Association, the California Physical
Therapy Association, the AFL-CIO, and the Consumer Attorneys of California.
The second hearing was a bill
hearing for SBx4 3 (Poochigian), the Governor’s
proposal, and SBx4 9 (Alarcón), a clean-up bill. During this hearing, Senator Poochigian explained in further detail the main reforms
proposed in SBx4 3. The reforms discussed
included requiring employers to provide all medically necessary care to injured
workers, independent medical review, improvements to the HCO system, alternative
dispute resolution, penalty reform, and self insurance. In the discussion, the committee compared the
provisions of the Governors’ plan with both the Insurance Commissioner’s and
labor’s proposals.
Senator Alarcón
and other members of the committee voiced several concerns with the legislation
as currently drafted. It was clear that
SBx4 3 did not have the votes to pass the committee; therefore, Senator Poochigian requested that the hearing be on an
informational basis only. Senator Alarcón agreed and informed Senator Poochigian
that his committee would not hear the bill again, as planned, until amendments
are proposed. In addition, Senator Alarcón requested Legislative Counsel to research the issue
of potential tort liability relative to excluding certain injuries from
workers’ compensation.
Commissioner Garamendi testified at the hearing as well. Thanking the committee for continuing the
process, he commented on how helpful the dialogue is in determining the best
way to reform our workers’ compensation system.
He also stressed the importance of the March 31 deadline, so that
employers would see savings this year rather than a year from now.
Senator Alarcón
also presented his clean-up bill, SBx4 9, on an informational basis. In his presentation, he voiced concern over
the proper implementation of last years reforms contained in AB 227/SB
228. The clean up provisions in his
bill, he noted, will expedite the processing of claims, resolve the funding
issues of the Division of Workers’ Compensation (DWC), and address the concerns
of small businesses with the Injury and Illness Prevention Program (IPP) mandate
from last year.
No vote was taken on this
measure and it is likely the bill will be reset next week. Although Democratic leaders, particularly
Senator Burton, are intent on sending a clean-up bill to the Governor to
resolve the funding issue with the DWC, the Governor’s office indicated that they
are not interested in such a bill at this time unless the provisions are
included in a comprehensive reform package.
The Senate Labor and
Industrial Relations Committee next hearing is scheduled for Wednesday,
February 25th. At this
hearing, the committee will hear seven special session workers’ compensation
bills.
Bill Introductions
February 20th is
the last day for bill introductions and the bills are pouring in. Introduced legislation must be in print 30
days before being heard in a committee.
The following bills have been
introduced in the last week:
AB 1953 (Vargas): This bill would require that the contract include a
provision disclosing the percentage of the insured's claim, or other fee, that
the public adjuster will charge for his or her services, and would further
require that the adjuster obtain the initials of the insured next to this
provision. It would prohibit a public adjuster from entering into a
contract with any insured unless one week has elapsed since the occurrence of
the event on which the claim is based, or the insured represents that he or she
has consulted with the insurance adjuster for the insurer regarding the claim,
whichever is earlier.
AB 1955 (Vargas): This bill would allow domestic incorporated life
insurers to be organized under provisions of law relating to nonprofit mutual
benefit corporations. It would provide that an insurer so organized shall
have the same powers held by, and shall be subject to all provisions of law
regarding insurance applicable to, a domestic incorporated stock life insurer,
except as specified. The bill would set forth minimum surplus
requirements for an insurer organized as a nonprofit mutual benefit
corporation.
AB 1957 (Frommer): This
bill would enact several provisions that relate to reducing the costs of
prescription drugs in California, such as bulk purchasing, contracts with state
programs, and examining and making drug prices equivalent with Canadian drug
prices.
AB 1962 (Cox): This bill would allow domestic limited liability
companies to be licensed as underwritten title companies.
AB 1965 (Hancock): This bill would exclude from the definition of
employee, for the purpose of workers’ compensation, any person who performs
voluntary service without pay as a member of a governing board for a private
nonprofit organization and is a regular employee of the same nonprofit
organization, when serving in his or her capacity as the member of the
governing board.
AB 1985 (Wolk): Existing
law requires an insurer, in the case of any claim arising from the theft of an
insured vehicle, prior to the settlement of the claim, to secure from the
insured a claim form containing specified information and requires the insurer
to retain the original claim form for at least 3 years. This bill would
allow an insurer to meet the requirement regarding retention of the claim form
by retaining an electronic copy of the original form.
AB 2129 (Chavez): Existing law prohibits an insurer from terminating or
amending a written agency or written brokerage contract, where the broker-agent
represents the insurer, after the contract has been in effect for at least one
year, except by mutual agreement, unless 120 days' advance written notice has been
given by the insurer to the broker-agent, unless the broker-agent has committed
specified acts or omissions. This bill, by deleting the above
condition that the broker-agent represent the insurer, would make this
prohibition generally applicable.
AB 2147 (Kehoe): This bill would provide that, if an owner or original
contractor, obtains a wrap-up insurance policy for a private work of
improvement and requires that any subcontractor provide a credit to the owner
or original contractor based upon an apportionment of the cost of the wrap-up
policy, the owner or original contractor may not require that the credit be
provided in an amount greater than the cost of a policy insuring only the
subcontractor for coverage equivalent to that provided by the wrap-up policy.
This bill would also provide that, if an insurer sets liability insurance rates
for a business that performs work on a construction project by using prior
claims or other information relating to the safety record of the business, the
insurer shall consider work performed by the business while covered by any
wrap-up insurance policy, in addition to work performed under any policy
directly covering the business, in setting those rates. In addition, the
bill would require an insurer under a wrap-up insurance policy to report to its
rating organization all information with respect to each contractor and
subcontractor covered by the policy that it reports with respect to any named
insured.
AB 2195 (Campbell): Existing law provides that when a licensed contractor
enters an agreement with a temporary employment agency, employment referral
service, labor contractor, or other similar entity for the entity to supply the
contractor with an individual to perform acts or contracts for which the
contractor's license is required and the licensed contractor is responsible for
supervising the employee's work, the temporary employment agency, employment
referral service, labor contractor, or other similar entity is to pay workers'
compensation premiums based on the contractor's experience modification
rating. This bill would repeal these provisions.
AB 2199 (Kehoe): This bill relates to fire insurance policies.
The bill would provide that under an open policy that requires payment of the
replacement cost for a loss, the measure of indemnity is the amount that it
would cost the insured to repair, rebuild, or replace the thing lost or
injured, without a deduction for physical depreciation, or the policy limit,
whichever is less. This bill would also require that not less than
specified time periods be placed upon the insured in order to collect the full
replacement cost of the loss. In addition, this bill would prohibit any
policy issued or delivered in this state from containing a provision that
limits or denies payment of the replacement cost of the insured's structure in
the event the insured decides to rebuild or replace the property at a location
other than the insured's premises.
AB 2208 (Kehoe): This bill would require a health care service plan and
a health insurer to provide coverage to the domestic partner of an employee,
subscriber, insured, or policyholder that is equal to the coverage it provides
to the spouse of those persons. The bill would extend this requirement to
all other forms of insurance regulated by the Department of Insurance and would
deem that all of those policies as well as health care service plans and health
insurance policies issued, amended, delivered, or renewed in this state on or
after January 1, 2005, provide domestic partner coverage equal to that provided
to spouses.
SB 1222 (Denham): This bill would provide that for purposes of
determining temporary disability benefits for any person entitled to benefits
under the workers' compensation law as a result of an injury sustained by an
inmate of any county jail, industrial farm, road camp, or city jail, or by an
inmate assigned to a county work release program, the average weekly earnings
shall be taken at the minimum amount set forth in the above provision regarding
the calculation of temporary disability benefits, or the actual weekly wages
lost due to disability resulting from the injury, whichever is less.
SB 1273 (Scott): This bill would increase the penalties for an insurer
or his or her agent, to issue, circulate, or use any misrepresentation of the
terms of a policy issued by the insurer or sought to be negotiated by the
person making or permitting the misrepresentation, or to make any
misrepresentation to another person for the purpose of inducing that other
person to take out a policy of insurance or to induce that other person to
lapse, forfeit, or surrender insurance in a policy he or she holds.
SB 1279 (Bowen): This bill relates to identity theft. It includes
several provisions relating to consumer credit reporting agencies. Of
particular interest is a provision that would apply to businesses who obtain
customer’s personal data. If there is a breach of security and
information, this bill would require that business/agency to provide free
consumer credit monitoring for a period of 2 years to each person whose data
was illegally obtained.
SB 1286 (Scott): This bill would require, in addition to current
disclosures, that a person selling, soliciting, advertising or offering
insurance products or annuities to customers at an office of, or on behalf of,
a depository institution disclose whether he or she is directly employed by the
depository institution, and if not directly employed, whether he or she has a
contractual relationship with the institution regarding the sale of insurance
products or annuities.
SB 1306 (Ackerman): This bill would authorize certain transactions and
communications to and from limited liability companies to be conducted by
electronic transmission under certain conditions. The bill would enact
other related provisions.
SB 1315 (Ortiz): This bill would provide that no policy containing
changes to the standard fire insurance policy form may be issued in this state
unless a copy of the form is filed with the commissioner. The bill would authorize
the commissioner to disapprove a policy form if specified conditions are
met.
SB 1321 (Ortiz): This bill relates to the approval of insurance rates.
This bill would require the commissioner to consider whether a rate is
excessive relative to the insurance company's profit margin. This bill
would also provide that a public hearing must be held if, for personal or
commercial lines of insurance, the proposed rate adjustment exceeds, over the
course of a 12-month period, the specified percentage increase over the then
applicable rate.
SB 1323 (Ortiz): This bill would prohibit an insurer from refusing to
issue or renew a homeowners' policy based upon prior claims made by the
applicant or insured under any homeowners' policy, unless the applicant or
insured has made more than 2 of these claims in the previous 2 years, except as
specified. This bill would prohibit an insurer from using credit ratings,
credit reports, credit scoring models, or credit information to underwrite,
classify, or rate homeowners' insurance policies. It would also prohibit
an insurer from refusing to issue, or nonrenewing or
canceling, a homeowners' policy based upon these types of credit
information. This bill would prohibit an insurer from reporting the fact
that an insured has inquired about the nature or scope of coverage under a
homeowners' policy to a database or other record maintained by any of these
insurance-support organizations if the inquiry did not result in the filing of
a claim.
SB 1344 (Margett): This
bill would include the Department of Corrections among the agencies authorized
to request and receive information regarding workers' compensation fraud. This
bill would add investigations of insurance fraud performed by the Department of
Corrections to the investigations exempted from the provisions regarding the
disclosure of records.
SB 1349 (Ortiz): This bill would, as of January 1, 2006, require the
Department of Insurance to assume responsibility of ensuring the fiscal
soundness and solvency of health care service plans and specialized health care
service plans. The bill would, as of
To access the full-text of
any of the aforementioned bills, please visit www.leginfo.com.
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