California Insurance enters strong legislative and regulatory ground for 2021
California’s legislative process begins in earnest in the months of April through June, as political and tax committees analyze, consider, and vote on various public policy proposals, as bills presented in each chamber face their earliest deadlines. progress in the first year of both legislatures. session of the year. During this period, state regulatory agencies, such as the California Department of Insurance (CDI), are now starting workshops to take the first steps on regulatory proposals initiated by agencies, their stakeholders, or the public. Manatt presents here an overview of various insurance policy proposals that will be at the forefront of legislative and regulatory deliberations this year.
Under California law, life insurers must provide consumers with at least 30 days’ notice prior to policy expiration and termination, and life insurance contracts must contain a grace period of at least 60 days. In 2012, the California legislature passed a law that required life insurers to allow policyholders to designate at least one other person to receive notice of a policy lapsing or termination for non-payment of premium. Legislation recently introduced by assemblymember low, AB 1498, attempts to require that the person designated by the policy holder to receive a notice of lapsing or termination of a policy for non-payment of premium can live at a different address; if passed, the law will apply to life insurance policies issued before January 1, 2013. AB 1498 has not been set for a hearing; insurers oppose the retroactive provision of AB 1498 arguing that insurance policies are governed by statutory and decision-making law in effect at the time the policy is issued.
CDI appears to have a particularly busy regulatory agenda in 2021, with many regulatory changes proposed by Insurance Commissioner Lara that are likely to affect consumers and the insurance industry. In auto insurance, as it did in 2020, the CDI is continuing its efforts to force insurers to reimburse insurance premiums to consumers affected by the COVID-19 pandemic. Earlier this year, the CDI issued an order requiring insurers to report by April 30, 2021 how they will return to consumers the additional premiums that were “overcharged” in 2020. According to the CDI, the rationale for its decision is that “On average, insurance companies overcharged premiums due to lower claims exposures during the pandemic and failed to return enough premiums to drivers in 2020.” It should be noted that, as in last year’s directive, CDI 2021 order does not say anything from its regulator to impose the requirement.
Another insurance issue brought to the forefront by the Insurance Commissioner is the long-standing practice of “affinity group” auto discounts for California drivers. Like the historic auto insurance law, Proposition 103, clearly states: “Any insurer may issue any insurance coverage on a group plan, without restriction as to the purpose of the group, the profession or the type of group.” Over the decades, group discounts have become widely available to various groups of members and professionals, including, for example, alumni associations, professional organizations, credit unions, police and firefighters, and union groups representing teachers and nurses. Critics of the auto group discounts have argued that such programs unfairly subsidize affluent communities at the expense of low-income communities. According to CDI data, drivers living in postal codes with an average per capita income of over $ 49,000 are more likely to receive automobile group discounts than drivers who live in postal codes with an average per capita income of. $ 22,500 or less.
In early February, CDI released draft regulations intended to phase out existing discounts for auto groups and instead require insurers to extend auto group discounts to drivers who live in specific zip codes. While the draft proposals may be well-intentioned, insurers say millions of drivers could lose their group discounts if the regulations are passed. If passed, the draft regulations are likely to lead to litigation, especially over whether the CDI has the power to restrict discounts for auto groups when California voters long ago endorsed broad power. discretion in the creation of such groups by adopting Proposition 103.
Forest fire insurance
The California wildfire crisis continues to dominate public policy discussions as state policymakers attempt to address the issue of the availability and affordability of insurance in wildfire areas. While it is well documented that home insurance has been difficult to find in parts of California, more recently commercial insurance has also been difficult to obtain for farmers and winegrowers in areas threatened by wildfires. In a recent Senate Insurance Committee hearing, insurers said the CDI’s decision to withhold approval of commercial coverage pending review of insurer data has not contributed to the availability of commercial insurance coverage. To help solve the problem of agricultural insurance coverage, Senator Rubio (Chairman of the Senate Insurance Committee) is the author SB 11 (sponsored by the California Farm Bureau), which would allow the California FAIR Plan (California’s real estate insurer of last resort) to cover agricultural risks in the future. Other laws, such as AB 1522 by assemblymember Levine, proposes a much more drastic approach, prohibiting insurers from canceling or refusing to renew residential and commercial insurance solely on the basis that the property is located in an area at high risk of forest fires.
Both business interruption coverage and civil authority coverage are additional coverages for lost income and can reimburse business operating expenses after a covered event. A typical policy provision requires the demonstration of physical damage to the insured’s business property (for example, damage caused by fire) and generally excludes losses resulting from communicable diseases or viruses such as COVID-19. In 2020, a number of legislatures, including California, attempted to pass legislation that would have included COVID-19 as a covered loss, but those proposals were ultimately blocked. One of the main arguments against such proposals is that they would be unconstitutional if adopted. In particular, the contractual clause of the U.S. Constitution prohibits states from passing laws that infringe on contract obligations (Article I, Section 10, Clause 1), and many business interruption laws in 2020 required a retroactive coverage for COVID-19 losses.
In 2021, California continues to consider changes to business interruption insurance, with the Ramos assembly reintroducing AB 743. As proposed, AB 743 provides that COVID-19 cannot be excluded from business interruption coverage unless viruses are specifically mentioned as an exclusion, and the bill is drafted to be apply retroactively to all business interruption policies in effect as of March 4, 2020. It is not known if AB 743 has the votes to move forward at this point, but commercial insurers, as they do. were a year ago, are opposed to the measure on the basis of its retroactive application.
Workers’ compensation insurance
In the area of workers ‘compensation insurance, attorneys representing injured workers and workers’ groups are sponsoring legislation to create the California Medical Provider Network (CMPN), which will be administered by the state as proposed in AB 1465 by assemblymember Reyes. The rationale for AB 1465 is that it will lead to better access to care for injured workers, as more medical providers will be included in the CMPN, and will prohibit arbitrary dismissal of medical providers by employers.
Under existing law, employers create Medical Provider Networks (MPNs) and select medical providers to be part of the MPN. An injured employee is then required to choose their medical provider from the employer’s MPN. A coalition of employers and insurers collectively opposes AB 1465 because, according to coalition members, the quality of care for injured workers may in fact plummet as medical providers who “seek to defraud or providing poor quality medical treatment to injured workers ”are likely to be included in the CMPN.
Employers and insurers more broadly claim that AB 1465 increases costs – which is counterproductive as the business community tries to emerge from the pandemic – and erases important earlier reforms that were under negotiation between unions and management. Given the strong support and opposition for AB 1465 and significant policy changes for employers and injured workers, the bill is likely to be heavily debated and a tough vote for policymakers.
While COVID-19 has dramatically reduced the number of bills considered and ultimately passed by the Legislature in 2020, it seems likely that many proposals that were not scaled back last year will be fully considered this year. , and many of them – including our highlighted bills – will be hotly debated in the Senate and the Assembly before September 15, when the Legislative Assembly ends the first year of session, leaving the final decision to enact or veto bills to Governor Newsom. In the meantime, the CDI’s regulatory review mechanism for insurance proposals is gaining momentum and is expected to provide another interesting and hotly contested public policy forum in the months to come.