New Year, New Laws: Insurers Face New California Requirements in 2013

by Manatt, Phelps & Phillips, LLP

[authors: Thomas R. McMorrow and McKay S. Carney]

Insurers should be aware of several pieces of legislation signed into law by Governor Jerry Brown in September after the close of the 2011-12 legislative session. The new laws will impact a number of types of insurance coverage, including health, life, and property casualty insurance. The provisions of the bills described are effective January 1, 2013, unless otherwise noted.

AB 53 (Solorio)Chapter 414Requires each admitted insurer with premiums of $100 million or more to submit a report to the Insurance Commissioner on the company's effort to engage as vendors minority-, women-, and disabled veteran-owned businesses. The report must describe the company's diversity statement, its outreach to and support of those groups, and the steps it takes to encourage them to become potential vendors. The report must be filed by July 1, 2013. Beginning July 1, 2015, the report must be filed biannually. A company may avoid filing the report by instead filing a statement that it does not hire vendors in California. Failure to file the report could lead to civil penalties. Insurance Commissioner Dave Jones has already convened a Task Force on Diversity to look at the procurement policies in the areas outlined in the bill. (Click here to learn more.)

AB 624 (Perez)Chapter 436-Extends a tax credit for investments in California Development Financial Institutions (CDFI), which serve low-income communities by providing them with capital. The credit is intended to provide an incentive for insurance companies to invest in CDFIs. It is equal to 20% of the investment in a CDFI and applies against gross premium taxes, bank and corporation taxes, and personal income taxes. The credit is extended to January 1, 2017.

AB 1083 (Monning)Chapter 852Enacts the provisions of the federal Patient Protection and Affordable Care Act (the national healthcare reform bill) in California's small group health insurance market, including the prohibition on using preexisting conditions in underwriting coverage. Premium rating factors may be based on age, family size, and geographic location only. Nineteen geographic regions are established in the bill for underwriting purposes. Plans sold after January 1, 2014 must contain essential health benefits. AB 1083 prohibits insurers and health care service plans from requiring health assessment forms before enrollment in a small group plan. Insurers must report to the Department of Managed Health Care or Department of Insurance the policies and number of employees covered by its policies in California. Even if the federal law is repealed, AB 1083 will maintain the limitation on use of preexisting conditions in underwriting in California.

AB 1747 (Feuer)Chapter 315Requires a life insurance policy issued or delivered in California to provide a grace period of not less than 60 days from the premium due date during which time the policy remains in force. The applicant for a life insurance policy must be given the right to designate at least one other person to receive notice of nonpayment of a premium. The notice must be sent to the policyholder and any designees at least 30 days before the effective date of termination if the termination is for nonpayment of the premium. (Click here to learn more.)

AB 2160 (Blumenfield)Chapter 479Prohibits insurers with investments in companies doing business with the energy and military sectors of the Iranian economy from counting those investments in their capital requirements. AB 2160 provides a safe harbor for companies that use for investment the list of prohibited companies published by the State of California Department of General Services under the Contracting Act of 2010.

SB 1448 (Calderon)Chapter 282Conforms California statutes to the National Association of Insurance Commissioners (NAIC) Model Insurance Company System Regulatory Act. Among other things, the law gives the Commissioner authority to hold public hearings on acquiring domestic insurers. It also requires a controlling person seeking to divest its interest in a domestic insurer to notify the Commissioner, the Commissioner to establish circumstances when approval is required, and the ultimate controlling person to file an annual enterprise risk report. The bill also provides the Commissioner with enforcement tools, authorizes information sharing with other states' regulatory bodies, and protects the information shared from public disclosure.

SB 1449 (Calderon)Chapter 567Allows insurance policies to include premium and surrender charge waivers that are triggered by specified medical conditions, disability, and unemployment. SB 1449 provides guidance to the Department in approving these policy provisions.

A new Legislature will convene a two-year session December 3. Legislators can begin introducing legislation at that time. Legislative hearings will begin in January. If you are interested in finding out more about the legislation in the report, or in following California insurance legislation in general, please contact Manatt's Sacramento office.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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