CDI Omnibus Clean-up Proposals

 



The California Department of Insurance released its omnibus clean-up summary this past week.  The proposal includes the following:


Delete requirement for CDI Conservation and Liquidation Office (CLO) to publish liquidation notices in newspapers.  Current law requires the CLO to publish the notice of an order to liquidate an insurer in a newspaper of general circulation in six specified counties at least once a week for four successive weeks.  Given that the specified counties may not be relevant to the liquidation, this method of notification is ineffective in reaching potential claimants, thereby creating unnecessary expenses against the estate’s assets.  This proposal requires the liquidation notice to be published once in newspapers of general circulation in areas pertinent to the liquidation and reference either the liquidated company’s or the liquidator’s website where claimants can receive ongoing information.

Require the agent who sells a life insurance policy or annuity to sign the policy/annuity application.  It is not uncommon for the agent who sold a life insurance policy or annuity to have another agent sign the application.  If an insured experiences a problem with the insurance product, the agent he or she purchased the life insurance or annuity from cannot help them and they must be referred to the agent of record who may be someone they have never heard of nor would choose as their agent.  This practice also enables an agent to “oversell” policies to an insured in a manner that makes it difficult for an insurer to detect.  This proposal promotes transparency in the sale of a life insurance policy or annuity by ensuring that the agent who signed the application is the agent who actually contracted the transaction.

Repeal obsolete/superseded Mortgage Insurance Statutes.  In 1961, a new set of statutes were enacted authorizing and regulating what is known today as “private mortgage insurance (“PMI”).  While the PMI statutes superseded the mortgage insurance statutes, the latter were never repealed.  This proposal eliminates the superseded mortgage insurance statutes. 


Repeal superseded exemption for notice of cancellation for auto policies in effect 60 days or less as provided in CIC 661.  This proposal conforms the Insurance Code to CalFarm and Mackey court decisions, which state that the 60-day underwriting period specified in CIC 661 no longer exists per 1861.03, subdivision (c)(1), added as part of Proposition 103 in 1988.

Repeal Insurance Code 12961 requiring CDI to annually report on specific tort actions.  As originally enacted, the California Judicial Council was required to prepare a report about court judgments and settlements in tort cases to assist the Commissioner with rate determinations.  A subsequent amendment required CDI to compile the information and include the data as part of the Commissioner’s Annual Report to the Legislature.  While an initial justification for the report was that it would be useful for rate making purposes, its generic nature does not provide enough insurer specific information to be of use in setting rates for individual insurers.  If information is needed about particular kinds of insured judgments and settlements, a more cost-effective approach is for CDI to perform a data call.

Clean up to the use of “solely on the grounds that language” in the Insurance Code.  There are several places where the insurance code prohibits a particular act “solely on the grounds that” a specified event occurs.  The lack of clarity in some of these sections has caused problems with the assertion that the specified event in combination with other factors does permit the prohibited act.  This proposal amends eight sections of the Insurance Code to clarify that a specified event itself or in combination with other factors cannot be used as grounds for defense to do the prohibited act.

Eliminate the requirement for CDI to perform annual data calls relating to child care liability insurance claims.  Current insurance law requires CDI to annually perform a data call relating to child care liability claims and to report the information in the Commissioner’s Annual Report.  While at one time the availability and affordability of child care insurance was a problem, this is no longer the case today.  This proposal removes the annual requirement for the data call and provides that it be performed as needed, pursuant to the request of the Commissioner but no more than annually.  Eliminating the annual requirement, while maintaining the Commissioner’s authority to run a data call when needed is cost effective and frees up limited department staff resources to carry out more critical data calls.

Authorize the Insurance Commissioner to be appointed as the receiver of a systemically important insurer based on a U.S. Treasury determination.  While the Dodd-Frank Wall Street Reform and Consumer Protection Act left the performance of conserving or liquidating a systemically important insurer up to the states, it also provided federal oversight by authorizing the U.S. Treasury to determine whether a systemically important insurer is in default or danger of default.  Current California insurance law only recognizes independent evidence as the basis for the Commissioner to be appointed as the receiver of an insurer.  This proposal also allows the Commissioner to be appointed as the receiver based on Treasury determinations.  Further, if the Commissioner files an application as receiver based on a Treasury determination, the Superior Court must rule on the application within 24 hours, as specified in Dodd-Frank; otherwise the application is deemed granted.

Align the life risk based capital requirements for Fraternal Benefit Societies with the requirements for life insurers.  Currently, Fraternal Benefit Societies (FBS) are not covered within the scope of life risk based capital (RBC) requirements under the California Insurance Code.  RBC requirements are a principal gauge for the financial solvency of an insurer.  Given that FBS are not covered by the California Insurance Guaranty Association, it is imperative that they are financially strong to adequately protect their policyholders.  This proposal increases the RBC requirements for FBS to align with life insurers as well as the National Association of Insurance Commissioners (NAIC) Model Law.

Revise the Life Risk Based Capital Trend Test Threshold.  Current insurance law does not allow the Commissioner to take regulatory action until a life insurer’s risk based capital (RBC) is 2.5 times the Authorized Control Level.  This proposal increases the RBC for life insurers and Fraternal Benefit Societies (FBS) to 3.0 times the Authorized Control Level to enable the Commissioner to take regulatory actions earlier on life insurers and FBS that are trending toward financial solvency problems.  This change aligns the standard with statutory standards currently required for property and casualty insurers and NAIC Model Law.