Calif. Commissioner Implements Last-Minute Regs

With his term coming to an end, California Insurance Commissioner Harry Low has finalized some last-minute regulations in the Insurance Code before he hands over the reins to Commissioner-Elect John Garamendi. Some of the finalized regulations—dealing with issues such as privacy and persistency—will impact agents and brokers in the New Year.

The Office of Administrative Law (OAL) finalized the revised privacy regulations on Nov. 22. While there are still some parts of the regulations that present burdensome tasks to agents and brokers, overall, said Diane Colborn of the Personal Insurance Federation of California (PIFC), the finalized set of regs is an improvement over the original version.

Among the smaller, technical concerns within the regulations, the most significant concerns are with the opt-out notices agents are required to present to customers upon renewal, and the wording of the privacy statements.

Section 2689.5 defines the rules for the initial privacy notice, stating; “licensee shall provide a clear and conspicuous notice that accurately re-flects its privacy policies and practices to: (1) A customer, not later than when the licensee establishes a customer relationship, except as provided in subsection (c) of this section; and (2) A consumer, claimant, or beneficiary before the licensee discloses any nonpublic personal information about the consumer, claimant, or beneficiary to any nonaffiliated third party, if the licensee makes a disclosure other than as authorized by California Insurance Code Section 791.13(a) through (j) or (l) through (r), unless the licensee has a customer relationship with the consumer, claimant, or beneficiary, or a notice has been provided by an affiliated licensee, the notice clearly identifies all licensees to whom the notice applies, and is accurate with respect to the licensee and the other institutions.”

In other words, before an agent has the opportunity to shop a renewal around for rates, the agent must first provide the customer with the opt-out notice. “It’s not an insurmountable hurdle; it’s just an additional administrative obstacle,” Colborn, vice president of legislative and regulatory affairs at PIFC, said. “It’s additional work for the agent that they feel is unnecessary. They have to bother the consumer.”

Another concern is the readability of the statements, which are required, as stated in the regulations, to have a Flesch Reading Ease score of 50 or more. The reading scores are designed to ensure a level of comprehension to the general consumer. “Even the [California Department of Insurance’s] own examples that they use didn’t meet the Flesch Reading score test that the Department was requiring in the regulations,” Colborn said.

“I’d be remiss if I didn’t say that it’s an improvement over the original draft, although it didn’t solve all the problems,” Colborn said.

Despite the concerns over some items in the privacy regulations, the ultimate purpose of the regs is to consolidate the requirements of the Federal Gramm Leach Bliley Act (GLBA) with the California privacy regulations into one privacy statement. “One of the purposes… was to harmonize the two so that it would be clear when you had to send the notices out,” Colborn added.

The compliance date is set for March 24, 2003.

Another set of regulations dealing with the issue of persistency have raised some eyebrows with both agents and insurance companies. Portable discounts, which were given to consumers who have a record of prior insurance with any number of companies, will no longer be available under the revised and finalized set of regulations. However, companies may still offer discounts to consumers based on their history within the company, Colburn explained.

“That was a compromise that the Department put in the regulations,” Colborn said. “Some of the consumer groups wanted to get rid of the persistency discount altogether, so that even policyholders within the same company couldn’t get a discount for being with that company for a period of time.

“Their argument was that it discriminated against people who had previously been uninsured drivers. I think the industry saw that differently, and said it’s an actuarially justified rate adjustment.”

The persistency regulations were finalized on Aug. 27, 2002, and companies were required to be in compliance on Sept. 26, 2002.

The last set of regulations to have been finalized to date deal with accident verification, which will require companies to accept self-certification of an applicant if there’s no driving record, history of insurance, or Comprehensive Loss Underwriting Exchange report (CLUE) to verify a person’s accident history. Self-certification can only be overcome if the company has other prevailing evidence, Colborn explained.

Among the concerns expressed by the industry include an increase in fraud as well as the ability to provide an accurate rating for a policyholder. The OAL finalized the accident verification regulation on Oct. 31, 2002, and enforced it Nov. 30, 2002.

There are several regulations that are still pending, including changes to the Fair Claims Settlement Practices. Those regulations just wrapped up an additional 15-day public comment period on Nov. 25.

“The Fair Claims Settlement Practices is a set of regulations that governs the standards that companies have to comply with in settling the claims,” Colborn said.

“These regulations have been in effect for a long time, but then this year, the Commissioner proposed some major subsequent changes to it. In some cases, we felt the regulations went beyond what we’re dealing with for claims settlement or claims practices that were in some cases even mandating certain types of coverages to be included in policies which we felt goes beyond the scope of the regulations.”

Colborn said that while many of their issues raised by PIFC have gone unaddressed, she expects the regulations to go to the OAL any day now. Once filed with the OAL, they have 30 days to approve the regulations.

The Prior Approval Generic Determin-ations regulation remains in draft form. “Those were very controversial because they would establish generic factors for setting rates,” Colborn said. “The generic factors are basically set numbers—it kind of creates a one-size-fits-all matrix for rate approval, allowed expenses, efficiency standards and reduces the amount of flexibility and actuarial judgment that companies can exercise. There was a lot of concern of what that might do to the market.”

The Department is still revising the regulation, Colborn added. It is not expected that they will go into effect before Commissioner-Elect Garamendi steps into office.

Topics California Agencies Legislation