BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE, AND INSURANCE
Senator Jackie Speier, Chair
SB 150 (Escutia) Hearing Date: April 27,
2005
As amended: April 4, 2005
Fiscal: Yes
Urgency: No
SUMMARY
Would generally require that an insurer always explain to an
applicant, policyholder or individual proposed for coverage by
a policy of auto, homeowners' or other insurance sold to
individuals why the person was not underwritten for insurance,
would prohibit the use of information about past claims
history unless it includes specified information, with an
exception, and would require that insurers and agents provide
the information specified in the bill to insurance-support
organizations whose primary source of information is insurers
and agents (meaning insurance-support organizations such as
the for-profit C.L.U.E. or A-Plus databases).<1>
DIGEST
Existing law
---------------------------
<1> C.L.U.E. stands for "Comprehensive Loss Underwriting
Exchange" and is a for-profit company operated by ChoicePoint.
The ChoicePoint website explains C.L.U.E. as follows,
"C.L.U.E. (Comprehensive Loss Underwriting Exchange) is a
claim history information exchange that enables insurance
companies to access prior claim information in the
underwriting and rating process. C.L.U.E. Personal Property
reports contain up to five years of personal property claims
matching the search criteria submitted by the inquiring
insurance company. Data provided in C.L.U.E. reports includes
policy information such as name, date of birth and policy
number, and claim information such as date of loss, type of
loss and amounts paid. More than 90 percent of insurers
writing homeowners coverage provide claims data to the
C.L.U.E. Personal Property database. By providing immediate
interactive information, C.L.U.E. Personal Property helps
insurers and agents make immediate business decisions."
A-Plus is a competing, for-profit product.
SB150 (Escutia), PageB
1. Requires that, in the event of an adverse underwriting
decision, as defined, the insurer or agent must disclose
or offer to disclose why the adverse decision was made;
2. Prohibits an insurer or agent from basing an adverse
decision on various types of information, including
personal information received from an insurance-support
organization, except if the insurer or agent verifies the
information;
3. Generally defines "personal information" as a person's
name, medical history, address and
individually-identifiable information that can be
obtained by the insurer - such as an individual's habits,
avocations, etc., as a result of insurance transactions;
4. Generally defines "privileged information" as
information that is individually identifiable and that
relates to a claim, or that is in connection with a civil
or criminal proceeding involving the individual;
5. Prohibits adverse underwriting decisions based upon
the person previously having obtained insurance through a
residual market, such as the California Fair Access to
Insurance (FAIR) plan;
6. Places related responsibilities on insurers and
agents.
This bill
1. Would require the insurer or agent to provide the
reasons for the adverse underwriting decision in all
instances , and at the time that the decision is
communicated to the policyholder, applicant or person
proposed to be covered by insurance , and would eliminate
the prior requirement that an insurer must offer to
disclose this information if requested to do so;
2. Would require that insurers not base adverse auto
insurance or homeowners' insurance underwriting decisions
on personal information obtained from an
insurance-support organization, unless the insurer
obtains the following:
SB150 (Escutia), PageC
a. The date of loss;
b. Whether the claim is open or closed;
c. The relevant covered peril and the
description of the specific cause;
d. A description of the property damaged or the
liability incurred;
e. The address of the damaged property, if
applicable;
f. In the case of an auto claim, the
determination of fault, if applicable;
g. The monetary amount of damages paid or, if
open, reserved;
h. If known, a description of the repairs
completed or other status of damages;
3. Would also, generally speaking and despite the
requirements of #2, allow the insurer to continue the
underwriting process by obtaining whatever information it
can from the insurance-support organization and, even if
it cannot obtain everything in a - h noted above, the
insurer could base an adverse underwriting decision upon
its own further investigation of the person's claims
history (see page 4, line 26, starting with the word
"provided");
4. Would prohibit insurers and agents from submitting
information about auto and homeowners' insurance coverage
to the insurance-support organization unless the
submission includes the information in #2 a - h, above.
COMMENTS
1. Purpose of the bill . To protect consumers from being
turned down for auto or homeowners coverage due to
incomplete or inaccurate information about their past
claims, and to require insurers to provide complete
information about past claims to industry databases so
that consumers are protected from harm by incomplete and
inaccurate information.
SB150 (Escutia), PageD
2. Background . On December 4, 2002, the Senate Insurance
Committee heard testimony on the topic of homeowners
insurance. The hearing and recently released report are
entitled, "Haunted Houses: Does Making a Claim Make a
Home Uninsurable?"
Consumers and their advocates cited numerous examples of
homeowners who could not obtain coverage except through
extraordinary effort or at a very high price, once they
made a claim or were suspected of having made a claim-and
at times even if they hadn't contacted their insurer at
all. In one example, cited by the Foundation for
Taxpayer and Consumer Rights, a dog bit a neighbor, no
claim was filed, and the dog was put to sleep.
Nonetheless, the owner of the dog was non-renewed by his
carrier.
A retired police officer at the hearing noted that he'd
lost his wedding ring. Even though he didn't make a
claim to his insurer, the insurer treated his policy
coverage inquiry as if it were a claim, declined to cover
it, and then sent the centralized database known as
C.L.U.E. a message indicating that a claim had been
filed. C.L.U.E. is a database of claims history owned by
ChoicePoint, and it is governed by the federal Fair
Credit Reporting Act. A-Plus is a similar product owned
by a different company. After C.L.U.E. entered the
"claim" into its database, numerous carriers thereafter
refused to offer the retired officer insurance, and he
was only able to obtain coverage at a significantly
higher cost and after an extensive search.
Former Commissioner Low declined to state that a crisis
existed in the homeowners' market, but he did decry the
"mechanistic" underwriting of insurers, and he noted that
they were not necessarily using predictive factors when
underwriting. Insurers and brokers cautioned against
adding additional requirements to California's market
that might make it more difficult to underwrite risks.
They generally cited mold and water damage claims as the
drivers behind escalating premiums.
At the March 30, 2005 hearing of this committee,
witnesses testified as to the problems that exist in the
databases operated by ChoicePoint and others that fall
SB150 (Escutia), PageE
outside the protections of the FCRA. As was true with
C.L.U.E., witnesses testified that they had difficulty
removing or correcting inaccurate data in the other
ChoicePoint databases.
3. Support . According to the author, when an adverse action
is taken against a consumer (the consumer's application
for coverage is declined), some insurers do not give the
customer relevant information at the time the adverse
decision is made. The consumer may not know or take the
time to determine if the information in an industry
database is correct. In addition, the consumer may not
know that s/he should provide the insurer with particular
loss data to explain, for example, if a problem has been
fixed at a home, thereby reducing exposure to future
loss.
The Department of Insurance (DOI), sponsor of the bill,
supports the bill because it prohibits an adverse action
unless specified information is either available or
further investigation is performed. Information in
industry databases such as C.L.U.E. or A-Plus is
"sometimes sketchy and vague." Insurers should be
receiving more complete information when making their
decisions. The DOI also believes that insurers should be
required by law to automatically provide to a consumer an
explanation as to why they were not offered coverage.
Consumers Union, commenting on a prior version of the
bill, believes that consumers should be "armed with all
of the crucial information underlying an insurer's
adverse action?" so that the consumer can correct any
inaccuracies.
4. Opposition . The opponents generally make these points
against this bill:
a. A mandate to provide extra information to
insureds will be expensive and is not cost-effective
since C.L.U.E. and A-Plus have (according to their
own testimony before this committee) audited error
rates of less than 1%. Increased costs are passed
on to policyholders;
b. "Thousands" of underwriting decisions are
made each week (according to one opponent) and there
SB150 (Escutia), PageF
is no surge in consumers asking for explanations
about why they were denied a policy, therefore the
required mandate to disclose why a consumer is
denied a policy isn't even of great concern to
consumers. The Pacific Association of Domestic
Insurance Companies (PADIC) specifically states that
mandating disclosure to applicants and policyholders
is "?not only expensive but also meaningless
information to policyholders in many cases.";
c. Existing law is already adequate. If
consumers dispute the accuracy of information given
to C.L.U.E. and A-Plus, the Fair Credit Reporting
Act gives consumers the chance to correct faulty
data or to enter their own explanation into the
database;
d. PADIC says that it is inconsistent to
mandate (in Section 3) that only complete
information may be submitted to an insurance-support
organization and then to permit (in Section 2) an
insurer to rely on incomplete information and its
own investigation to do underwriting;
e. The Association of California Life and
Health Insurance Companies (ACLHIC) noted that
health insurance underwriting isn't like homeowners'
or auto underwriting. In the process of medical
underwriting, a disease may be uncovered. Generally
speaking, ACLHIC states that the carrier tries to
use a health care professional to convey this
information to the person whose health was examined.
The bill, ACLHIC states, seems to require that the
information be sent directly to the person, and
therefore result in notification without the
assistance of a professional. Also, generally
speaking, ACLHIC doesn't know how the privacy rules
of the Health Insurance Portability and
Accountability Act (HIPPA) would be respected if
this bill becomes law. [Staff note: While the bill
on page 2 at line 6 does state that the reason for
an adverse underwriting decision has to be conveyed
at the time the insurer informs the person of the
adverse decision, language on page 2 at line 22
specifically permits that information to be conveyed
at the option of the consumer either directly to the
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consumer or via a medical professional.]
5. Amendment needed .
a. Staff suggests that health insurance be
deleted from the bill due to the unknown interaction
of the federal privacy laws, and a patient's
interest in ensuring the sensitive presentation of
medical information.
b. On page 4 at line 38, rewrite the sentence
as follows: "In the case of an auto claim, the
determination of fault, if known";
c. Within Section 3 of the bill, make existing
law (all text except "s") into "a", and make "s"
into "b". The present structure of this section
makes no logical sense without this clarifying
change;
d. On page 8 at line 26, strike the period and
insert, ", except that incomplete information may be
submitted if the purpose is to detect or prevent
criminal activity, including but not limited to
insurance fraud."
Rationale: C.L.U.E. and A-Plus serve multiple
purposes, at least one of which is to prevent crime.
It is important that even incomplete claims
information be available to prevent criminal
activity.
e. Both this bill and SB 530 (Kehoe) amend Section
791.12. Should both bills pass the committee (SB
530 is scheduled for May 4th) Legislative Counsel
will have to create conforming language that would
be operative if both were signed into law.
POSITIONS
Support
Department of Insurance (sponsor)
Consumers Union
SB150 (Escutia), PageH
Oppose
American Insurance Association
State Farm Insurance
Personal Insurance Federation of California
Pacific Association of Domestic Insurance Companies
Association of California Life and Health Insurance Companies
Association of California Insurance Companies
First American Corporation
Nationwide Insurance
Allied Insurance Company
Liberty Mutual
Consultant: Brian Perkins. 916-651-4102