AB 2710: Insurance: California Insurance Guarantee Association: premium charges.

(1)Existing law creates the California Insurance Guarantee Association (CIGA) and requires all insurers admitted to transact specified insurance lines in this state to become members. Each time an insurer becomes insolvent, to the extent necessary to secure funds for payment of covered claims of that insolvent insurer and also for payment of reasonable costs of adjusting the claims, CIGA is required to collect premium payments from its member insurers sufficient to discharge its obligations, as specified.

This bill, among other things, would no longer require an insurer to become insolvent in order for CIGA to collect premium payments from the member insurers and would require CIGA to collect premiums in order to secure funds for the payment of its administrative expenses.

(2)Under existing law, CIGA is required to be a party in interest in all proceedings involving a covered claim, and has the same rights as the insolvent insurer would have had if not in liquidation, but CIGA has no cause of action against the insureds of the insolvent insurer for any sums it has paid out, except as provided.

This bill would provide that the above-stated provision denying CIGA a cause of action against insureds does not limit CIGAs right to pursue unpaid reimbursements owed by an employer pursuant to a workers compensation insurance policy with a deductible if the employer was obligated to reimburse the insurer for benefits payments and related expenses paid by the insurer or CIGA from a special deposit or from other CIGA funds pursuant to the terms of the policy and related agreements.

(3)Existing law requires that the rate of premium charged be a uniform percentage of net direct written premium, as defined, in the preceding calendar year applicable to specific categories of insurance. The rate of premium charges to each member insurer in the appropriate categories are initially based on the written premium of each insurer as shown in the latest years annual financial statement on file with the Insurance Commissioner and are later adjusted, as provided. Existing law authorizes CIGA to refund any credit due in a specific category of insurance to a member insurer as a result of the adjusted premium calculation, as provided.

This bill would instead require CIGA, with regard to premium charges paid prior to January 1, 2017, to refund to a member insurer any credit due in a specific category as a result of the adjusted premium calculation.

This bill, with regard to premium charges paid on or after January 1, 2017, would delete the requirements that the rate of premium charges be initially based on the written premium of each insurer, that the premium charges be adjusted later as provided, and that the member insurer be eligible for a refund of any credit due to that member insurer as a result of the adjusted premium calculation, and would instead require that the rate of premium charges to each member insurer in the appropriate categories be based on the net direct written premium of each insurer as shown in the latest years annual financial statement on file with the commissioner. The bill would also make conforming changes.

(4)Existing law authorizes CIGA to exempt or defer a member insurer from paying the premium charge if the payment would cause the member insurers financial statement to reflect an amount of capital or surplus less than the minimum amounts required for a certificate of authority by any jurisdiction in which the member insurer is authorized to transact insurance. Deferred premium charges are required to be paid when the payment will not reduce capital or surplus below required minimums. These payments are credited against future premium charges to those companies receiving larger premium charges by virtue of the deferment.

This bill would delete the requirement that the payments be credited against future premium charges to those companies receiving larger premium charges by virtue of the deferment.

(5)Existing law requires CIGAs plan of operations to contain provisions requiring each member insurer to recoup the premium charge paid to CIGA from its insureds over a reasonable length of time by way of a reasonably calculated surcharge on insurance policies to which the provisions of CIGA apply.

This bill would instead require each member insurer to recoup the premium charge from its insureds in the year following the charge. The bill, with regard to premium charges paid on or after January 1, 2017, among other things, would require the member insurer to file a report in accordance with the provisions of the plan of operation indicating the amount of surcharges it has collected, and would prohibit a member insurer electing to omit collecting surcharges from any of its insureds from being entitled to any reimbursement from CIGA, as specified.