Existing law requires each admitted insurer with premiums written equal to or in excess of $100,000,000 to periodically submit to the Insurance Commissioner a report on its minority, women, and disabled veteran business enterprise procurement efforts, as specified, and subjects an insurer to a civil penalty if the insurer fails to file the report. Existing law requires the commissioner to maintain a link on the Internet Web site of the Department of Insurance that provides public access to the contents of each report. Existing law provides that these provisions shall remain in effect until January 1, 2019.

This bill would add veteran and lesbian, gay, bisexual, and transgender (LGBT) business enterprises to the entities for which the reporting described above is required. The bill would require each admitted insurer to report information about which procurements are made from minority, women, disabled veteran, veteran, and LGBT business enterprises with at least a majority of the enterprises workforce in California. The bill would require each admitted insurer to submit a report regarding its governing board and board diversity efforts at the same time that it submits the report on procurement efforts. The bill would make an individual governing board members participation in the collection of data regarding governing board diversity voluntary. The bill would require the Insurance Commissioner to maintain a link on the Internet Web site of the Department of Insurance that provides public access to the aggregate of governing board and board diversity data reported by insurers. The bill would provide that governing board and board diversity data collected pursuant to these provisions is confidential, would require the department to keep confidential any information that could be used to identify an individual participating board member, and, except as specified, would prohibit the release of that information by an insurer or the department. The bill would require each report to be submitted on July 1, 2018, and then biennially thereafter. The bill would extend the operation of these provisions to January 1, 2025.

Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.

This bill would make legislative findings to that effect.

Existing law requires each admitted insurer with premiums written equal to or in excess of $100,000,000 to periodically submit to the Insurance Commissioner a report on its minority, women, and disabled veteran-owned business veteran business enterprise procurement efforts, as specified, and subjects an insurer to a civil penalty if the insurer fails to file the report. Existing law requires the commissioner to maintain a link on the Internet Web site of the Department of Insurance that provides public access to the contents of each report. Existing law provides that these provisions shall remain in effect until January 1, 2019.

This bill would add veteran and lesbian, gay, bisexual, and transgender (LGBT) business enterprises to the entities for which the reporting described above is required. The bill would require each admitted insurer to report information about which procurements are made from minority, women, disabled veteran, veteran, and LGBT business enterprises with at least a majority of the enterprises workforce in California. The bill would require each admitted insurer to submit a report regarding its governing board and board diversity efforts at the same time that it submits the report on procurement efforts, and efforts. The bill would make an individual governing board members participation in the collection of data regarding governing board diversity voluntary. The bill would require the Insurance Commissioner to maintain a link on the Internet Web site of the Department of Insurance that provides public access to the contents of each report. the aggregate of governing board and board diversity data reported by insurers. The bill would provide that governing board and board diversity data collected pursuant to these provisions is confidential, would require the department to keep confidential any information that could be used to identify an individual participating board member, and, except as specified, would prohibit the release of that information by an insurer or the department. The bill would require each report to be submitted on July 1, 2018, and then biennially thereafter. The bill would extend the operation of these provisions to January 1, 2025.

Existing law requires each admitted insurer with premiums written equal to or in excess of $100,000,000 to periodically submit to the Insurance Commissioner a report on its minority, women, and disabled veteran-owned business procurement efforts, as specified, and subjects an insurer to a civil penalty if the insurer fails to file the report. Existing law requires the commissioner to maintain a link on the Internet Web site of the Department of Insurance that provides public access to the contents of each report. Existing law provides that these provisions shall remain in effect until January 1, 2019.

This bill would add veteran and lesbian, gay, bisexual, and transgender (LGBT) business enterprises to the entities for which the reporting described above is required. The bill would require each admitted insurer to report information about which procurements are made from minority, women, disabled veteran, veteran, and LGBT business enterprises with at least a majority of the enterprises workforce in California. The bill would require each admitted insurer to submit a report regarding its governing board and board diversity efforts at the same time that it submits the report on procurement efforts, and would require the Insurance Commissioner to maintain a link on the Internet Web site of the Department of Insurance that provides public access to the contents of each report. The bill would require each report to be submitted on July 1, 2018, and then biennially thereafter. The bill would extend the operation of these provisions to January 1, 2025.

Date of Hearing: August 23, 2017

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

SBPCA Bill Id:SB 488

Author:(Bradford) – As Amended Ver:July 13, 2017

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill requires large insurers to submit reports on the diversity of their board of directors, as well as efforts to increase diversity; adds lesbian, gay, bisexual, and transgender (LGBT)‑owned and veteran-owned businesses to the list of business enterprises for which insurers must report their efforts related to procurement activity; and extends the sunset on existing reporting on supplier diversity from 2019 to 2025.

This bill also restricts the authority of the Insurance Commissioner to initiate data calls (industry-wide requests for data) by requiring the adoption of emergency regulations for those calls that relate directly to enumerated insurance industry regulatory issues, and limiting data calls on other subjects to those initiated pursuant to regulation or authorized by statute.

FISCAL EFFECT:

1. Approximately $100,000 over two years to the California Department of Insurance (CDI) for data collection on diversity issues, as specified (Insurance Fund).
2. Costs in the hundreds of thousands of dollars to CDI to issue emergency regulations related to data calls generally (Insurance Fund).
3. Uncertain fiscal impact to CDI associated with new rules related to the issuance of specific data calls. Many mechanisms to collect data relevant to insurance regulation are available to CDI. If CDI chooses to pursue regulations to require data calls that are not otherwise specifically authorized, there could be regulatory cost pressure, as compared to the more streamlined bulletin process now in use. However, the restrictions could also reduce the number of data calls that are not specifically authorized in statute, which would have a negligible impact or even reduce administrative workload. In essence, there could be administrative cost pressure in the hundreds of thousands or low millions of dollars (Insurance Fund) if the Insurance Commissioner chose to issue multiple regulations and conduct associated data calls, but their issuance and the related cost would be at the Commissioner's discretion. CDI also notes it may be required to do additional examinations in order to receive information that could otherwise be collected via a survey or data call.

COMMENTS:

1. Purpose. The author indicates the reports required pursuant to this bill are needed to increase diversity in the insurance industry.
2. Diversity in the Insurance Industry. CDI established the Insurance Diversity Initiative in 2012. According to the CDI, the Initiative focuses on transparency and administers surveys to understand the state of supplier diversity and governing board diversity amongst the insurers with written premiums of $100 million or more in California. CDI reports that between 2012 and 2015, insurers increased their procurement with California diverse businesses by $586.6 million. In 2016, CDI engaged with five other jurisdictions (Minnesota, New York, Washington, Oregon, and the District of Columbia) to generate a combined data call known as the Multi-State Insurance Diversity Survey (MIDS) to query insurers on a broader basis regarding their diversity efforts. That survey confirmed the notion that insurance industry leadership is composed overwhelmingly of white men.
3. Amendments Regarding Data Calls. Provisions added in the Assembly Insurance committee significantly restrict the ability of the Commissioner to issue data calls, in response to industry and legislative oversight concerns about whether the Commissioner has sufficient authority to issue data calls and publicly disclose the responses. Many data calls, including recent surveys about board diversity and thermal coal investments, have been controversial among industry participants.
4. Support. A number of business associations, including those representing ethnic minority-and veteran-owned businesses, support this bill.
5. Opposition. CDI strenuously opposes this bill unless amended to remove provisions restricting the Commissioner's authority to issue data calls.
6. Related Legislation. AB 601 (Ridley-Thomas) is substantially similar to this bill, and was held on this Committee's Suspense File.

AB 566 (Ridley-Thomas) proposed to renew the COIN tax credit program and the associated data call, and included similar restrictions on data calls. AB 566 was also held on this Committee's Suspense File.

1. Prior Legislation. Assembly Bill 53 (Solorio), Chapter 414, Statutes of 2012, established the mandatory data call regarding the demographic characteristics of suppliers used by California insurers.
2. Staff Comment. This bill restricts the Commissioner's authority to issue data calls by emergency regulation to those related to the following: insurers' obligations under an insurance contract, consumer behavior in selecting products or coverage limits, insurer’s underwriting and marketing practices, or the characteristics or behavior of claimants and insureds. The Commissioner states a data call is the most straightforward and cost-effective way to request such information. This bill significantly increases the administrative burden of requesting data important to the regulation of insurance. It is unclear whether the list in this bill is an exhaustive list of circumstances under which it makes sense to provide the Commissioner authority to collect data from regulated entities in a relatively streamlined manner.

Analysis Prepared by: Lisa Murawski / APPR. / (916) 319-2081

Date of Hearing: July 12, 2017

ASSEMBLY COMMITTEE ON INSURANCE

Tom Daly, Chair

SBPCA Bill Id:SB 488

Author:(Bradford) – As Amended Ver:May 2, 2017

SENATE VOTE: 38-0

SUBJECT: Insurers: women, minority, disabled veteran, veteran, and LGBT business enterprises: procurement and board diversity

SUMMARY: Revises and extends the sunset date for an insurer reporting mandate (data call) regarding supplier diversity. Specifically, this bill:

1. Defines "LGBT business enterprise" as a business 51% owned, managed, operated, and controlled by LGBT individuals.
2. Defines "veteran business enterprise" as a business 51% owned by veterans groups and that is managed by veterans.
3. Requires, beginning July 1, 2018, insurers to respond to a Department of Insurance (department) data call on a range of demographic data regarding their suppliers.
4. Requires, beginning July 1, 2018, insurers to respond to a department data call regarding the demographic makeup of their board of directors and the insurer's board diversity goals.
5. Requires, beginning July 1, 2018, that the demographic categories used for responding to the data call include LGBT and veteran business enterprises.
6. Requires an insurer to provide each board member with a single opportunity to participate in a survey of their demographic characteristics.
7. Requires that an insurer to communicate to each board member that the survey is voluntary.
8. States that the results of the board member survey will be confidential.
9. Prohibits either an insurer or the department from encouraging, incentivizing, or attempting to influence a board member regarding his/her participation in the survey.
10. Requires the department to publish the results of the board member survey in the aggregate and in a manner that prevents using the results of the survey in conjunction with other public data to identify an individual board member response.

EXISTING LAW:

1. Requires, beginning July 1, 2013, an insurer collecting at least $100 million in California premium to biennially respond to a supplier diversity data call.
2. Defines "disabled veteran business enterprise", "minority business enterprise", and "women business enterprise" for the purpose of the supplier diversity data call.
3. Requires the supplier diversity data call response to include the insurer's supplier diversity policy and a description of the insurer's efforts to encourage the use of diverse suppliers.
4. Requires the department to publish the results of the supplier diversity data call on its website.
5. Establishes a sunset date of January 1, 2019 for the supplier diversity data call.

FISCAL EFFECT: Undetermined

COMMENTS:

1. Purpose. The current laws requiring insurers to report on their supplier diversity efforts sunset on January 1, 2019. SB 488 is needed to extend the supplier diversity reporting requirements to 2025, codify the governing board diversity survey, and expand the existing statute to include LGBT-owned and veteran-owned businesses. The department has included LGBT and veteran-owned businesses in its recent surveys, but these categories are not required by the current statute. The inclusion of these categories will open the door of economic opportunity more broadly. These groups of businesses are a vital part of California's economy.

In addition, the department began conducting a governing board diversity survey in recent years. This survey is not included in the current law authorizing the supplier diversity survey. Creating the statutory authority for the governing board diversity survey in the law would promote board diversity because “what gets measured gets done.”

1. Insurance Diversity. The DOI established the Insurance Diversity Initiative in 2012. According to the DOI, the Initiative focuses on transparency and administers surveys to understand the state of supplier diversity and governing board diversity amongst insurers with written premiums of $100 million or more in California. DOI reports that between 2012 and 2015, insurers increased their procurement with California diverse businesses by $586.6 million. In 2016, DOI engaged with five other jurisdictions (Minnesota, New York, Washington, Oregon, and the District of Columbia) to generate a combined data call known as the Multi-State Insurance Diversity Survey (MIDS) to query insurers on a broader basis regarding their diversity efforts. MIDS is a diversity data call that was broader in scope than authorized by existing statute. That survey confirmed the notion that insurance industry leadership is composed overwhelmingly of white men. The survey results indicate that 80% of board members were male, 77% were white (6% - African American, 3% - Hispanic / Latino, 2% - Asian / Pacific Islander, 1% - Mixed Race), and 12 out of the over 2300 board members identified themselves as LGBT.
2. Data Calls. Because of its importance in daily life and the potentially staggering impact of insurance failures, insurance is a highly regulated industry. Insurers are subject to strict financial and market oversight to ensure they are financially able fulfill their obligations to policyholders and that they are treating consumers fairly. Part of the oversight system is regular reporting of data to the DOI, and the DOI has routinely requested insurers to make additional reports of data on particular aspects of their operations or the state of the insurance market. There is little controversy or objection to the need for, and appropriateness of, these routine data calls. They provide the DOI with useful information to inform the ongoing oversight and regulation of day-to-day insurance activity. However, the DOI has also issued a number of data calls in the recent past that have generated considerable controversy among industry participants (e.g., thermal coal investments, multi-state insurance diversity, climate change). In addition to the frequency of data calls on these broader policy subjects, controversy has attached to these data calls on a range issues including scope, authority, clarity, need, and duplication.
3. Diversity Data Calls. Assembly Bill 53 (Statutes of 2012, Chapter 414) was authored by Assemblyman Jose Solorio (who was then Chair of the Assembly Insurance Committee) to establish a mandatory data call regarding the demographic characteristics of suppliers used by California insurers. The bill was sponsored by the Greenlining Institute and was inspired by a similar program at the Public Utilities Commission. The bill applied the data call to insurers with more than $100 million in California premium and specified that the data be submitted every other year beginning in 2013, and established January 1, 2019 sunset date. The 2013 data call issued by the DOI included the vendor demographic categories included in AB 53 ("disabled veteran business enterprise", "minority business enterprise", and "women business enterprise"). The DOI expanded the categories beyond those provided for in AB 53 by adding "LGBT business enterprises" to the 2015 data call.

In 2014 the DOI issued a data call (not authorized by statute) regarding insurer board member diversity. The DOI followed the 2014 data call with a combined data call referred to as the MIDS in 2016. The 2016 MIDS combined the expanded supplier diversity data with the board member diversity data and collected data for California, Minnesota, New York, Oregon, Washington, and the District of Columbia. The DOI has issued a 2017 MIDS data call that includes only the supplier diversity component expanded to include both LGBT and veteran owned business enterprises which are not authorized by current statute. The 2017 MIDS data call includes California, Oregon, Washington, and the District of Columbia.

Since the initial AB 53 data call in 2013, DOI has expanded their diversity data call efforts to include an entire new effort (board member diversity), insurer activity in other states (collecting data for multiple states), increased data call frequency from every other year to annual, and added demographic categories not included in AB 53 (LGBT and veteran owned business enterprises). None of these expansions of the AB 53 data call have been authorized by statute or regulation.

1. Administrative Procedures Act. As a general matter, the rulemaking provisions of the Administrative Procedures Act (APA) require that any rule of general application be adopted by the process specified in the APA.

"No state agency shall issue, utilize, enforce, or attempt to enforce any

guideline, criterion, bulletin, manual, instruction, order, standard of

general application, or other rule, which is a “regulation” under the

APA unless it has been adopted as a regulation and filed with the

Secretary of State pursuant to the APA." (Government Code Section 11340.5)

In addition to outlining a formal process of notice and public comment, the APA requires the Office of Administrative Law (OAL) to review proposed regulations and ensure that the proposed regulation was adopted by a process that complies with the procedural requirements in the APA, and that the proposed rule substantively complies with six standards of review. Those six standards are: 1) necessity, 2) non-duplication, 3) authority, 4) reference, 5) clarity, and 6) consistency. These standards ensure that an agency rule is reasonably necessary to fulfill a statutory/constitutional purpose within the agency's jurisdiction, and that the rule is written with sufficient clarity to allow compliance by those subject to the rule.

The question of the department's authority would normally be answered, at least preliminarily, by the OAL during the rulemaking process. If the department demands information on a case-by-case basis from a specific insurer, it does not have to adopt a regulation, but must adopt a regulation when it establishes a rule or order requiring all or a class of insurers to provide information. During the rulemaking process, the APA requires an agency to demonstrate its authority, review the potential impact of the regulations, provide the public an opportunity to participate, and respond to comments. The department did not adopt regulations to implement MIDS or any of the other data calls discussed in this analysis.

In 2010, OAL determined that the department's data call termed a “Mandatory Response Form” related to its Terror Financing Probe, constituted an underground regulation. In the last two years, the department has implemented several data calls without adopting regulations, including the governing board survey in MIDS, the Climate Risk Carbon Initiative Data Call, and the Climate Risk Disclosure Survey.

1. Authority for Data Calls. No statute grants the department the general authority to issue a data call. The Legislature has provided specific authority for data calls in the past such as AB 53. The department argued it had the authority for the MIDS data call based on Insurance Code Sections 730 (grants the department the authority to "examine the business and affairs" of an insurer) and Section 12924 (grants the department subpoena authority). The department argues that these sections grant broad authority to conduct data calls at its discretion. The department's reliance on these sections is problematic because these sections are specifically designed to obtain information from a single insurer in a specific manner, and simply do not address surveys across a class of insurers.

Insurance Code Section 12924 authorizes the department to issue subpoenas for documents. A subpoena authorized by Section 12924 only applies to existing documents and does not compel the creation of new documents. The MIDS data call requires an insurer to compile specific information and provide it in a department designed format. Section 12924 does not provide the department with authority to compel insurers to compile new information in a mandatory department format, and is not a suitable basis for ordering a data call.

The use of Section 730 for the purpose of conducting the MIDS data call is problematic because, as a general rule, materials and information gathered in the process of an examination are confidential. Information gathered in the course of an examination may only be released in furtherance of a legal action (such as a civil or criminal proceeding) or regulatory action. The information gathered by MIDS is published on the department website as required by AB 53. The purpose of MIDS is to gather and publicize information regarding diversity in the insurance industry. The confidentiality provision in Section 730 fails to provide a basis to authorize collecting data with the express purpose of publicizing that data.

SB 488 would clear up the question of the department's authority to issue MIDS and eliminate the department's obligation to adopt regulations to implement it, but leaves questions about whether or not the prior surveys were lawfully issued and whether the data currently published on the department's website should be treated as confidential.

1. Suggested Amendments. The bill should be amended to establish the authority and process for the department to issue data calls as follows:
   1. Data calls relating to an insurer's contractual obligations, consumer behavior related to product and coverage limits, underwriting and marketing practices, or the characteristics/behavior of insureds and claimants should be adopted by the emergency regulation process in the APA.
   2. Deem data calls described above to be emergencies for the purposes of the APA.
   3. Data calls relating to any topic not described above would be effected through the normal APA rulemaking process or by a specific statute.
   4. Limit the subject of data calls to California.
   5. Prohibit data calls for information otherwise available to the department through routine filings or financial examination.

These amendments would provide a general authority and process for all departmental data calls. The commissioner should be able to readily issue data calls on core, day-to-day insurance issues as needed to fulfill his oversight and consumer protection duties. These proposed amendments provide the authority to expeditiously conduct data calls directly connected to its regulatory functions and core insurance issues. Recent experience indicates that data calls outside these core areas of concern would benefit from the notice, comment, and independent review offered by the APA rulemaking process. Because recent department data call activities would be covered by the provisions of the APA, cited above, these proposed amendments are largely declaratory of existing law, except to the extent that they grant the department the authority to use emergency regulations in some circumstances to effect a data call. Existing law would require the use of the full APA rulemaking procedure for all data calls.

In addition, the Association of California Insurance Companies has requested an amendment allowing insurers to rely on public databases to identify diverse business enterprises. The author should consider adopting this language which agreeable to all the interested parties.

1. Related Legislation. The committee has considered and passed two bills earlier this year that authorized data calls, and both bills were amended at the committee's request to contain similar language governing data calls generally:
   1. AB 601 (Ridley-Thomas) earlier this year which is substantially similar to this bill.
   2. AB 566 (Ridley-Thomas) proposed to renew the COIN tax credit program and the associated data call.

AB 778 (Caballero) which also proposed renewing the COIN tax credit program passed the committee earlier this year. The bill originally included a renewal of the COIN data call, but that provision was removed by the author. The removal of the data call provision eliminated the need to address the data call issue in that bill.

REGISTERED SUPPORT / OPPOSITION:

Support

Alliance for Diversity in Corporate Governance

AlvaradoSmith a Professional Corporation

Asian Business Association

Asian Business Association San Diego, (ABASD)

Automotive Radio Equipment Company

California Asian Pacific Chamber of Commerce (CalAsian Chamber)

California Small Business Majority

Ceres

Crenshaw Chamber of Commerce

CSAA Insurance Group

Desert Business Association

DVBE Insurance & Financial Services, LLC

First AME Church of Los Angeles

General Construction & Consulting

Golden Gate Business Association

Gravity Pro Consulting, LLC

Leadership Education for Asian Pacifics, Inc.

LimNexus

Melinda Guzman

Mischler Financial Group

National Veteran Business Development Council (NVBDC)

Small Business California

U.S. Hispanic Chamber of Commerce

Opposition

Association of California Insurance Companies (Oppose unless amended)

Analysis Prepared by: Paul Riches / INS. / (916) 319-2086

 THIRD READING  

Bill No: SB 488

Author:

:

Vote:

SENATE INSURANCE COMMITTEE: 8-0, 4/26/17

AYES: Mendoza, Gaines, Berryhill, Glazer, Mitchell, Newman, Portantino, Roth

NO VOTE RECORDED: Hernandez

SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/15/17

AYES: Lara, Bates, Beall, Bradford, Hill, Nielsen, Wiener

SUBJECT:

SOURCE: California Department of Insurance

Equality California

DIGEST:

This bill extends and expands the insurer supplier diversity survey and establishes a new insurer governing board diversity survey.

ANALYSIS:

Existing law:

1. Establishes the supplier diversity survey and requires, on odd-numbered years until January 1, 2019, insurers that write at least $100 million in California premium to report to the California Department of Insurance (CDI) on their procurement of goods and services in California from qualified minority, women, and disabled veteran business enterprises (“diverse suppliers”), as well as related activities to increase its procurement from diverse suppliers.
2. Requires CDI to publish the insurers’ reports on its Internet Web site by September 30 of the reporting year.
3. Affirms that the program does not require quotas, set-asides, or preferences and affirms that insurers retain the authority to use business judgment to select the supplier for a particular contract.

This bill:

1. Moves the reporting years for the supplier diversity survey from odd-numbered years to even-numbered years, starting on July 1, 2018, and extends the survey to January 1, 2025.
2. Defines “LGBT business enterprise” as one that is 51percent owned, managed, controlled, and operated by lesbian, gay, bisexual, or transgendered individuals, and treats those businesses as reportable diverse suppliers.
3. Defines “veteran business enterprise” as one that is at least 51 percent owned by one or more veteran groups or, in the case of a publicly owned business, at least 51 percent of the stock of which is owned by one or more veteran groups.
4. Establishes the governing board diversity survey and requires, commencing July 1, 2018, insurers that write at least $100 million in California premium to report every two years on their goals surrounding board diversity, as well as the demographic makeup of their boards.
5. Requires insurers to provide each board member with an opportunity to participate in the governing board diversity survey and “self-disclose” demographic information.
6. Requires that participation in the governing board diversity survey be voluntary and restricts the insurer and CDI from influencing the decision.
7. Requires CDI to post on its Internet Web site the results of the governing board diversity survey by September 30 of each reporting year, but requires the information to be published in aggregate and prohibits CDI from publishing the demographic information in a manner that could be linked to any participating individual.

Background

AB 53 (Solorio, Chapter 414, Statutes of 2012) established a mandatory supplier diversity survey which requires larger insurers to report to CDI the procurements they make from diverse suppliers (businesses owned by women, minorities, and disabled veterans). These suppliers may offer marketing, legal, information technology, and other services. SB 488 renews and expands the supplier diversity survey to include LGBT-owned vendors and veteran-owned businesses (in addition to disabled veteran-owned businesses).

In 2014 and 2016, CDI also issued a mandatory governing board diversity survey that required insurers to report the number of members on its governing board by sex and race/ethnicity, as well as those that have publicly identified as LGBT. Concerns were raised at policy committee hearing about the way CDI collected the data and published the results. (See the Senate Insurance Committee analysis for the 4/26/17 hearing for a detailed discussion.) SB 488 codifies CDI’s governing board diversity survey except that the categories of demographic information are not specified (leaving CDI to define those); collected information must be self-reported, voluntarily disclosed, and remain confidential; and CDI could only publish the result in a manner that would not lead to the identification of any participating individual. Based on recent amendments, almost all of the opposition was removed from the bill.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

According to the Senate Appropriations Committee, this bill involves ongoing costs to the Insurance Fund, likely less than $150,000 per year for additional workload to update the information technology infrastructure in order to collect and report the governing board diversity information according to the provisions of this bill.

SUPPORT: (Verified 5/16/17)

California Department of Insurance (co-source)

Equality California (co-source)

Carson Chamber of Commerce

Crenshaw Chamber of Commerce

Desert Business Association

Inglewood Airport Area Chamber of Commerce

Landis Communications Inc.

Leadership Education for Asian Pacifics Inc.

Los Angeles Gay & Lesbian Chamber of Commerce

National Gay & Lesbian Chamber of Commerce

NORCAL Mutual Insurance Company

Patriot RN and Supply Patriot

Rainbow Chamber of Commerce Silicon Valley

Sacramento Rainbow Chamber of Commerce

Sacramento Black Chamber of Commerce

Sinnott Puebla Campagne & Curet

The Billups Group

OPPOSITION: (Verified 5/16/17)

Association of California Insurance Companies

ARGUMENTS IN SUPPORT: Several supporting organizations explain that CDI began administering governing board diversity survey in 2014 to encourage insurance companies to seek and consider leaders on their boards that reflect the changing demographics and diversity within California and throughout the nation. Although, there have been small improvements, much more can still be done. For example, in 2016, 80 percent of insurance company governing board seats was held by men and only 12 percent of board seats were held by persons of color. Nearly 100 insurance companies did not have any women on their governing boards, and 273 insurance companies had no persons of color on their governing boards.

ARGUMENTS IN OPPOSITION: The Association of California Insurance Companies expresses concern regarding the procurement section of the bill and seeks clarification in the bill that insurers may rely on appropriate public databases to identify qualified vendors.

Prepared by:

5/19/17 10:05:55

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2017 - 2018 Regular Session

SB 488 (Bradford) - Insurers: women, minority, disabled veteran, veteran, and LGBT business enterprises: procurement and board diversity

This bill does not meet the criteria for referral to the Suspense File.

Bill Summary:

SB 488 would extend and expand the insurer supplier diversity survey and establish a new survey related to insurer governing board diversity.

Fiscal Impact:

Ongoing costs, likely less than $150,000 per year for additional workload to update the information technology infrastructure in order to collect and report the governing board diversity information according to the provisions of this bill. (Insurance Fund)

Background:

In 2011, the Insurance Commissioner (IC) issued a voluntary survey to insurers regarding their purchases from diverse suppliers and the demographic make-up of their governing boards. AB 53 (Solorio, Chapter 414, Statutes of 2012) codified the supplier diversity survey, but not the governing board survey. Current law does not include LGBT- and veteran-business enterprises.

In 2013 and 2015, the California Department of Insurance (CDI) issued the diversity survey, and in 2014, issued a governing board survey. In 2016, CDI and five other states established and issued the Multistate Diversity Survey, which expanded the data reported, included LGBT-owned vendors, and included the governing board survey.

Proposed Law:

This bill would:

• Define “LGBT business enterprise” and “veteran business enterprise”;
• Extend the supplier diversity survey to January 1, 2025;
• Require, commencing July 1, 2018, and biennially on July 1 thereafter, each admitted insurer, with California premiums written of $100 million or more, to submit a report to the IC on its minority, women, veteran, LGBT, and disabled veteran business enterprise procurement efforts, as specified, during the previous two years;
• Require, commencing July 1, 2018, and biennially on July 1 thereafter, each admitted insurer with California premiums written of $100 million or more to submit a report to the IC on its governing board and board diversity efforts during the previous two years including the demographic make-up of the insurer’s governing board and insurer’s goals surrounding board diversity;
• Require the insurer to provide each board member with an opportunity to participate in a survey for the purpose of collecting and reporting the board’s demographic information. The insurer must distribute a copy of the survey and notify the board members in writing that participation in the survey is voluntary, that there shall be no adverse action taken if the board member declines to participate, and that the information collected through the survey shall remain confidential and private, except to the extent that it is reported in the aggregate;
• Require the IC, by September of the reporting year, to establish and maintain a link on CDI’s public Internet Web site the aggregate of data reported by insurers and a statement that the information contained in the insurer’s report is provided for informational purposes only;
• Require CDI to publish aggregated data that represents each reported category and includes all participating board members and require that the data must not be published in a manner that could link the published data to a participating individual;
• Provide that the data collected are confidential and require that neither CDI nor the insurer release the data, except under the circumstances of this bill.

Related Legislation:

AB 601 (Ridley-Thomas, 2017) was similar to SB 488 when it was heard in the Assembly Insurance Committee on April 19, 2017. Recent amendments would prohibit CDI or the insurer from asking individual directors to disclose their demographic characteristics, but would allow any director wishing to disclose that information to provide it directly to CDI. This bill would also clarify the IC’s authority to implement data calls generally. This bill is pending in the Assembly Appropriations Committee.

AB 53 (Solorio, Chapter 414, Statutes of 2012) established the supplier diversity report for admitted insurers and required the IC to post the contents of the report on CDI’s Internet web site.

-- END --

SENATE COMMITTEE ON INSURANCE

Senator Tony Mendoza, Chair

2017 - 2018 Regular

Bill No: SB 488 Hearing Date: April 26, 2017

Subject: Insurers: women, minority, disabled veteran, veteran, and LGBT business enterprises: procurement and board diversity

SUMMARY

This bill would extend and expand the insurer supplier diversity survey and establish a new survey related to insurer governing board diversity.

DIGEST

Existing law

1. Requires insurers that write at least $100 million in California premium to report the following to the California Department of Insurance (CDI) on a biennial basis:
2. Procurements made from minority, women, and disabled veteran business enterprises that have a headquarters located in California, and from disabled veteran business enterprises (“diverse suppliers”).
3. A supplier diversity policy statement.
4. Outreach and communications to diverse suppliers, including appropriate contact information of the insurer for interested business enterprises.
5. How the insurer supports organizations that promote or certify diverse business enterprises.
6. Permits an insurer that does not enter into contracts to procure goods or services in California to satisfy the reporting requirement by filing a statement with CDI.
7. Subjects noncompliant insurers to a penalty of up to $5,000 or, if the failure to comply is “willful,” $10,000.
8. Requires CDI to publish the insurers’ reports on its website by September 30 of the reporting year.
9. Affirms that the program does not require quotas, set-asides, or preferences and affirms that insurers retain the authority to use business judgment to select the supplier for a particular contract.
10. Repeals the survey on January 1, 2019.

This bill

1. Extends the supplier diversity survey to January 1, 2025.
2. Defines “LGBT business enterprise” as to be one that is 51% owned, managed, controlled, and operated by lesbian, gay, bisexual, or transgendered individuals, and treats those businesses as reportable diverse suppliers.
3. Incorporates by reference the definition of “veteran business enterprise” provided in the Military and Veterans Code (generally permits non-profit veteran service agencies to qualify for small business bid preferences), and treats those businesses as reportable diverse suppliers.
4. Expands the qualifying suppliers to include those with procurements made from diverse suppliers with at least a majority of their workforce in California.
5. Makes legislative findings that corporate leadership opportunities should be available to all Californians and that insurers are well positioned to have their boards of directors reflect the state’s diversity.
6. Requires insurers that write at least $100 million in California premium to report every two years on their efforts to increase diversity on their board, as well as the demographic makeup of the board (“governing board survey”).
7. Authorizes the insurer to submit its report on its governing board survey with the diverse supplier survey.
8. Requires CDI to post on its website the results of the surveys by September 30 of each reporting year.
   

COMMENTS

1. Purpose of the bill According to the author, SB 488 is needed to extend the supplier diversity survey through 2025, codify the governing board diversity survey, and expand the existing statute to include LGBT-owned and veteran –owned businesses. Assembly Bill 53 (Solorio), Chapter 414, Statutes of 2012, was implemented to study supplier diversity and encourages insurers to procure their products and services from California’s diverse businesses. It required each insurance company that collects at least $100 million annually in premium from Californians to report on the company’s supplier diversity efforts and is set to sunset on January 1, 2019. Current law does not include LGBT-owned and veteran-owned businesses; however, the inclusion of these categories will open the door of economic opportunity and supplier diversity to more diverse populations in California. These groups are a vital part of our economy, not only in California but elsewhere as well. Current law also does not include the governing board diversity survey because it is limited to procurement; however, putting the governing board diversity survey in the law would help to improve and potentially increase governing board diversity because “what gets measured, gets done.”
   
2. Background In 2011, Insurance Commissioner Dave Jones issued a voluntarily survey to insurers regarding their purchases from diverse suppliers and the demographic make-up of their governing boards. In 2012, AB 53 codified the supplier diversity survey, but not the governing board survey. In 2013 and 2015, CDI issued the supplier diversity survey per AB 53 and, in 2014, issued a mandatory governing board survey not addressed in any statute. In 2016, CDI and five other states established and issued the Multistate Diversity Survey (MIDS). MIDS differs from AB 53 requirements in several ways including the following:

• Expands the scope of insurers required to report to include insurers that write $300 million in national premium that are accredited in one of the participating states, as well as surplus lines insurers.
• Expands the data required to be reported to include some transactions that occur outside of California.
• Expands the reportable diverse suppliers to include LGBT-owned vendors.
• Includes the governing board survey.

SB 488 would codify MIDS except that it does not expand the class of insurers subject to the survey or require reporting of transactions outside of California. The bill also adds a new reportable category that covers all certified veteran-owned businesses in addition to those owned by disabled veterans.

While the insurer trade associations were actively involved in negotiating AB 53 and currently support expansion of the diverse supplier survey, they have strongly objected to the mandatory governing board survey in MIDS on at least two grounds. For one, the information demanded is highly sensitive and usually treated as confidential. Additionally, they argue that the Insurance Commissioner (IC) has no authority to demand that type of data, especially since it has no relevance to any of the IC’s official duties.

SB 488 would resolve the question of the IC’s authority to demand the information, but would also codify what may be viewed as a practice that infringes on the privacy of board members.

Authority to Demand and Publish Information. No statute grants the IC the authority to issue a mandatory survey (also called a “data call”), although the power to issue specific surveys might be expressly granted or implied. For example, AB 2293 (Bonilla, 2014) requires CDI to report to the Legislature on insurance coverage requirements related to transportation network companies; if CDI needs information from insurers to perform that duty, the authority is reasonably implied. But AB 53 did not ask about governing boards and no other statute demands this type of demographic analysis.

In 2003, the Chair of the Insurance Committee requested that CDI perform a data call on the sale of annuities. Insurance Commissioner Harry Low responded that the Insurance Code “does not provide for specific statutory authority to mandate delivery of industry information via a data call about annuities to the Department." (See Senate Insurance Committee Analysis for AB 1600 (Nakano), Chapter 166, Statutes of 2003.) The Legislature then enacted a provision granting CDI the authority to issue a data call on life and disability insurance products and to adopt regulations to institute annual reporting. (Insurance Code § 10508.6.)

In issuing MIDS, CDI relies on Insurance Code Sections 730 and related provisions and Section 12924. CDI argues that the IC has broad authority to examine an insurer “whenever he or she deems necessary” pursuant to Insurance Code 730(a), as well as to investigate and issue subpoenas for witnesses and documents regarding any subject touching insurance business and in aid of his duties, as set forth in Insurance Code Section 12924. But these sections are specifically designed to obtain information from a single insurer in a specific manner. Each of these sections involves particular due process protections that do not lend themselves to surveys across a class of insurers. For example, while Insurance Code Section 12924 authorizes the IC to issue subpoenas for documents, it only applies to existing documents and does not compel the production of new ones. Moreover, subpoenas must be personally served and are only be enforced by the court.

Information collected under the authority of Section 730 et seq., the authority to examine an insurer for compliance with existing law, raises serious issues far beyond procedural matters. As a general rule, materials and information gathered in the process of an exam are confidential. (Ins. Code § 735.5.) The IC may release the information in furtherance of a legal action (such as a civil or criminal proceeding) or regulatory action (such as a rulemaking or enforcement proceeding), but CDI has not yet identified any legal or regulatory action that has been or might be furthered by posting MIDS data on its website. Furthermore, the IC should not lawfully initiate an action unless the action is consistent with the IC’s official duties.

When asked to cite specific statutory sections granting the IC authority to issue MIDS, CDI argued that it has broad authority to request information from insurance companies and that requesting insurers to respond to questions is overwhelmingly the most efficient method of obtaining information.

The question of the IC’s authority would normally be answered, at least preliminarily, by the Office of Administrative Law (OAL) during the rulemaking process. If CDI demands information on a case-by-case basis from a specific insurer, it does not have to adopt a regulation, but must adopt a regulation when it establishes a rule requiring all or a class of insurers to provide information. (Govt. Code § 11340.5(a); 11342.600.) During the rulemaking process, the APA requires an agency to demonstrate its authority, review the potential impact of the regulations, provide the public an opportunity to participate, and respond to comments. CDI did not adopt regulations to implement MIDS.

CDI has already been rebuffed on that point. In 2010, OAL determined that CDI’s “Mandatory Response Form” related to its Terror Financing Probe constituted an underground regulation (also known as a “desk-drawer” rule). In the last two years, CDI has implemented several data calls without adopting regulations, including the governing board survey in MIDS, the Climate Risk Carbon Initiative Data Call, and the Climate Risk Disclosure Survey.

SB 488 would clear up the question of the IC’s authority to issue MIDS and eliminate CDI’s obligation to adopt regulations to implement it, but leaves questions about whether or not the prior surveys were lawfully issued and whether the data currently published on CDI’s website should be treated as confidential.

Privacy. The governing board survey requires insurers to determine and report the number of people that represent specified demographic categories serving on its governing board. Those categories are women and men, disabled-veterans, specified races and ethnicities, and individuals that publicly identify as LGBT. CDI publishes the raw data on its website according to each insurer. One insurance trade association estimates that the number of directors on a typical board would fall between 6 and 14 members.

Several insurance trade associations oppose the governing board survey because the information is not self-reported by the individual and is published in a way that may disclose confidential information about an individual without the individual’s consent.

The California Information Practices Act of 1977 (CIPA) governs how state agencies collect and report personally identifiable information. (Civil Code §§ 1798 et seq.) CIPA defines personal information broadly as “any information that is maintained by an agency that identifies or describes an individual, including, but not limited to … physical description” and requires that its provisions shall be liberally construed to protect privacy rights. (Civil Code §§ 1798.3 and 1798.63.) CIPA establishes several standards directly relevant to this bill. For one, CIPA requires state agencies to collect personal information, to the greatest extent possible, from the individual rather than from another source. (Civil Code § 1798.15.) Also, CIPA prohibits an agency from disclosing any personal information in a manner that would link information to an individual. (Civil Code Section 1798.24.)

CDI states that all information collected from the surveys are self-reported by the insurer and that the surveys are crafted in such a way as to avoid linking any information reported to specific individuals. CDI further explains that survey does not request that the insurer report names or contact information of governing board members and demographic information supplied by the insurer is not intended to identify any specific board member.

Although the raw survey data does not include names, it is published in small enough populations so that that it may be easily traced back to specific individuals. Corporations Code Section 1502 requires domestic corporations to file documents including the “names and complete business or residence address of its incumbent directors.” Those documents are published on the California Secretary of State’s website and similar information on foreign corporations may be available through the state of domicile.

Data reported in aggregate does not raise the same concerns. For example, in its support letter CDI notes that in 2016, 80% of insurance company governing board seats were held by men and only 12% of board seats were held by persons of color. That stark statistic makes the point without risking disclosure of personal information.

1. Support CDI and several other supporting organizations explain that CDI began administering governing board diversity survey in 2014 to encourage insurance companies to seek and consider leaders on their boards that reflect the changing demographics and diversity within California and throughout the nation. Although, there have been small improvements, much more can still be done. For example, in 2016, 80 percent of insurance company governing board seats was held by men and only 12 percent of board seats were held by persons of color. Nearly 100 insurance companies did not have any women on their governing boards, and 273 insurance companies had no persons of color on their governing boards.

The National Gay and Lesbian Chamber of Commerce points out that there are an estimated 1.4 million LGBT-owned businesses in the U.S. and it is estimated that there are over 239,000 veteran owned businesses in California.

1. Opposition While there is no opposition to the diverse supplier survey, the insurer trade associations object to the governing board survey on the grounds that it intrudes upon the privacy of their board members and that asking insurers to determine and report an individual’s demographic information puts them in dangerous legal territory and forces them to ask what appears to be an “illegal question.”

The associations also note that neither the National Association of Insurance Commissioners (NAIC) nor any California law require the publishing of such confidential identifying information. The NAIC Corporate Governance Annual Disclosure Model Act, which California has adopted, already requires disclosure of corporate governance structures, policies, and practices, including whether there is a board diversity policy in place and how it functions. While those disclosures are available to the regulator, they are subject to confidentiality provisions, as does the examination authority cited for last year’s survey. When the survey became mandatory, under subpoena power provisions and examination authority, the confidentiality provisions and attendant procedures were not observed. The industry strongly believes that collected board information of this nature should be made on a protected and purely voluntary basis to CDI, and only if known, permitted, and self-reported.

1. Suggested Amendments
2. Remove Provisions Resulting in the Disclosure and Publication of Potentially Personally Identifiable Information. In order to address concerns that this bill may result in the publication of potentially personally identifiable information. Although the terms of this bill remain subject to the California Information Practices Act of 1977 anway, the author may wish to consider amendments that do the following:
   1. Provide that disclosure of any demographic information shall be on a free and voluntary basis only. Any form used to collect the information must provide notice that disclosure is completely voluntary.
   2. Any demographic or other personal information provided shall be “self-disclosed” by the participating board member, not the insurer. The personal information disclosed must remain confidential and participating board members must be notified of their rights to privacy and confidentiality.
   3. Restrict publication or release of the data to aggregated forms that include data across the entire industry (such as the statistics cited in the arguments in support of this bill). In practical terms, CDI would be unable to publish the information and data by insurer, insurance holding company, line of insurance, etc.
3. Clarify the Definition of “Veteran Business Enterprise.” The bill would include veteran business enterprises certified by the Department of General Services (DGS) and incorporates a definition of “veteran business enterprise” allegedly provided in Military and Veterans Code section 999.51(a). But Section 999.51(a) of that section refers to nonprofit veteran service agencies, not veteran business enterprises. Moreover, it does not appear that the Department of General Services certifies veteran’s business enterprises, only disabled veteran’s enterprises. The author may wish to consider amendments that clarify the definition of “veteran business enterprise.
4. Related Legislation AB 601 (Ridley-Thomas) was nearly identical to SB 488 when it was heard in the Assembly Insurance Committee on April 19. Recent amendments would prohibit CDI or the insurer from asking individual directors to disclose their demographic characteristics, but would allow any director wishing to disclose that information to provide it directly to the CDI. The bill was also amended to clarify the IC’s authority to implement data calls generally.

POSITIONS

Support

Department of Insurance (co-source)

Equality California (co-source)

Carson Chamber of Commerce

Crenshaw Chamber of Commerce

Desert Business Association

Inglewood Airport Area Chamber of Commerce

Landis Communications Inc.

Leadership Education for Asian Pacifics Inc.

Los Angeles Gay & Lesbian Chamber of Commerce

National Gay & Lesbian Chamber of Commerce

NORCAL Mutual Insurance Company

Patriot RN and Supply Patriot (

Rainbow Chamber of Commerce Silicon Valley

Sacramento Rainbow Chamber of Commerce

Sacramento Black Chamber of Commerce

Sinnott Puebla Campagne & Curet

The Billups Group

Oppose

American Insurance Association

Association of California Insurance Companies

Association of California Life and Health Insurance Companies

National Association of Mutual Insurance Companies

Pacific Association of Domestic Insurance Companies

Personal Insurance Federation of California

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