AB 1883: Insurance: home protection contracts.
- Session Year: 2023-2024
- House: Assembly
- Latest Version Date: 2024-04-09
Current Status:
Failed
(2024-05-29: Referred to Com. on INS.)
Introduced
In Committee
First Chamber
In Committee
Second Chamber
Enacted
What does this bill do?
This bill requires people and businesses who sell or offer home protection contracts in California to be licensed as insurance agents or brokers, qualify for a narrow exemption, or get a new license created under a new state program. The new rules let licensed firms let unlicensed employees (called "endorsees") sell under supervision after approved training, ban selling inside a customer’s home or by telephone, require sellers to give key written disclosures and a 30‑day full refund, and give the Insurance Commissioner authority to discipline violators.
The summary is provided by generative AI which can make mistakes. For original language, please view the details in the table below.
Existing law regulates home protection companies, which issue contracts for the repair or replacement of a component, system, or appliance of a home. Existing law prohibits a person from issuing or offering a home protection contract unless the person holds a home protection company license issued by the Department of Insurance, as specified.
This bill would, notwithstanding the above-described provisions, prohibit a person or entity from selling or offering any form of a home protection contract unless the person is licensed as an insurance agent or broker, falls under a specified exemption, or has been issued a license under the provisions described below.
The bill would provide for the licensure of an applicant and require specified information be submitted to the Insurance Commissioner along with a written application, including an application fee, as specified, and a certificate by a home protection company or insurer stating that it is satisfied that the named applicant is trustworthy and competent to act as an agent on its behalf.
The bill would authorize an endorsee, as defined, to act on behalf of, or under the supervision of, a licensee, as defined, in matters relating to selling or offering home protection contracts, if specified conditions are met. The bill would require the licensee to provide specified training to an endorsee prior to allowing the endorsee to sell or offer home protection contracts. The bill would also require a licensee to provide the training materials with the initial application for a license, and whenever the materials are changed, for review and approval by the department.
The bill would prohibit the licensee or endorsee from selling or offering a home protection contract under specified circumstances, including through telephone solicitation, as defined. The bill would prohibit the licensee from specified actions, including selling a contract without providing the prospective customer with specified information. The bill would also authorize the commissioner to take specified disciplinary actions for a violation of these provisions after notice and hearing, including suspending or revoking the license of the licensee.
The bill would authorize the commissioner to send an application for renewal to the licensee, through mail or an electronic delivery method, not less than 60 days before a license period, as defined, expires. The bill would place the responsibility for renewal on the licensee, whether or not they receive an application from the commissioner, and would require the licensee to pay a renewal fee. The bill would require the commissioner to impose a penalty fee equal to 1/2 of the renewal fee for a renewal filed after the license period expires, unless specified circumstances occur.
Existing law regulates home protection companies, which issue contracts for the repair or replacement of a component, system, or appliance of a home. Existing law requires a home protection company to file an annual statement exhibiting its conditions and affairs, as specified, and an annual statement of financial condition. Existing law requires a home protection company to maintain a reserve for unearned premiums in an amount not less than 40% of the aggregate premiums charged on its current contracts. Existing law requires the Insurance Commissioner to examine the affairs of a home protection company before licensure and at other times as appears necessary, and prohibits the commissioner from conducting more than one financial examination of a home protection company in a 5-year period, unless specified requirements are met. Existing law authorizes the commissioner to extend the period between examinations up to 2 additional years if the commissioner determines that conditions warrant the extension, as specified, including the companys net worth.This bill would authorize the commissioner to extend the period between examinations to up to 3 additional years and allow the commissioner to also consider the availability of examiners as a condition that could warrant an extension.Existing law regulates home protection companies, which issue contracts for the repair or replacement of a component, system, or appliance of a home. Existing law requires a home protection company to file an annual statement exhibiting its conditions and affairs, as specified, and an annual statement of financial condition. Existing law requires a home protection company to maintain a reserve for unearned premiums in an amount not less than 40% of the aggregate premiums charged on its current contracts. Existing law requires the Insurance Commissioner to examine the affairs of a home protection company before licensure and at other times as appears necessary, and prohibits the commissioner from conducting more than one financial examination of a home protection company in a 5-year period, unless specified requirements are met. Existing law authorizes the commissioner to extend the period between examinations up to 2 additional years if the commissioner determines that conditions warrant the extension, as specified, including the companys net worth.
This bill would authorize the commissioner to extend the period between examinations to up to 3 additional years and allow the commissioner to also consider the availability of examiners as a condition that could warrant an extension.
As used in this article, the following terms have the following meanings:
(a)Endorsee means an unlicensed employee or authorized representative of a licensee.
(b)Established business relationship means a prior or existing relationship formed by a voluntary two-way communication between a person or entity and a consumer, not previously terminated by either party, based on either of the following:
(1)The consumers purchase or transaction, with or without an exchange of consideration, with the entity within the 18 months immediately preceding the date of the telephone call.
(2)The consumers inquiry or application regarding products or services offered by the entity within the three months immediately preceding the date of the call.
(c)Home protection company has the same meaning as in Section 12740.
(d)Home protection contract has the same meaning as in Section 12740.
(e)Home protection contract holder means a person who is the purchaser or holder of a home protection contract.
(f)Licensee means any individual or entity licensed pursuant to this article to transact, sell, or offer home protection contracts.
(g)(1)License period means all of that two-year period beginning as described in subparagraph (A) or (B) of paragraph (2), as applicable, and ending the second succeeding year on the last calendar day of the month in which the initial license was issued.
(2)A license period shall be determined for each person or entity as follows:
(A)Upon initial licensing, the license period shall start on the date the license is issued.
(B)For a subsequent license, the license period shall start on the first day of the first month following the month in which the initial license was issued.
(3)A license shall be renewed on or before the expiration date of the license period.
(h)Protection contract fee has the same meaning as in Section 12740.
(i)Sell or offer has the same meaning as solicit, negotiate, or effect as used in Section 1631.
(j)Telephone solicitation means the initiation of an outbound telephone call or message for the purpose of encouraging the purchase of a home protection contract, which is transmitted to any person, but the term does not include a call or message to either of the following:
(1)A person with that persons prior express invitation or permission.
(2)A person with whom the caller has an established business relationship.
1758.1001.Notwithstanding Part 7 (commencing with Section 12740) of Division 2, a person or entity may sell or offer any form of a home protection contract in this state if that person or entity is any of the following:
(a)Licensed as an insurance agent or broker pursuant to Article 3 (commencing with Section 1631).
(b)Exempt from licensing pursuant to subdivision (g) of Section 1634 or subdivision (j) of Section 1635.
(c)In compliance with the requirements of this article and issued a license by the commissioner as provided in this article.
1758.1002.The commissioner may issue a license that authorizes a licensee and its endorsees to sell or offer a home protection contract to an applicant that has complied with the requirements of this article.
1758.1003.(a)An applicant for a license under this article shall submit all of the following to the commissioner:
(1)A written application for licensure, signed by the applicant or an authorized representative of the applicant, in the form prescribed by the commissioner.
(2)A certificate by the home protection company or insurer that is to be named in the licensees license, stating that the home protection company or insurer has satisfied itself that the named applicant is trustworthy and competent to act as its agent limited to this purpose and that the home protection company or insurer will appoint the applicant to act as its agent to sell or offer the kind or kinds of contracts that are permitted by this article, if the license applied for is issued by the commissioner. The certification shall be subscribed by an officer or managing agent of the home protection company or insurer on a form prescribed by the commissioner.
(3)An application fee of two hundred ninety-two dollars ($292).
(b)Notwithstanding any other law, Sections 1667, 1668, 1668.5, 1669, 1670, 1738, and 1739 shall apply to an application for, or issuance of, a license pursuant to this article.
(c)Costs associated with an enforcement action or investigation shall be paid by the person or organization licensed pursuant to this article.
1758.1004.(a)An endorsee may act on behalf of, and under the supervision of, the licensee in matters relating to selling or offering home protection contracts and may sell or offer home protection contracts under the authority of the licensee if both of the following conditions have been met:
(1)The endorsee is 18 years of age or older.
(2)A list of all endorsees is maintained by the licensee and updated no less than annually. The list shall be made available to the commissioner for review and inspection upon request.
(b)The conduct of an endorsee of a licensee acting within the scope of employment or agency shall be deemed the conduct of the licensee for purposes of this article.
(c)The commissioner may request the licensee submit an annual certification, subscribed by an officer of the company on a form prescribed by the commissioner, including all of the following:
(1)The number of endorsees, if any, offering home protection contracts under the authority of the licensee for the applicable period.
(2)A statement that no person other than an endorsee sells or offers home protection contracts on the licensees behalf.
(3)A statement that all endorsees have completed training as required by this article.
1758.1005.(a)The licensee shall provide for the training of its endorsees under a program developed by a home protection company or a property and casualty broker or agent prior to allowing its endorsees to sell or offer home protection contracts. Each endorsee shall receive instruction or training on all of the following:
(1)The home protection contracts that are offered for sale to prospective customers.
(2)Ethical sales practices.
(3)The disclosures to be given to prospective customers pursuant to subparagraph (F) of paragraph (1) of subdivision (d) of Section 1758.1009.
(b)The licensee shall retrain endorsees whenever there is a material change in a home protection contract that requires modification of the training materials, but no less frequently than every two years for each endorsee.
(c)Training materials used by, or on behalf of, the licensee to train endorsees shall be submitted to the department at the time the licensee applies for a license under this article, and whenever modified thereafter.
(d)Training materials, and changes to those materials, submitted to the department pursuant to this section shall be deemed approved for use by, or on behalf of, the licensee unless otherwise notified by the department. Failure by a licensee to submit training materials or changes for departmental review, or the use of unapproved or disapproved training materials, shall constitute grounds for denial of an application for a license, nonrenewal of a license, suspension of a license, or other action as deemed appropriate by the commissioner.
1758.1006.(a)If a licensee or endorsee violates any provision of this article or any other provision of this code, in addition to the general disciplinary powers of the commissioner under Sections 1737 through 1748.5, inclusive, the commissioner may take any of the following disciplinary actions after notice and hearing:
(1)Suspend or revoke the license of the licensee.
(2)Suspend or revoke the ability of individual endorsees to act under the licensees license.
(3)Impose fines on the licensee for its conduct or that of its endorsees.
(4)Impose other penalties the commissioner deems necessary.
(b)If a person sells or offers a home protection contract or holds themselves or an organization out as a licensee without obtaining the license required by this article, or as being licensed pursuant to Chapter 5 (commencing with Section 1621) without obtaining that license, the commissioner may issue a cease and desist order pursuant to Section 12921.8.
(c)Notwithstanding any other law, Section 1748.5 is applicable to the individual or organization issued a license pursuant to this article and any endorsee to that license.
1758.1007.(a)An endorsee shall not sell a home protection contract while in a prospective customers home. This section does not prohibit an endorsee from providing a prospective customer with written materials regarding the availability of a home protection contract.
(b)A licensee or endorsee shall not sell or offer home protection contracts pursuant to this article through telephone solicitation.
1758.1008.Protection contract fees may be billed and collected by a licensee. A licensee shall not be required to maintain those funds in a segregated account if the home protection company represented by the licensee has provided in writing that the funds need not be segregated from funds received by the licensee. All protection contract fees shall be considered funds held in trust by the licensee in a fiduciary capacity for the benefit of the home protection company. Licensees may receive compensation for billing and collection services.
1758.1009.A licensee shall not do any of the following:
(a)Advertise, represent, or otherwise portray itself or its endorsees as a licensed insurer, home protection company, or property and casualty broker-agent.
(b)Pay compensation to an endorsee based primarily on the number of customers electing coverage under the license. Nothing in this code shall prohibit the payment of compensation to an endorsee of a licensee for activities under the licensees license that are incidental to their overall compensation. The incidental compensation shall not exceed fifteen dollars ($15) per customer who purchases a home protection contract.
(c)Provide anything of value to a real estate broker licensed pursuant to Part 1 (commencing with Section 10000) of Division 4 of the Business and Professions Code in connection with their licensed functions authorized by Section 10131 or 10131.6 of the Business and Professions Code.
(d)(1)Sell a home protection contract pursuant to this article without providing all of the following information to the prospective customer:
(A)The material terms and conditions of the home protection contract, including the identity of the home protection company.
(B)How to file a claim, including a toll-free telephone number to report a claim.
(C)The price, benefits, and any material exclusions or conditions of the home protection contract.
(D)The licensees name, address, telephone number, and license number.
(E)The departments toll-free consumer hotline.
(F)The following disclosures:
(i)The purchase of the home protection contract is not required to receive any other goods or services, including, but not limited to, utility services.
(ii)The endorsee is not qualified or authorized to evaluate the adequacy of the prospective customers existing insurance coverage, if any.
(2)A licensee may comply with this subdivision by providing the consumer with a brochure, or other written material, containing the information or by directing the consumer to an internet website that displays a brochure and a sample of the terms and conditions of the home protection contract.
1758.1010.A home protection contract sold by a licensee or endorsee shall permit the home protection contract holder to return the contract within 30 days of the start date of the contract, if no claim has been made under the contract prior to its return. Upon return of the home protection contract to the licensee or home protection company within the applicable time period, the contract is void and the home protection company shall refund to the home protection contract holder the full purchase price of the contract.
1758.1011.(a)Not less than 60 days before a license period expires, the commissioner may use an electronic delivery method, including email or other similar electronic method of delivery, to deliver, or may mail, to the latest email or mailing address appearing on their records, an application to the licensee to renew the license for the appropriate succeeding license term. It is the licensees responsibility to renew, whether or not a renewal notice is received.
(b)The commissioner may accept a late renewal without penalty, provided that the licensees failure to comply is due to a clerical error or inadvertence by the department.
(c)An application for renewal of a license may be filed on or before the expiration date. An application for renewal of an expired license may be filed after the expiration date and until that same month and date of the next succeeding year.
(d)An application for renewal shall be accompanied by a renewal fee of two hundred ninety-two dollars ($292).
(e)The commissioner shall impose a penalty fee equal to one-half of the renewal fee for the licensee for any renewal that is filed after the expiration date of the license.
1758.1012.Notwithstanding any other law, licensees under this article may be paid on a commission basis.
1758.1013.Nothing in this article regulating the sale of home protection contracts by a licensee shall be construed to impair or impede the application of any other law regulating the sale of home protection contracts.
SEC. 2.Section 12743 of the Insurance Code is amended to read:12743.The following provisions of this code shall be applicable to home protection contracts and home protection companies:
(a)Sections 1 to 46, inclusive.
(b)Chapter 3 (commencing with Section 330) of Part 1, 1 of Division 1.
(c)Chapter 12 (commencing with Section 679.70) of Part 1, 1 of Division 1.
(d)These provisions of Chapter 1, 1 of Part 2, 2 of Division 1:
(1)Article 1 (commencing with Section 680).
(2)Article 1.5 (commencing with Section 685).
(3)Article 2 (commencing with Section 690).
(4)Section 699, 699.5, 700, 701, 704, 704.5, 704.7, 705, 705.1, 707, 708, 709, 710, 713, 714, 715, 716, 717, 718, 720, and 725 of Article 3 (commencing with Section 699).
(5)Section 750.
(6)Article 5.5 (commencing with Section 770).
(7)Article 6.5 (commencing with Section 790).
(8)Article 8 (commencing with Section 820).
(9)Article 9 (commencing with Section 880).
(10)Article 11 (commencing with Section 939).
(11)Article 13 (commencing with Section 980).
(12)Article 14 (commencing with Section 1010).
(13)Article 14.5 (commencing with Section 1065.1).
(14)Article 15 (commencing with Section 1070).
(15)Article 16 (commencing with Section 1080).
(16)Article 17 (commencing with Section 1100).
(e)These provisions of Chapter 2, 2 of Part 2, 2 of Division 1:
(1)Article 1 (commencing with Section 1140).
(2)Article 2 (commencing with Section 1150). 1152).
(3)Article 3 (commencing with Section 1170).
(4)Article 4 (commencing with Section 1190).
(5)Article 4.7 (commencing with Section 1215).
(6)Article 7 (commencing with Section 1250).
(7)Article 8 (commencing with Section 1260).
(f)Article 4 (commencing with Section 1610) of Chapter 4 of Part 2 of Division 1.
(g)Article 3 (commencing with Section 1631) of Chapter 5 of Part 2 of Division 1.
(h)Article 16.8 (commencing with Section 1758.1000) of Chapter 5 of Part 2 of Division 1.
(h)(i)Sections 1850, 1850.5, 1852, 1853.5, 1853.7, 1853.8, 1857, 1857.2, 1857.3, 1857.4, 1857.5, 1858, 1858.05, 1858.1, 1858.15, 1858.2, 1858.3, 1858.4, 1858.5, 1858.6, 1858.7, 1859, 1859.1, 1860, 1860.1, and 1860.2 of Chapter 9, 9 of Part 2, 2 of Division 1.
(i)(j)Division 3 (commencing with Section 12900).
(j)(k)In any references in the provisions made applicable to this part by subdivisions (a) to (i) inclusive (j), inclusive, of this section:
(1)Insurer shall mean home protection company.
(2)Insured shall mean a home protection contract holder.
(3)Premium shall mean protection contract fee.
(4)Policy or insurance shall mean home protection contract.
(k)(l)When any provision of this code, other than this part, is applied to home protection companies, such provision shall be construed in accordance with the nature of home protection companies and the home protection business. In the event of any conflict between such other provision and this part, this part shall prevail.
SECTION 1.Section 12752 of the Insurance Code is amended to read:12752.(a)A home protection company shall file an annual statement exhibiting its conditions and affairs in accordance with Sections 900, 900.5, 900.8, 900.9, 902, 903, 903.5, 904, 922.1 to 922.8, inclusive, 923, 923.5, and 924. However, the required contents of the annual statement may vary from the requirements thereof, pursuant to regulations adopted by the commissioner in accordance with Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, so as to adapt the requirements to the home protection business. This subdivision shall not be construed to limit the authority of the commissioner to request financial statements from licensees at any time.(b)The commissioner shall, before licensure and at other times as appears necessary, examine the business and affairs of a home protection company subject to this part. A home protection company so examined shall open its books and records for inspection by the commissioner and shall otherwise facilitate and cooperate in the examination. In making the examination, the commissioner shall have the rights specified in Section 733, and the examinee shall be subject to the obligations of Section 736. The commissioner shall not conduct more than one financial examination of a company in a five-year period, unless the commissioner finds that the financial condition of the company has deteriorated, thereby warranting an interim examination.(c)The commissioner may extend the period between examinations up to three additional years if the commissioner determines that conditions warrant the extension. In making that determination, the commissioner may consider all of the following factors:(1)The companys reserves.(2)The companys net worth.(3)Availability of examiners.(4)Any other factors the commissioner considers relevant.(a)A home protection company shall file an annual statement exhibiting its conditions and affairs in accordance with Sections 900, 900.5, 900.8, 900.9, 902, 903, 903.5, 904, 922.1 to 922.8, inclusive, 923, 923.5, and 924. However, the required contents of the annual statement may vary from the requirements thereof, pursuant to regulations adopted by the commissioner in accordance with Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code, so as to adapt the requirements to the home protection business. This subdivision shall not be construed to limit the authority of the commissioner to request financial statements from licensees at any time.
(b)The commissioner shall, before licensure and at other times as appears necessary, examine the business and affairs of a home protection company subject to this part. A home protection company so examined shall open its books and records for inspection by the commissioner and shall otherwise facilitate and cooperate in the examination. In making the examination, the commissioner shall have the rights specified in Section 733, and the examinee shall be subject to the obligations of Section 736. The commissioner shall not conduct more than one financial examination of a company in a five-year period, unless the commissioner finds that the financial condition of the company has deteriorated, thereby warranting an interim examination.
(c)The commissioner may extend the period between examinations up to two three additional years if the commissioner determines that conditions warrant the extension. In making that determination, the commissioner may consider all of the following factors:
(1)The companys reserves.
(2)The companys net worth.
(3)Availability of examiners.
(3)(4)Any other factors the commissioner considers relevant.
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Date
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Status
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|---|---|
| May 29, 2024 | Referred to Com. on INS. |
| May 22, 2024 | In Senate. Read first time. To Com. on RLS. for assignment. |
| May 21, 2024 | Read third time. Passed. Ordered to the Senate. (Ayes 72. Noes 0. Page 5398.) |
| May 20, 2024 | Read second time. Ordered to third reading. |
| May 16, 2024 | From committee: Do pass. (Ayes 14. Noes 0.) (May 16). |
| May 8, 2024 | In committee: Set, first hearing. Referred to APPR. suspense file. |
| Apr 17, 2024 | From committee: Do pass and re-refer to Com. on APPR. (Ayes 15. Noes 0.) (April 17). Re-referred to Com. on APPR. |
| Apr 10, 2024 | Re-referred to Com. on INS. |
| Apr 9, 2024 | From committee chair, with author's amendments: Amend, and re-refer to Com. on INS. Read second time and amended. |
| Feb 5, 2024 | Referred to Com. on INS. |
| Jan 23, 2024 | From printer. May be heard in committee February 22. |
| Jan 22, 2024 | Read first time. To print. |
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Date
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Description
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Location
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Votes
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|---|---|---|---|---|
| May 21, 2024 | AB 1883 Calderon Assembly Third Reading | Assembly Floor |
Passed |
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| May 16, 2024 | Do pass. | Assembly Standing Committee on Appropriations |
Passed |
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| Apr 17, 2024 | Do pass and be re-referred to the Committee on [Appropriations] | Assembly Standing Committee on Insurance |
Passed |
This list shows positions taken on this bill by organizations on the date displayed, which is linked to the original source.
Positions by individuals are not included.
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Organization
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Position
|
Date
|
|---|---|---|
| American Bankers Insurance Company Of Florida And Its Affiliates | ** Support | |
| American Property Casualty Insurance Association | ** Support | |
| Amtrust Financial | ** Support | |
| Continental Casualty Company | ** Support | |
| Homeserve Usa Corp | ** Support | |
| San Diego Gas and Electric Company | ** Support | |
| Service Contract Industry Council | ** Support | |
| Southern California Gas Company | ** Support |
ASSEMBLY THIRD READING
ATR Bill Id:AB 1883
Author:(Calderon)
As Amended Ver:April 9, 2024
Majority vote
SUMMARY
Implements an additional licensure process and other requirements related to the sale of home protection contracts.
Major Provisions
- Provides for the licensure of an applicant and requires specified information to be submitted to the Insurance Commissioner (commissioner), including but not limited to, an application fee and specified training materials.
- Requires a home protection company or insurer to submit a certificate with the application stating that the named applicant is trustworthy and competent to act as an agent on its behalf.
- Authorizes an endorsee, as defined, to act on behalf of, or under the supervision of, a licensee in matters related to selling or offering home protection contracts, as provided.
- Requires the licensee to provide specified training to an endorsee prior to allowing the endorsee to sell or offer home protection contracts.
- Prohibits the licensee or endorsee from selling or offering a home protection contract under specified circumstances including while in a prospective customer's home, as provided, or pursuant to telephone solicitation, as defined.
- Permits the home protection contract holder to return the contract within 30 days of the start date of the contract, if no claim has been made under the contract prior to its return, as provided.
- Authorizes the commissioner to take specified disciplinary actions, as provided.
- Provides for renewal of the license, as specified.
COMMENTS
Currently, in order to sell a home protection contract an individual agent must hold a full property and casualty insurance agent license or meet one of two exceptions – be a licensed real estate agent or a non-commission employee of a home protection company that meets the licensing requirements.
This bill would create a new limited lines license for the marketing and sale of home protection contracts. This licensing process would be in addition to the existing ways an individual can be licensed to sell home protection contracts. The proposal is based on the existing limited lines licensing rules for: 1) Travel; 2) Cargo Shipping; 3) Portable Electronics; 4) Items stored in Self-Service Storage; 5) Car Rentals; and 6) Credit/Loans. As with these other limited lines coverages, the background and knowledge needed to sell home protection contracts is relatively straightforward and more narrow then the knowledge needed to sell full property and casualty products.
The National Association of Insurance Commissioners Service Contract Model does not require home protection contract sellers to be licensed, so most states have no licensing requirements in this area. Therefore, the current licensing requirements in the state pose significant hurdles to home protection companies being able to operate here.
Creating a limited lines license allows CDI to maintain oversight and ensure consumer protection while making it easier for home protection companies to operate in the state. Enacting a limited lines license to sell home protection insurance products will expand the number of entities selling such products which, in turn, will make these products more accessible to all consumers.
According to the Author
Over the past 40 years, the home protection industry has grown and new types of products have been developed. The types of home protection contracts available have also grown significantly over the decades. Customers can now choose which appliances or home systems they want to cover based on their own budget and their financial ability to cover the costs of a major repair. These changes necessitate a corresponding change in the way individuals and entities are licensed to sell these products.
Arguments in Support
According to HomeServe USA, the sponsor of this bill, "AB 1883's limited lines agent license will address the realities of how home warranty products have changed, while maintaining the Insurance Commissioner's authority and regulation over sellers. The new licensing structure will also benefit customers…AB 1883 ensures that the California Department of Insurance will continue to have unfetter regulatory authority, while increasing market competition, improving seller education and oversight, and granting consumers new rights.
Arguments in Opposition
None on file.
FISCAL COMMENTS
According to the Assembly Appropriations Committee, "Costs of approximately $107,000 in fiscal year (FY) 2024-25, $210,000 in FY 2025-26, and $157,000 annually thereafter to CDI in additional staff workload to establish this new licensing program for home protection contracts (Insurance Fund). Although this bill imposes an application and renewal fee of $292 and requires enforcement-related costs be paid by the licensee, CDI notes the amount of projected fee revenue is likely not enough to cover costs, potentially accelerating the need for a future fee increase."
VOTES
ASM INSURANCE: 15-0-0
YES: Calderon, Chen, Alvarez, Bauer-Kahan, Berman, Gipson, Jones-Sawyer, Lowenthal, Ortega, Joe Patterson, Petrie-Norris, Blanca Rubio, Valencia, Wallis, Wood
ASM APPROPRIATIONS: 14-0-1
YES: Wicks, Sanchez, Arambula, Bryan, Calderon, Wendy Carrillo, Dixon, Mike Fong, Grayson, Haney, Hart, Jim Patterson, Pellerin, Villapudua
ABS, ABST OR NV: Ta
UPDATED
VERSION: April 9, 2024
CONSULTANT: Claire Wendt / INS. / (916) 319-2086 FN: 0003035
Date of Hearing: May 8, 2024
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Buffy Wicks, Chair
ABPCA Bill Id:AB 1883
Author:(Calderon) – As Amended Ver:April 9, 2024
Policy Committee: | Insurance | Vote: | 15 - 0 |
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Urgency: No State Mandated Local Program: No Reimbursable: No
SUMMARY:
This bill establishes an additional licensing system for the sale of home protection contracts.
Specifically, this bill:
- Authorizes the Insurance Commissioner (IC) to issue a license that authorizes a licensee and its endorsees to sell or offer a home protection contract to an applicant who submits the following to the IC: (a) a written signed application for licensure, (b) a certificate by the home protection company or insurer to be named in the applicant’s license, stating that the home protection company or insurer deems the applicant trustworthy and competent to act as its agent, and (c) an application fee of $292.
- Allows an endorsee to act on behalf of, and under the supervision of, the licensee to sell or offer home protection contracts, and requires certain instruction and training for endorsees.
- Authorizes the IC to take disciplinary actions against a licensee for a violation, including suspension or revocation of a license or the ability of an endorsee to act under the licensee, fines, and other penalties. The IC may also issue a cease and desist order.
- Provides that costs associated with an enforcement action or investigation must be paid by the licensee.
- Imposes other rules regarding a licensee, such as prohibiting an endorsee from selling a home protection contract while in a prospective consumer’s home, permitting the home protection contract holder to return the contract within 30 days of the contract’s start date, and authorizing renewal of the license if certain conditions are met.
FISCAL EFFECT:
Costs of approximately $107,000 in fiscal year (FY) 2024-25, $210,000 in FY 2025-26, and $157,000 annually thereafter to CDI in additional staff workload to establish this new licensing program for home protection contracts (Insurance Fund). Although this bill imposes an application and renewal fee of $292 and requires enforcement-related costs be paid by the licensee, CDI notes the amount of projected fee revenue is likely not enough to cover costs, potentially accelerating the need for a future fee increase.
COMMENTS:
- Purpose. The author notes that the home protection industry and the types of home protection contracts available have grown over the decades, with customers now able to choose which appliances or home systems they want to cover based on their budget and ability to cover the costs of a major repair. According to the author, these changes necessitate a corresponding change in the way individuals and entities are licensed to sell such products. This bill is supported by the Service Contract Industry Council, American Property Casualty Insurance Association, and various insurance and utilities companies.
- Home Protection Contract. A home protection contract, also known as a home warranty, is a contract between a home protection company and a homeowner, in which the warranty company promises to repair or replace parts of a home system or certain appliances, such as a washer, dryer, oven, or refrigerator. A home warranty covers wear and tear, deterioration, or defects that existed when the consumer bought or leased their home. In some cases, or for additional fees, the warranty might also cover other appliances, such as air conditioning units, garbage disposals, or doorbells. Existing law requires a home warranty to specify certain information in clear and conspicuous terms, such as each of the appliances and systems covered by the contract; all exclusions and limitations; the effective time period of the contract, contract fee, and renewal terms; and the service fees to be charged for services. Home warranties may be included when a consumer buys a house, often paid for by the seller or agent, or sold online or through television advertisements.
To sell a home protection contract, a person must hold a home protection company license or a full property and casualty insurance agent license, or meet one of two exceptions as a licensed real estate agent or a non-commission employee of a home protection company that meets licensing requirements. This bill creates a new limited lines license for the marketing and sale of home protection contracts. Unlike California, most other states do not have licensing requirements for home protection contract sellers. Thus, the Assembly Insurance Committee’s analysis of this bill notes California’s existing licensing requirements pose significant hurdles to the operation of home protection companies in the state, and “Enacting a limited lines license to sell home protection insurance products will expand the number of entities selling such products which, in turn, will make these products more accessible to all consumers.”
Analysis Prepared by: Irene Ho / APPR. / (916) 319-2081
Date of Hearing: April 17, 2024
ASSEMBLY COMMITTEE ON INSURANCE
Lisa Calderon, Chair
ABPCA Bill Id:AB 1883 (
Author:Calderon) – As Amended Ver:April 9, 2024
SUBJECT: Insurance: home protection contracts
SUMMARY: Implements an additional licensure process and other requirements related to the sale of home protection contracts. Specifically, this bill:
- Provides for the licensure of an applicant and requires specified information to be submitted to the Insurance Commissioner (commissioner), including but not limited to, an application fee and specified training materials.
- Requires a home protection company or insurer to submit a certificate with the application stating that the named applicant is trustworthy and competent to act as an agent on its behalf.
- Authorizes an endorsee, as defined, to act on behalf of, or under the supervision of, a licensee in matters related to selling or offering home protection contracts, as provided.
- Requires the licensee to provide specified training to an endorsee prior to allowing the endorsee to sell or offer home protection contracts.
- Prohibits the licensee or endorsee from selling or offering a home protection contract under specified circumstances including while in a prospective customer’s home, as provided, or pursuant to telephone solicitation, as defined.
- Permits the home protection contract holder to return the contract within 30 days of the start date of the contract, if no claim has been made under the contract prior to its return, as provided.
- Authorizes the commissioner to take specified disciplinary actions, as provided.
- Provides for renewal of the license, as specified.
EXISTING LAW:
- Regulates home protection companies, which issue contracts to repair or replace all or any part of any component, system or appliance of a home necessitated by wear and tear, deterioration or inherent defect, arising during the effective period of the contract, as provided. (Insurance Code (INS) Section 12740 et seq.)
- Prohibits a person from issuing or offering a home protection contract unless the person holds a home protection company license issued by CDI, as specified, or is licensed as an insurance agent or broker, as specified. (INS Sections 1631 and 12744)
- Exempts an employee of a home protection company, not paid on a commission basis, from the above licensing requirements. (INS Section 1634(g))
- Exempts licensed real estate agents, as provided, from the home protection contract licensing requirements. (INS Section 1635(j))
FISCAL EFFECT: Unknown
COMMENTS:
- Purpose. Over the past 40 years, the home protection industry has grown and new types of products have been developed. The types of home protection contracts available have also grown significantly over the decades. Customers can now choose which appliances or home systems they want to cover based on their own budget and their financial ability to cover the costs of a major repair. These changes necessitate a corresponding change in the way individuals and entities are licensed to sell these products.
- Discussion. Currently, in order to sell a home protection contract an individual agent must hold a full property and casualty insurance agent license or meet one of two exceptions – be a licensed real estate agent or a non-commission employee of a home protection company that meets the licensing requirements.
This bill would create a new limited lines license for the marketing and sale of home protection contracts. This licensing process would be in addition to the existing ways an individual can be licensed to sell home protection contracts. The proposal is based on the existing limited lines licensing rules for: (1) Travel; (2) Cargo Shipping; (3) Portable Electronics; (4) Items stored in Self-Service Storage; (5) Car Rentals; and (6) Credit/Loans. As with these other limited lines coverages, the background and knowledge needed to sell home protection contracts is relatively straightforward and more narrow then the knowledge needed to sell full property and casualty products.
The National Association of Insurance Commissioners Service Contract Model does not require home protection contract sellers to be licensed, so most states have no licensing requirements in this area. Therefore, the current licensing requirements in the state pose significant hurdles to home protection companies being able to operate here.
Creating a limited lines license allows CDI to maintain oversight and ensure consumer protection while making it easier for home protection companies to operate in the state. Enacting a limited lines license to sell home protection insurance products will expand the number of entities selling such products which, in turn, will make these products more accessible to all consumers.
REGISTERED SUPPORT / OPPOSITION:
Support
American Bankers Insurance Company of Florida and Its Affiliates
American Property Casualty Insurance Association
Amtrust Financial
Continental Casualty Company (CNA Insurance Companies)
Homeserve USA Corp
San Diego Gas and Electric Company
Service Contract Industry Council
Southern California Gas Company
Opposition
None on file.
Analysis Prepared by: Claire Wendt / INS. / (916) 319-2086
Bill Author
Bill Co-Author(s):