Senate Standing Committee on Insurance

The Senate Committee on Insurance will come to order. Thank you. Good afternoon, everyone. Thank you for joining us here today. The Senate to welcome the public in person, and we have some people on the teleconference service. For individuals wishing to provide public comments today, the participant number is 877-226-8216 and the access code is 6217161. Please know we will be hearing from witnesses in support and opposition before taking any public comments.

We are holding our committee hearing here on the O Street building, and I will ask all Members listening today to please come and join us as this meeting will be short in room 2100 so we can establish a quorum. Today we have two bills up, SB 8 by Senator Blakespear, which will be testimony only, and SB 263 by Senator Dodd. So the first item that we will be hearing is by Senator Blakespear, SB 8. And so I would ask the senator to come forward.

So for those listening and for the members that are listening in other committees, after extensive conversation with the author, as agreed in our conversations, I will allow the author to present SB 8 for testimony only, to allow time for more stakeholder conversations and to help her get to a better place with the bill. There will once again be no vote today, but we will adhere to very strict guidelines and it will be as follow. We will start with opening statements from the senator. We will allow four minutes for key witnesses and support, four minutes for key witnesses in opposition, and under testimony only we don't have me too, as this bill will come back in the future for debate, but we'll see if time allows. And we will allow a few minutes. Senator Blakespear, you may begin. Thank you.

Okay.

Okay. Well, thank you so much. I appreciate the consideration, Madam Chair, and hello to my colleagues and staff and the public. I'm presenting SB 8 today for testimonial purposes because I fervently believe that the issue of gun violence in America warrants a discussion in this Committee, even though this bill will not move forward today. And I want to thank Madam Chair for affording me the opportunity. So the premise of SB 8 is that gun owners should be required to own an insurance policy.

We should not have members of the public or victims of gun violence bearing the cost of gun violence that is delivered by the gun from the person who chooses to own a gun. This is the same premise that applies to cars. We are required to have car insurance right now, and if your car accidentally kills or injures somebody, your car insurance will pay.

It's the same thing that should apply to guns. Every year, there are 117,000 people who are shot by a firearm, and 40,000 die from gun violence. There are 76,000 who survive gunshot injuries. When you think about the many hazards that insurance already covers in our society, it's truly striking that we do not have gun violence covered by insurance.

So, as you know, insurance helps us manage risk, and it offers reassurances that you will be covered in the event of a financial loss that comes from a specific or unexpected event. And when you start to think through all of the different things that insurance covers in our society, not just car insurance, but life insurance, if you should happen to die, which we all do; health insurance if you happen to get sick. There's flood, fire, earthquake insurance. There's renter and homeowner insurance.

There's even pet and trip insurance. And so the wide range of things that are covered by insurance--to me, this exact same concept should apply to gun ownership. We know that guns actually kill more people than cars in this country now. We have 45,000 gun deaths and 43,000 car deaths. We have more guns than people--330,000,000 people and 383,000,000 guns. And almost half of households have at least one gun in the home, 44 percent. The average gun owner in the United States has eight firearms.

So, with so many victims of gun violence, why don't we have a functioning insurance market around this very real and expensive risk that comes from gun violence? And I just want to quantify: so who pays for gun violence right now? Primarily, the public does. Each gun death costs U.S. taxpayers, on average, 273,000 dollars for the initial and long-term repercussions of a gun violence incident. So SB 8 would require those who choose to exercise their right to own a gun to hold that insurance policy for that gun.

And this bill, SB 8, would apply when a gun is used negligently. So the gun owner would have liability insurance, currently could have it through a homeowner's insurance policy, but the victim's only recourse for restitution is to sue the gun owner, and the bodily harm and other damages often far exceed the gun owner's personal assets.

And so our current system is that a victim has to go through the time and financial burden of hiring a lawyer in order to receive compensation for the harm that is caused from gun ownership. A victim should be able to file a claim with the gun owner's insurance company and be compensated for at least some of the damages that they've suffered. So I wanted to make sure and raise this at the Insurance Committee because it is gun insurance that we're talking about.

And I understand that there are a large number of reasons that this is not able to move forward this year, but I wanted to make sure that it was elevated as a really important issue and an important thing that we could add to our understanding of how we manage gun--the reality that guns are deadly and they are in wide circulation, just like cars and just like a large number of other risks that we face in our society. So here today, joining me in testimony is--

Well, I would like to just mention first that we have the support of the Consumer Attorneys of California, the California Catholic Conference, Fund Her, and the City of San Jose. So this bill that I introduced, SB 8, is based on the San Jose Bill, which is a requirement that owners of guns who live in San Jose have to have a gun insurance policy. So with that, I will turn it over to Valerie McGinty, who is here testifying in support.

Thank you so much.

You may proceed.

Thank you. Madam Chair and Members, Valerie McGinty, founder of Fund Her, testifying in support of SB 8. The American Academy of Pediatrics issued a statement last week that, quote, 'gun violence in America is now so common that it has become the number one cause of death for children and teens.' Close quote. That chilling statistic comes in the wake of school shootings, accidental shootings, and daily and deadly violence that involves firearms.

Under current laws, gun violence victims and society at large are the ones who suffer the cost of gun violence. Just the average hospital stay for a nonfatal gun injury costs more than 62,000 dollars. Firearms are, as was just said, similar to cars in that they are inherently dangerous and are in wide circulation. If a car accidentally causes injury to a person or property, the insurance policy will compensate the victim.

SB 8 will apply that same logic to firearms by requiring gun owners to carry insurance for damages caused by the firearm. Currently, homeowner insurance policies do not cover gun injuries to a spouse, child, or other household member, but this bill would fix that. For these reasons, Fund Her is in support of SB 8. Thank you.

Thank you. Any other witnesses in support? Okay, thank you. Now we'll move to witnesses in opposition. Let's remember no more than four minutes. Thank you.

Yes, ma'am. Chairwoman Rubio and Senators, good afternoon. Denni Ritter with the American Property Casualty and Insurance Association here today in respectful opposition to SB 8. We understand that SB 8 is intended to reduce gun violence via encouraging responsible storage from firearm owners, as well as helping survivors of firearm incidents. These are laudable goals. Unfortunately, the manner in which SB 8 is drafted is unworkable for insurers and would result in undesired and unintended consequences.

For purposes of our discussion, I must emphasize a fundamental principle of property and casualty insurance, that it is designed to cover accidental events, not intentional ones. SB 8, by virtue of who the bill would require coverage be extended to and language undermining existing limitations in insurance policies would require insurance to cover intentional criminal acts. Let's briefly discuss what is currently covered with regard to firearms by insurers.

Firearms are typically covered under the personal property portion of a homeowner's or renter's insurance policy, providing coverage for the theft of or damage to the firearm. This is the same type of coverage that would cover theft of a couch, for instance. In addition to personal property coverage, most homeowners' and renters' policies typically provide liability coverage for the accidental discharge of a weapon. Liability coverage, as you all know, helps financially protect you against legal liability for injury to other people or damage to the property of others.

So, for instance, if a guest in your home injures themselves upon your trampoline, your liability coverage would help cover those losses. SB 8 upends this framework in two important ways: first, by requiring insurers to provide liability coverage to a household member. This would not only be an expansion of policy coverage, it would directly conflict with how insurance policies are structured. Household members are named individuals within the policy and thus are considered a first party to the contract itself.

As such, these individuals are not permitted to recover financial damages under the liability portion of the policy, which is only available to cover first party insured for accidental damages they cause and that are legally owed to a third party. Second, the bill states that this coverage must be granted without limitations. Homeowners' and renters' policies specifically exempt criminal or intentional acts from liability coverage. Insurance is meant to cover accidents, not malicious behavior.

For example, a homeowner cannot set their own house on fire and be compensated for doing so by their insurer. Insurers do not now and will not voluntarily insure intentionally harmful behavior. Consequently, introducing such an expansion of coverage will fundamentally rework insurance, putting insurers in the untenable position and imperiling the existing homeowners and renters insurance marketplace. Because of these adverse consequences that the bill will have on the market and the previously mentioned reasons, I must respectfully oppose SB 8. Thank you for your time. Happy to answer any questions.

Thank you very much. We still don't have all Members, but this is testimony, so we are proceeding as a Subcommittee until everyone's ready and we can take a vote.

Thank you, Madam Chair and Members of the Committee. Allison Adey with the Personal Insurance Federation of California. We as well are in respectful opposition to the bill. Our concerns rest primarily with the inclusion of household members. This is a major reform of contract and tort policy for the way that insurance currently operates. There is a distinction in tort law between invitees and guests to a home and members of that household.

This flips it on its head and allows household members to be treated as a guest in their own home, but to claim against the policy. It's something that's unworkable to our companies. They are not opposed to gun insurance as a principle. It's something that they often include in homeowners and renters policies already. We have worked closely with the Member's office, and we're very grateful for the conversations we've been able to have, and we hope that there is a way to move this forward in the future. Thank you very much for your time.

Thank you very much. You have about 30 seconds.

Madam Chair, Members, Randy Perry, on behalf of PORAC and the Highway Patrol Association. This is based on a San Jose ordinance and a San Jose ordinance law enforcement is exempted, so we would ask that we would also be exempted from the bill. Thank you.

Thank you for your testimony. I will allow--

15 seconds left?

No. We will allow just five minutes for #MeToo in support or in opposition. So just state your name and your position. Thank you.

Sam Paredes, representing Gun Owners California and the National Rifle Association in strong opposition to a bill that has significant constitutional--

Thank you. We just need your name and your position. Thank you. Anybody else in the room wishing to speak in support and opposition? Okay. Seeing none, we're going to go now to the phone line. Moderator, can you please open the phone lines?

Thank you. And for support and opposition, you may press one and then zero for SB 8. And we will go to line 239. Your line is open.

Hello, my name is Stephen Wells. I speak in opposition to the proposed bill. This is a thinly veiled infringement of our Second Amendment right to keep and--

Please just state your name and your position. Next, Moderator. Thank you.

Thank you. Next we'll go to line 201. Your line is open.

Madam Chair and Members of the Committee, my name is Bill Gaines, representing the Congressional Sportsman's Foundation, the California Chapter of the Wild Sheep Foundation, Rocky Mountain Elk Foundation, California Deer Association, California Houndsmen for Conservation, and seven other wildlife conservation organizations in strong opposition to Senate Bill 8.

Thank you for your testimony. Next.

Thank you. Next we'll go to line 224.

Hi. My name is George Adams, and I speak in strong opposition of Senate Bill 8.

Thank you.

Thank you. Next, we'll go to line 250. Your line is open.

Yes, thank you. My name is Carlene Ellis. I'm with the California Rifle and Pistol Association in strong opposition to SB 8. Thank you.

Thank you.

Thank you. Next, we'll go to line 214. Your line is open.

Hi, my name is Sarah Luz. I'm a parent from West Los Angeles. I think SB 8 is effective and functional. It can work. I'm strongly in support. Please support it.

Thank you.

Thank you. Line 231. Your line is open.

Hello. My name is Steve Rada. I'm a Life Member of the National Rifle Association, California Rifle and Pistol Association, and a U.S. Navy veteran, and I'm respectfully urging the Committee to oppose Senate Bill 8. Thank you.

Thank you.

Thank you. Next, we'll go to line 225. Your line is open. Line 225, go ahead.

Madam Chair, my name is Jeff Turner. I'm a member of the California Rifle and Pistol Association and the NRA. I respectfully request that the Committee oppose this legislation and thank you all for the work you do.

Thank you. Next.

Thank you. We'll go to line 213. Your line is open.

My name is Rory Hanley. I'm with the California Rifle and Pistol Association, the Gun Owners of California, Firearms Policy Coalition, and the National Airflow Association in strong opposition against this bill. Thank you.

Thank you for your testimony. Next.

Thank you. Next, we'll go to line 229. Your line is open.

Hello. My name is Ravinder Badwal. I'm simply a U.S. citizen and resident of California, and I'm in strong opposition of SB 8.

Thank you.

Thank you. Line 198, your line is open.

Rick Travis, on behalf of the California Rifle Pistol Association, the National Shooting Sports Foundation. Strong opposition.

Thank you for your testimony. Next.

Next is 245. Your line is open.

Thank you, Madam Chair and Members. Marc Engstrom, representing Ducks Unlimited, in opposition of SB 8. Thank you.

Thank you for your testimony.

Thank you. Next, we'll go to line 254. Your line is open.

Yes, my name is Leah Pressman. I'm an e-board member from Los Angeles County, AD 54 with the Democratic Party, and I am in strong support of SB 8. Thank you.

Thank you.

Thank you. Line 233, your line is open.

Hello. My name is Dale Hume, resident of San Francisco County, and I'm in opposition of SB 8.

Thank you.

Thank you. Line 243, your line is open.

Line 243, your line is open.

Good afternoon. My name is Pat Herton. I am Chairman of the Tehama County Gun Owners Chapter of the California Rifle and Pistol Association, life member also of the NRA, rtired California Highway Patrol sergeant, calling in strong opposition to SB 8. Thank you.

Thank you.

Thank you. Next, we'll go to line 210.

Hello, my name is Jacob Diaz. I am California voting citizen and taxpayer. I am urging strong opposition to SB 8.

Thank you.

Thank you. Next, we'll go to line 217.

Good afternoon. My name is Mike Ellis, a member of the California Rifle Pistol Association and the Ventura County Gun Owners, and I'm in strong opposition to this bill. Thank you.

Thank you. We have a couple.

Thank you.

More seconds. Next caller, please

241, your line is open.

Hi, my name is Nicholas Pettinato. I am a resident of Riverside, California, and also an insurance professional for the past 25 years. I am in opposition of this bill. Thank you.

Thank you. Line 242.

Moderator, this concludes the time allotted. Normally under testimony only, we don't take me too, but I wanted to make sure that some members of the audience had the opportunity to state their concerns. But please note that you're welcome to send a letter and register your opposition or support. Please know this is testimony only, which means that this bill will come back and give everyone the opportunity to debate it in the future.

I would like to bring it now to members of this committee. Anybody having any questions? Okay, no questions. No comments. So I just wanted to really thank the author. We know that there's a lot of concern around this issue. Clearly, as stated earlier, gun violence is the number one cause for children's deaths, and that's something that we need to take into consideration. But this is really about giving the author the opportunity to bring the bill forward, have everyone come to the table, and continue the discussions. But once again, this will be brought back in the future, and everyone will have quality time to engage in a discussion. With that, would you like to close?

Yes. Thank you. Well, thank you very much. And I appreciate the support today from Fund Her and Valerie McGinty, as well as law enforcement and the insurance industry coming to speak today and those who participated over the phone. I remain committed to working with all parties, particularly to strengthen and deepen the role that insurance can play in creating a safer society.

So I look forward to the ongoing discussions that we will have, and I just want to close by saying that as the only high-income country that suffers from such a high toll from gun violence, we should all feel compelled to continue to explore policy solutions. So guns are an integral part of our modern American society in the exact same way that cars are. And when they are misused, they are dangerous and enormously costly.

This bill aims to address that impact and the cost of gun violence in a more equitable manner. So I look forward to continuing this work with you, Madam Chair, with the committee, the consultants, my colleagues and supporters, and for the people who testified today so that we could come up with sensible legislation around insurance and firearms. Thank you again.

Thank you so much for your work. Thank you. We still don't have a quorum, so if I can ask that we call members of this committee to let them know that we only have one bill up, which is Senator Dodd's, and to make sure that they get here so we can conclude this meeting on time. Mr. Dodd, when you're ready, you may proceed. The bill we're taking up right now is SB 263 by Senator Dodd. The floor is yours.

Thank you. Madam Chair and members, today I'm presenting SB 263 pertaining to annuities and consumer protections. First, I want to accept the 15 amendments on the bottom of page nine and on the top of page 10. I will return to the three questions on the bottom of page eight in a moment. I really want to thank our committee consultant and team for all their hard work on this bill.

It was a lot of time and effort and also to the sponsor and stakeholders to move this important consumer protection bill forward. The National Association of Insurance Commissioners Suitability and Annuity Transaction Model Act sets established standards and procedures for insurance producers recommending annuity products to consumers. These standards ensure that consumers insurance and financial objectives objectives are appropriately addressed in 2020. The NIC updated the Model Act to strengthen the standards for annuity sales.

This helps consumers understand the products they purchase, be aware of any conflicts of interest, and are assured that their interest comes first. SB 263 will adopt updates to the 2020 model as well as include additional consumer protections. With regard to three questions, I accept the suggested amendments in question one. I accept the suggested amendments in question two, but with the understanding that the NAIC Model law pertaining to the disclosure compensation upon request by the consumer is in the amendments.

Regarding question three, I commit working on this issue as the bill moves just. It's a big issue area. I certainly understand the concerns and would like to continue working on that. I'm continuing to work with the California Department of Insurance and the insurance industry to ensure that this bill is as effective as possible. I respectfully ask for your aye vote.

With me today in support of the bill is a sponsor, Michael Martinez, the Chief Deputy Commissioner and Legislative Director for the Department of Insurance under the leadership of Insurance Commissioner Ricardo Lara and Lisa Coleman, Legislative Director at the California Commission on Aging.

Before we proceed, I think we do have a quorum. Madam Secretary, please call the role. I'm sorry, Mr. Dodd, let's establish a quorum.

[Roll Call] A quorum has been established.

Thank you. And I'm so sorry, Mr. Dodd. Michael Martinez from the Department of Insurance. You may proceed when you're ready. Keep in mind that each side will have no more than eight minutes. You may proceed.

Thank you, Madam Chair. Michael Martinez, Chief Deputy Commissioner and Legislative Director, here on behalf of Insurance Commissioner Ricardo Lara and the California Department of Insurance, proud sponsors of this measure and want to thank Senator Dodd for his leadership on this important consumer protection measure and also want to thank committee staff for working with us and closely on this measure as it moves forward.

More than three years ago, the National Association of Insurance Commissioners NEIC voted to update its Suitability and Annuity Transaction Model in response to numerous insurance abuses and overly aggressive sales tactics occurring in the annuity market across the United States. As an active member of the NEIC and representing the state in which the most fixed annuities are sold nationwide, Commissioner Lara and department staff worked with several other states and consumer advocates to push for as much of a consumer protection standard as possible.

Commissioner Lara ultimately voted in favor of the updated NAIC model because it contained new, significant consumer protections in annuity transactions on top of existing California law. The bill you have before you today for consideration, Senate Bill 263 is a continued product of more than two decades of now three major annuity suitability reforms seen in our state. Given this ongoing activity at the NEIC, first back in 2003, then in 2012, and now this year here today.

To date, 27 states have adopted versions of this NEIC annuity suitability model, thereby avoiding dual regulation of fixed annuities by those states, departments of Insurance and the Federal Government by 2025, a necessary step further mandated with the enactment of the federal Dodd-Frank Wall Street Reform and Consumer Protection Act.

SB 263 most notably requires all recommendations for annuities made by insurance agents, brokers and insurance companies to be in the best interest of the consumer and that they may not place their financial interest ahead of the consumer's interest in making that annuity recommendation.

This reform is essential in order to ensure insurance companies and licensed producers who sell annuities act in the best interest of the consumer during the recommendation, purchase and replacement of an annuity as an extension of that, as contained in the NEIC model, sales contests, sales quotas, prizes and bonuses are all proposed in SB 263 to be eliminated from being given out as insurance company incentives to insurance agents and brokers in order to ensure the consumer's best interests and help address some of the egregious and numerous insurance abuses and overly aggressive sales tactics seen over the years.

Commissioner Lara believes that California can and should do more to stop the financial abuse of our seniors and other vulnerable individuals, especially as it pertains to the sale of annuities. SB 263 would help bring about much-needed reform and provide new, significant consumer protections with higher standards of conduct, stronger enforcement tools for the regulator, more rigorous communication requirements between the consumer with producers and the insurance company, and additional required training for producers, among other consumer protections.

Significant amendments have been taken in order to help address concerns from the opposition, again in partnership with committee staff. I have Andrea Toth with me here, good with me, who serves in the department's field rating and underwriting bureau and has actually seen many examples out there in the real world for the need of this consumer protection legislation. She and I are here to help answer any questions. Want to thank you for your consideration. Again, ask respectfully for your aye vote.

Thank you.

Good afternoon, Chair. May I just confirm that I have two and a half minutes left?

You have more than that.

All right. Thank you very much. Thank you, Chair, Senators, my name is Lisa Coleman and I'm the Legislative Director with the California Commission on Aging, and I'm pleased to testify in support of SB 263.

The Commission is established in the state statute as an independent advisory body and the principal advocate before the Governor, the legislature, state and federal agencies on behalf of California's older adults. The Commission's staff respond to requests from older adults seeking support and guidance too often after having experienced a negative or traumatic experience.

SB 263 is the consumer protection bill that makes it abundantly clear, expanding the current definition of best interest obligation to include the admonition that, to the best of the agent's knowledge at the time of the recommendation, the product being recommended does not place the agent's financial interest above the consumers. To be clear, the Commission believes that the vast majority of insurance providers have the very best of intentions and are seeking to act and make recommendations in the best interest of their clients.

And yet, without training specific to annuities, it is understandable if a well meaning agent applies a financial strategy that does not consider the client as an older adult. SB 263 provides a reasonable safeguard requiring those that wish to sell annuities to complete a training course approved by the Insurance Commissioner. In a 2019 published survey of consumer finances by the Board of Governors of the Federal Reserve System, they reported that the median financial asset for Americans over the age of 65 is just $54,000.

In California from 2017 to 2021, the number of older adults, those over 55 who sought homeless services, the vast majority for the very first time, has increased by over 84%, more than any other age group. Simply put, we have a growing population of older adults with too many of them having very modest financial assets, with most of them not in a position to return to the job market if they experience a monetary misstep.

I urge you, for those older adults who cannot make up for the loss, it isn't too great a burden to require a bit more of these experts that sell annuities. Thank you.

Thank you. Now we will move into anyone in room wishing to. I'm sorry, I'm going to move over to the opposition, but I wanted to make a point here. Normally, we don't allow that much time for testimony, but we know that we have four people who wish to oppose this bill.

So I wanted to be mindful of that. But with eight minutes, each person will get two minutes. And I want you to consider that if you go further, I will remind you, because you will be taking someone else's time. So at this point, we will move to those wishing to oppose the bill, and we will start here with Matt Powers from ACLHIC. You may proceed. And again, I want to remind you of strict rules here. Thank you.

Good afternoon. Chair Rubio and members of the committee. Senator Dodd, Matt Powers, with the Association of California Life and Health Insurance companies. Our members, along with our national counterpart, the American Council of Life Insurers, account for 98% of the annuity marketplace in California. We have an opposed, unless amended position on this bill. That said, I'd like to start by thanking Senator Dodd, his staff, TDI, the committee staff, for all of your hard work on this bill.

While we do continue to have that opposed unless amended position, we recognize with the amendments the Senator is accepting, the bill is significantly improved. Fundamentally, we agree with Senator Dodd and Commissioner Lara that California should enhance our existing annuity suitability standards. We also believe that the NAIC Best Interest Model is the path forward.

Since this bill was introduced, we have advocated for conformity with the NAIC model, which has now been approved in a bipartisan manner in more than two-thirds of all states. Dating back to the early 2000s, there's a historical precedent for close conformity with the national sales standards, and we're asking that this bill take a similar approach.

While there are a handful of outstanding issues, 19th letter related to the scope of the bill, the duty of care, and the consumer profile, we think these issues are solvable and the bill should continue to move forward in the process. We're happy to continue to work with the Senator, Chief Deputy Michael Martinez and his staff and all stakeholders.

I believe that we share the same goals of helping California consumers maintain access to suitable products sold by producers, acting in the consumer's best interest, while also maintaining a robust marketplace for these important retirement savings products. Thank you very much for your time.

Thank you. And now we will move over to Shari McHugh, who will be presenting an opposition. You may proceed. And again, reminding you of your time constraints. Thank you.

Thank you. Good afternoon. Shari McHugh, representing the National Association of Insurance and Financial Advisors. I would like to echo Mr. Powers's comments and just simply add that NAFA California was opposed unless amended to the bill.

However, with the amendments that the author has agreed to take, we are happy to see the bill move forward this afternoon and look forward to continuing to work with the author and others to address the few remaining concerns. We would like to thank the committee, the author and the sponsor for working with us, and we look forward to further discussions on the remaining very few issues left to discuss. Thank you.

Thank you. At this point, I would like to invite Brian Brosnahan from Life Insurance Consumer Advocacy Center to speak once again. I want to remind you of the strict guidelines. Thank you.

Thank you. Madam Chair and members, I'm Brian Brosnahan, Executive Director of the Life Insurance Consumer Advocacy Center, or LICAC. Although SB 263 started out as a strong consumer protection bill, industry amendments have weakened the bill to the point where our group and a coalition of consumer groups is forced to oppose it. We oppose the bill because it is limited to annuities and does not include investment-type life insurance.

We oppose the bill because it misleads consumers into thinking that the agent is required to act in the consumer's best interest. Although the March 7 version of the bill required agents to consider only the interests of the consumer, the April 17 version adopts the NAIC language that was drafted by industry and allows agents to consider their own interests and to weigh them against the consumer's interest. We oppose the bill because it has an unclear safe harbor provision.

I appreciate that the Senator has indicated that that will be subject to further discussion, and I implore you not to adopt two additional amendments that were discussed here this morning. These amendments would work one of the biggest frauds on California consumers that has ever been perpetrated with the consent of the Legislature. Although the bill requires agents to disclose material conflicts of interest, the amendments would change the definition of material conflict of interest to exclude cash and noncash compensation.

This would exempt 99% of the conflicts of interest from the scope of the bill. An agent would be required to disclose stock ownership in the life insurance company, but not the $40,000 Commission that the agent could earn by convincing the consumer to buy the product. It is positively Orwellian to define the conflict away so consumers think conflicts of interest are being disclosed when they are not. A related amendment would eliminate the requirement to disclose agent compensation.

We think these amendments must be rejected even if the committee is inclined to adopt the bill in its already weakened April 17 form. Thank you very much.

Thank you for your testimony. Next, I'd like to invite Robert Harrell from Consumer Federation of California. Thank you, sir. Just once again, reminding you of the constraints.

Of course. Thank you, Madam Chair and members, Robert Herrell, Executive Director of the Consumer Federation of California and a former Deputy Insurance Commissioner for almost six years at the Department of Insurance. CFC, along with United Policyholders, the Center for Economic justice, the Consumer Federation of America and LICAC, as you just heard from, are opposed unless amended. I respect Senator Dodd greatly, and we work with him all the time on a wide range of issues.

Yesterday, in fact, I think I testified in support of three of your bills, if I'm not mistaken. But this particular bill, in its current form and as now amended, will harm consumers. Our organizations applauded the March 7 version of the bill. Normally that begins a meaningful stakeholder negotiation with all stakeholders. Not here. Consumer organizations have been excluded from that process. We only see something after the deal is done. Consumer groups and victims are true stakeholders, not an afterthought.

The insurance industry wants the bill to look just like the NEIC model they had a heavy hand in drafting, a model which the current Commissioner made very critical public comments about in the past. Such an approach leaves consumers out in the cold. Yet here we are with basically that model, and the tiny parts that go beyond it are under relentless attack. New York, with their Regulation 187, made consumer protection a priority. That is the approach that California should be taking.

Industry sued in New York and ultimately lost. And consumers won. Not here. The bill has three big problems. One, it doesn't include life insurance, which is sold by the exact same agents as annuities and has six times the number of annuity complaints by CDI's own data. Some life insurance products have an 80% to 90% failure or lapse rate, which raises massive red flags. Two, there's a gigantic loophole in the safe harbor provision that totally guts the rule. We look forward to continuing to talk about that.

Three, the consumer's true best interest is placed behind the narrow economic interest of industry and agents. This means the 5000 complaints in five years that CDI has, their own data, will just grow. The insurance industry always cries, where are the complaints? Here they are, 5000 of them and many ripped off consumers don't even file a complaint because of shame, confusion about how to complain, age, cognitive decline and other factors. This bill has delayed implementation until 2025. Why the rush?

Hold this bill as a two-year bill, just like you did with the other bill that we heard earlier in this hearing. And let's get this right for consumers. We respectfully urge a no vote.

Thank you. And I want to thank all the speakers for really adhering to the timelines here. Thank you, Mr. Herrell, for all that you do on behalf of consumers and everyone that came out to speak. I'm going to now turn it over to hearing the committee hearing. Anybody wishing to speak in support, you may do so at this time.

Anyone wishing to speak in support. Okay. Anybody in this room wishing to speak in opposition, now it's the time.

Madam Chair, committee members, Kirk Kimmelshue, on behalf of the Insured Retirement Institute with an opposed and less amended position, many thanks to the committee staff for their work on this and to Senator Dodd and his team for their work. Appreciate it.

Thank you.

Madam Chair Armand Feliciano, representing Finseca, we have an opposed unless amended, want to thank Senator Dodd, CDI and staff for working with us.

Thank you.

Madam Chair, John Norwood, on behalf of the Independent Insurance Agents Association of California and American Fidelity Life Insurance Group, and we're opposed unless amended, but support the bill in terms of it moving forward. And thank Senator Dodd and staff and the department. Thank you.

Thank you. Anyone here in the committee here and wishing to speak? Okay, so now moderator, please open up the phone lines. We will hear from opposition and support at this time.

Thank you, Madam Chair. To comment in opposition or support for SB 263, please press one, then zero at this time. And we do have a couple queuing up one moment while we get their line numbers.

Anyone queuing up?

We are. We'll be just a moment.

Okay, thank you. And as you're doing that, I want to remind those calling that, please state your name and your position. It's me too, only. No testimony.

One moment, Madam Chair. We'll take care of this. I'll be right back with you.

Thank you. So, once again, anyone wishing to call in, please state your name, affiliation, and position only. We will wait a couple seconds. Moderator, are you still there? I know we were having technical difficulties. Just want to make sure that we have the moderator on the phone. Brian. Okay. Moderator, a couple more seconds, and then we're going to turn it over to.

Apologies for the delay. We had a little technical on the other side. We're going to go now to line number two, five, three. Line 253. Go ahead, please. Line 253, your line is open? Go ahead.

This is Kim O'Brien, representing the Federation of Americans for Consumer Choice. And we stand with the position of opposed unless amended. Thank you.

Line 207. Go ahead, please.

This is Joyce Walker. I lost approximately $82,000.

Please just state your name and your petition. Moderator.

Joyce Walker. I oppose this policy. I oppose this bill.

Thank you.

We have one more. It'll be just a couple of quick seconds here. There's a new one coming in, so we're going to go now to line number 275. Go ahead, please. Line 275, please go ahead. 275, your lines open. Okay. And, Madam Chair, we do have some more queuing up at this time. We're going to go next to line 278. Line 278. Go ahead. 278, your line is open. Go ahead.

Hello, my name is Roberto Nava from San Jose, and I support SB 324.

Thank you.

Thank you. And line 279. Go ahead, please. 279. Go ahead, Madam Chair, we have no additional callers in queue for comment.

Thank you very much Moderator, now we will turn it over to our Committee. Any questions from our members? Anyone wishing to speak? Any comments? Questions?

Zero, we're done with the testimony. I'm sorry.

I was waiting for the lady from calling the Judiciary Committee. Every time she'd say, it's me again. Sorry about that.

Yes, we are.

So, Mr. Niello, would you like to,

Yes.

Thank you.

Senator Dodd. Without the working on amendments, I would have been opposed to the bill. I'm going to lay off because I'm very confident that knowing your collaborative skills, that you'll continue to work on the bill.

So you just trust me that much. Thank you, Senator. I appreciate that.

Thank you. Anyone? Senator Alvarado-Gill? Thank you.

I'm going to give another inch here. Senator, I do understand that you accepted all the amendments that were suggested in the committee analysis, which to me, results is a greatly improved version. So I want to thank you for that and commend you and the staff for working together. I know the opposition has also been working to protect consumers and all the individuals that are employed in our districts. So thank you also for bringing your voice forward.

I will be supporting your bill today and I'll move when appropriate. But I do understand that there's still a few amendments that you'll be. So I trust you this much more, Senator Niello. So I'm going to add on to yours and urge you to continue your good work to resolve these issues.

Thank you very much.

Thank you. I think. Anybody else you don't want to join and trust Mr. Dodd? All right, sounds great.

We know what that vote is.

Thank you. So I want to turn over to just Mr. Dodd. He really has come to the table. And I know that this is not about just one side or the other. There's been discussions on both sides with a lot of stakeholders, and this is an important issue. And I heard the Consumer Federation of California's concern and everyone else's concerns. But this is a work in progress as stated. There's still a lot of work to be done and I want to commend Commissioner Ricardo Lara.

You know, as I know him personally, I know that he's always very concerned with consumer protections and doing what's best for Californians. So thank you, Michael, for being here. So once again, I really just want to thank you. This has been an ongoing process, a lot of work. And again, to those that stated their opposition, we will continue to allow Mr. Dodd to work with stakeholders because of deadlines in terms of policy committee hearings.

We'll allow him to continue to work on this bill as it moves forward. At this point, I understand that Senator Nguyen will not be present today. Correct. And so she will not be here to take a vote. So at this point, I will turn it over to our Madam Secretary. Please call. Oh, I'm so sorry. Senator Dodd.

Yes, the Chair and staff. Thank you very much for helping me get this bill to where it is. Dave, I know we've got work to do, and we will to the Insurance Commissioner and everybody on both sides, even the consumers, when I ask know we're not going to make this bill a two-year bill. I just think that we've got to move forward with this policy, get it on the books.

If there's something that can be done down the line to strengthen this, that's a topic for another day. But I think at the end of the day, what we've got to look at is what the art of the possible is today. And I think this is as good as we're going to get today, assuming that we get these other couple of amendments across the finish line, respectfully ask for your aye vote.

Thank you. Before I take a vote, I wanted to ask our sergeants if we can find out where Mr. Portantino is. I'm going to turn it over to our Madam Secretary, please call the role.

Okay. The motion is due pass as amended, to appropriations. [Roll Call]

So, right now we have three votes. I understand Mr. Portantino is presenting a bill, so we will hold the roll open for absent members. I will take a five-minute recess, as I understand, he is going to take a little while. So again, we're going to put the roll on hold and take a five minute recess. Thank you. Mr. Porntino has joined us. And so we will now open the roll. Madam Secretary, please call the roll.

The motion is due pass as amended, to appropriations. The Chair is voting aye. Pornantino.

So, the bill is out. Due pass as amended. 4-0. And thank you, everyone, for joining us here today. The committee hearing is now adjourned. Thank you.