Assembly Standing Committee on Insurance

Welcome to the Assembly Insurance Committee. Today we're going to start as a Subcommitee and we're going to consider nine bills. Three bills are proposed consent. These bills are file item two, AB 69. File item six, AB 487. File item seven, AB 570. I'd also like to please welcome our newest Member to the Committee, Assemblymember Stan Ellis. Welcome. Okay, so I'm going to go ahead and start and I'm going to present AB 234 and AB 75. That's just because we found I need tech support.

Welcome, Assembly Member. Thank you. You can present one. Ready?

Okay. Thank you. Thank you very much.

Vice Chair and Members, AB 75 requires insurers to provide a notice to policyholders, at least 30 days before collecting aerial images of their home. It also allows a policyholder to request and review aerial images taken of their home. Insurers have been using aerial imaging from drones, aircraft, and satellites, in lieu of in person inspections to make underwriting decisions.

Unfortunately, this practice has led to reports of homeowners who were surprised by insurance non-renewals based on these aerial images. In many cases, the images were inaccurate, outdated, or misleading. AB 75 ensures that homeowners are aware that aerial images are being taken of their property and provides an opportunity for them to review the images for accuracy.

With me today to testify in support of the Bill is Josephine Figueroa, Deputy Commissioner and Legislative Director for the Department of Insurance. We also have Damon Dieterich, Privacy Officer and Attorney with the Governmental Law Bureau.

Good morning, Mr. Vice Chair, Members of the Committee. My name is Josephine Figueroa. I'm Deputy Commissioner and Legislative Director for the Department of Insurance, under the leadership of Insurance Commissioner Ricardo Lara. First, Insurance Commissioner Lara would like to thank Assemblymember Calderon for authoring this important consumer protection measure.

AB 75 would require an admitted insurer to notify homeowners, at least 30 days in advance, before taking or obtaining aerial images of the property and would grant access to any aerial images to the homeowner. Insurers are increasingly using aerial imagery to inspect homes, deny coverage.

Insurers and the third-party vendors are using drones, satellite images, manned and unmanned airplanes, and high-altitude balloons to photograph nearly every building in the country, often without the homeowner's knowledge. The Department of Insurance is aware of instances where flawed aerial imagery led to wrongful cancellations and non-renewals.

In many cases, satellite photos were used to assess roof conditions, resulting in policies being incorrectly dropped, due to erroneous data. Consumers are rightly concerned about their privacy and the lack of transparency in the home inspection process.

It is unacceptable that consumers do not know when their property is being surveilled, do not have access rights to those images, and do not know how these images are being used to adversely impact their policies. Insurance Commissioner Lara is working to support solutions that ensures homeowner's insurance is accessible and affordable to all Californians.

Homeowners have enough to worry about. They shouldn't have a battle to—shouldn't have to battle their insurers to know when their property is being surveilled and how that potentially inaccurate and misleading information is used to affect their policy.

AB 75 represents a commonsense solution that increases transparency, protects privacy, and gives consumers a fair chance to dispute inaccurate and outdated images, that could wrongly impact their insurance coverage. On behalf of Insurance Commissioner Ricardo Lara, I ask for your "Aye" vote. Thank you.

Thank you. And then do we have another witness in support?

No, he's technical—for technical questions. If they—thank you so much.

Are there any other witnesses in the room who'd like to add on in support?And are there any lead witnesses in opposition?

You'll have two minutes. Present when ready.

Thank you very much. Mr. Vice Chair and Members. My name is Robert Herrell. I'm the Executive Director of the Consumer Federation of California, and we currently have a respectful, opposed, unless amended, position.

Appreciate the general idea of the author and the Bill, sponsored by the Department, but unfortunately, and by the way, these are going to be for very different reasons that you're going to hear from the insurance companies in a moment.

We think that there's—we have some concerns that the Bill doesn't actually provide the kind of consumer protection that it pledges to. So, our letter goes into some detail about amendments that we think would significantly improve this Bill. And I'd like to just briefly go through those in the, in the time I've got.

First of all, let's be clear. This is an increasing tool. The days of people coming to your home to assess are, by and large, long gone. But we see kind of four general areas where the Bill could be improved. Number one, consumers should automatically receive a copy of the image taken without having to request it.

This is the old opt in, opt out, game where you make it a default that you have to ask for it, and then you make it all but impossible to ask for it. And then they say, well, no one cares about this picture because no one's asking for it.

Well, you made it extremely hard for people to request the image, so the image should go automatically to the homeowner. Number two, the reality is that an increasing number of Californians, sadly, are being insured by so-called surplus lines insurers. These are insurers that do not have a certificate in California.

They're actually not—they're almost not at all regulated by the Department of Insurance. So, it appears that there's a gap in the Bill, where they're not covered at all. And that's a growing part of the market.

You've seen rapid growth—and we'll hear more about the Fair Plan on another Bill—in the Fair Plan and also in those surplus lines, non-admitted insurers. That used to be sort of Lloyd's of London and now, it's grown rapidly, especially in the homeowner's market.

Number three, we worry about the language on the 30-day advance notice, and we see the possibility for gamification by the insurance industry, to technically meet the standard.

We're at two minutes. Can you wrap it up, please?

Yeah. But not actually meeting the standard. So, we think that language ought to be tightened up.

Finally, I think you ought to think about potential policyholders because these images are also being used for potential applicants, and not just existing policyholders. We would like to see significant improvements in those areas. Until that point, we remain opposed, unless amended. Thank you.

Thank you. Go ahead when ready.

Thank you, Mr. Vice Chair, Members of the Committee. Allison Adey, on behalf of the Personal Insurance Federation of California. We are in respectful opposed, unless amended. We are really grateful to the Chair, as well as the Members of the Committee Staff, who have been working closely with us on the concerns that we've raised.

We are sensitive to this conversation. This has been an ongoing conversation, for about two years now, of how we get this right. Currently, as drafted, we have concerns about the ability for companies to comply with the 30-day pre notification.

We are in productive conversations with the Author and are optimistic about our ability to address those, so that it is more workable. We will continue to work with the Committee Staff. We will continue to work with the Author, but we are optimistic that we'll find a way forward.

Thank you. And it looks like we have a quorum present. Can we call the roll?

[Roll Call]

We have a quorum present. Are there any other witnesses in the room in opposition?

Thank you. Mr. Vice Chair, Members of the Committee. Denni Ritter here, on behalf of the American Property Casualty Insurance Association, I would echo the comments of my colleague from the Personal Insurance Federation. I would also just like to thank the Author, and her staff, for the continued conversation.

I, too, believe that we're very close to landing on a compromise that would be workable for our members, who are very interested in ensuring that we can comply with this. I would also just flag that these images are utilized for more than just underwriting. They're utilized for catastrophe models. They are utilized for mitigation.

And so, it's—it's really important that we preserve the ability of utilizing these.

Thank you. Any questions or comments from the Committee? Madam Chair, would you like to close?

Yes. So, you know, I appreciate—this is, actually, I wish we had a picture of this because, you know, when you have people that are usually on opposite ends of the spectrum here, in opposition, this is a good thing. We're all working through this, right, and so, I plan to continue working with the opposition.

I think we've had some good talks and, you know, we always keep the consumer first and foremost in mind, and we all want the one—the same thing. So, with that, I respectfully ask an "Aye" vote.

And we have a motion and a second. Committee Secretary, please call the roll.

[Roll Call]

That bill's on call. We'll leave the roll open. Madam Chair, would you like to present AB 234?

Yes. Vice Chair and Members. AB234 allows the Senate Pro Tem and the speaker of the Assembly to sit on the Fair Plan Governing Committee. These two new appointees will be non voting Members, similar to the four governor's appointees on the Governing Committee. The provision in this measure is modeled after the California Earthquake Authority.

And this Committee has held several oversight hearings on the Fair Plan. It's become very apparent that the Fair Plan plays an important role in the overall health of the insurance market and more importantly, in our service to our constituents. The speaker and the Senate Pro Tem or their designee should have a seat at the table.

I respectfully ask for your. I vote.

And do you have a lead witness in support? Go ahead.

Yes. Hi. Good morning. Members of the Committee. My name is Claudia Mildner, Assistant Chief Deputy Legislative Director with the Department of Insurance under the leadership of Insurance Commissioner Ricardo Lara. Thank you for the opportunity to be here and to speak in support of this Bill.

I'm here to express the Department strong support for AB 30234 which would place the speaker, the Assembly and the Chairperson of the Senate Committee on Rules or the Representatives as non voting Members on the California Fair Plan Association Governing Committee. As we all know, California has faced unprecedented wildfire devastation in recent years.

The Fair Plan, which has seen significant growth in the last few years, was designed as the insurer of last resort, which we all know is no longer the last resort and has become the only resort for a good number of Californians.

While steps have been taken to modernize and strengthen this critical program under Insurance Commissioner Ricardo Lara, more oversight and transparency is critical to ensuring that it functions as intended. AB234 is a step towards improving the accountability of the Fair Plan by enhancing legislative oversight and increasing transparency in the Administration of this essential insurance safety net.

This measure aligns with Insurance Commissioner Lara's ongoing efforts to reform the Fair Plan, including the establishment of the Fair Plan Clearinghouse programs for both residential and commercial which help transition policies back to the private market. The Legislature and the Governor established the Fair Plan. It is our responsibility to ensure it remains accurate and effective.

AB234 supports this mission by fostering greater transparency and strengthening the role of policymakers in its oversight. For these reasons, on behalf of Insurance Commissioner Ricardo Lara, I respectfully asked for your. I vote. Thank you. You.

Thank you. Do we have any other witnesses in the room in support? Do we have any lead witnesses in opposition? You'll have two minutes. Begin when you're ready.

Thank you Mr. Vice Chair, Members of the Committee, my name is Robert Harrell, Executive Director of the Consumer Federation of California and we respectfully have an opposed and less amended position. I'll briefly outline the reasons why and how we think the Bill could be improved. You've all delved into the history a bit of the Fair Plan.

It goes back actually to the Watts disturbances In the late 60 was signed into law by then Governor Ronald Reagan.

And historically most of the policyholders in the Fair Plan have lived in urban areas and many of them were victims of redlining, truth be told, which is a part of history that we should not forget in the context of where we're at right now.

There are more than half the states have a version maybe around 30, a little more of an insurer of Last resort, similar to, in many ways, the Fair Plan.

I can tell you because at a previous point in my career, I was also a deputy insurance Commissioner over at the Department that the Fair Plan in California is, if not the least transparent. It is one of the least transparent in the whole country.

And especially in the context of the rapid policy growth that we've seen in that area. I think now you're looking at 450,000 policies. It's now up in the sort of top six, top 10, depending on how you measure it in terms of premium dollars and things like that.

So there needs to be a very significant effort to enhance and increase transparency. The Fair Plan the Department received, they commissioned and received a detailed report in June 2022 that went into great detail about path to increased transparency and some of the problems in the Fair Plan. And nothing has happened up to this point.

The concern we have about only adding two ex officio non voting Members is this is sort of like taking a few gallons of water out of the ocean and thinking you've somehow solved the problem of rising sea level. It is wholly inadequate.

We would be pleased to work with the author and the Department on ways to enhance this Bill. In fact, I just wrap up your remarks. We're at two minutes. Sure. I just heard the Commissioner himself say that he'd like to put. He's waiting for another audit to do more.

We think this Bill ought to be much, much stronger to significantly increase transparency. For that reason, right now we're opposing less. Amen.

Thank you. Are there any other witnesses in opposition in the room? Seeing none. Any questions from the Committee? Mr. Gipson.

Thank you very much and certainly appreciate the author for bringing this bill forward. Seems to me I want to ask the opposing witness a question, but this bill, as I, as I have read it, it creates, it creates the transparency that you're speaking of.

I think the only thing that I've heard is that these two individuals would not be a, a voting Member. So they'll be there. That's the only difference. Because by the fact of the matter, you have the speaker as an ex official. You have the pro tem or the pro tem designee.

We should have put the speaker designee to have, you know, someone to be there as well. But I don't see, I don't see any difference. So can you explain what would you.

Yeah. Assemblymember Gibson, thank you very much for the thoughtful question. So in our letter we detail some of the areas in which we'd like to see more transparency. For example, the Fair Plan should be required to publicly disclose their financial statements. Most of the other similarly situated insurers of last resort in other states do so.

The Fair Plan does not. We didn't even know until the 2022 report who was on the governing board of the Fair Plan. I'd also note that the Fair Plan just authorized $1.0 billion, half of which is coming from the insurance companies, which I think in the reality will be a pass through to consumers.

The other half is going to come directly from everyone who has a policy in California. In the last few years, dividends have been paid by the Fair Plan to its Member companies. I would grab those dividends back before I started charging the consumers of California and the homeowners of California $1.0 billion.

So a lot of it's financial. Assemblymember. Look, it's not a bad thing to add a couple of ex officio Members. I don't mean to denigrate that, but I do think that if you all think that that is a sufficient response to what's going on in terms of the Fair Plan and their lack of transparency.

Even the head of PIFF indicated that it would seem that it's operating in a haphazard manner. That was just in a news story I saw a week ago. So I think there needs to be more done here. This is a beginning.

We're happy to work with the author and the Department on more, but this is a very, very, very small first step. But many more, many, much more needs to be done. And the Department knows what needs to be done because they have this information as of two and a half almost three years ago.

Okay, well I hear your point and I think again with everything that's going on with wildfires in California, we need some elected individuals there. When you have even tax matters, when you have these kinds of matters, we need someone to hold accountable.

And you can't hold these appointees accountable as you would these elected bodies or individuals representing these elected bodies.

So I think that this is a step in the right direction as it relates to the transparency because you have eyes and ears that's there that will be at meetings that will have the authority and the power to be able to make significant changes because there are leaders of two houses.

And so I would like to be considered a co author if the author would. Again, this hasn't been done before. I asked was the Commissioner on this note because he regulates it.

And so to have these two individuals on this Committee, again, I think it's a step in the right direction to provide, provide the transparency and accountability and hold their feet to the fire with the expertise that both of these individuals will have, you know, on this this particular Committee.

And I think that this is the right step in the right direction. I think there's probably other work that needs to be done, but hopefully that work will be done with these two individuals being part of this governing board. Thank you very much.

Thank you. Mr. Gibson, any other questions from the Committee? All right. Seeing none. Would you like to close?

Madam Chair, I respectfully ask for an.

I vote and we have a motion and a second Committee secretary, can you please call the roll?

[Roll call]

Welcome, Ms. Rubio. Whenever you're ready.

Thank you, Madam Chair and Members, for giving me the opportunity to present AB428. AB428 would permit water corporations to participate in Joint powers authorities or JPAs for pulled insurance purposes. AB 428 is a reintroduction of legislation I carried last year, AB 2735.

This year's version addresses concerns raised by the Governor's veto message by including language that would require reinsurance and liability coverage when a water corporation joins a JPA. The amendments clarify that a water corporation's membership in the JPA benefits customers by either reducing rates or improving service. They also require demonstration of cost savings through membership of the Jpa.

This bill remains fundamentally important in a time when our state is facing an insurance crisis. Across the state, industry sources now estimate that there is a 20% less availability of property insurance options than there was a year ago, and many are finding it difficult to find sufficient insurance at affordable rates.

AB428 protects customers from increasing water rates by reducing insurance costs where available. These savings are especially important in areas comprised of low income individuals and families and for those on the fixed income. With me today in support are Susan Allen with Cal Mutuals and Jennifer Lukens on behalf of the California Water Association, thank you.

Good morning. My name is Jennifer Lukens and I'm the owner of Lukens Brothers Water Co. A drinking water utility in South Lake Tahoe. I'm also the chair of the California Water Association Small Company Committee. Lukens Brothers Water Company is a small water system regulated by the Public Utilities Commission and serves a disadvantaged community.

I'm here today representing my utility, my customers and the small water systems and our statewide Association. Thank you for allowing me to share some background on AB428 to allow water utilities like mine to join JPAS for pooled insurance purposes. CWA is sponsoring this bill to support water systems with ever increasing insurance costs.

In 2020, I was paying $43,000 a year for a comprehensive insurance policy. In 2021, the year of the Caldor fire that affected the Lake Tahoe Basin, my insurance rates almost tripled. I'm not joking. Tripled. In one year, it rose to $141,000 for only property insurance. We were dropped from our comprehensive policy.

In 2024, our insurance rates rose again to $279,000 for just property insurance. This despite the fact that my water utility was not impacted by the Caldor fire and we have never filed an insurance claim in over 75 years of business. Wildfire related or otherwise.

Last month the Sacramento Bee published an op ed that I drafted on the growing impacts of wildfire threat on insurance costs. This isn't just impacting homeowners. Insurance costs are increasing everywhere. As a result, in 2024 the water bills for my customers increased by $48 annually just to cover property insurance costs.

CWA has spent the last few years exploring every option available to address the rising insurance costs. We've met with the Insurance Commissioner, We've spoken with the Chairs of the Legislative Insurance Committees. We've worked with a self insurance consultant to evaluate the ability for us, our organization, to form our own pooled insurance product.

We've consulted with two other existing JPAs on options on joining their pooled programs. At the end of the day there are very few solutions for utilities and rising insurance costs. CWA is sponsoring AB428 to try to contain these costs.

Without the passage of this bill there is no way for me or Members to participate in a JPA and pooled insurance purposes. I ask for your support on this bill and thank you very much for your time.

I should switch over here so you can hear me. I'm pleased to be here today on behalf of California Association of Mutual Water Companies and the California Association of Mutual Water Companies Joint Powers Risk and Insurance Management Authority that I serve as the CEO.

Our JPA provides insurance to 600 water and wastewater suppliers statewide from the largest like Westlands and San Diego County Water Authority to the smallest like. Well not even Lukens is a big one.

Big Little and we were formed in 2016 with the support of Assemblymember Christina Garcia when we faced a crisis of our co op Members losing insurance through the joint powers authorities that then were not allowed to provide support to privates and only to public in their JPAs.

So we were able to find a solution that not only contains costs, our pool is fully reinsured so we don't have joint or severable liability for any of the people that receive insurance through us.

And we also have a commitment in statute but also in our hearts to reinvest a percentage of the proceeds that we earn from our insurance back into helping small systems.

So we are really proud to provide best in class property and casualty workers comp and cyber insurance for probably the largest number of water suppliers in California and to continue to be a growing source of support and assistance for them.

When we were approached by CWA with the challenge facing investor owned utilities that are small with the impacts of wildfire and as insurers are leaving California as insurance costs are increasing exponentially. We basically had, it didn't take us a second to decide that of course we would want to help Smalls.

That even when our organization operations are different, the needs and concerns are the same. And without the opportunity to participate in the pool, the burden on IOUs and their customers is devastating and. And probably will mean that there will be systems that will be very challenged to continue to provide service.

So we encourage you to support this and look forward to being able to help Smalls.

Thank you. Are there any other witnesses and support in the room?

Good morning. Meagan Murray with the Weideman Group on behalf of Cal Water and support. Thank you.

Madam Chair, Members. Scott Wech on behalf of the California Coalition of Utility Employees, IBW Local 18, and the California State Pipe Trades Council. Thank you.

Are there any lead witnesses in opposition? Any additional witnesses? Opposition or tweener? I'm not sure.

Thank you, Madam Chair. Matt Brought, here on behalf of Aqua JPIA, we're pleased to have removed our opposition. We thank the author, the sponsors and the Committee for working with us on amendments. Thank you.

Thank you. Do we have any questions from the Committee? Assembly Woman Hadwick. Go ahead.

I just want to thank the author for bringing this bill. I represent South Lake and a lot of very rural municipalities that will. This will benefit tremendously. So thank you.

Okay. Would you like to close?

Thank you. I respectfully asked for an Aye vote.

You're welcome. Secretary, please call the roll.

This is item number five, AB428 by Assembly Member Rubio. The motion is do passed to local government Committee. [Roll Call]

That's that. We're going to hold that open for some people to add on. Okay. Now we're going to call the roll on the. Oh, we need a motion in a second for the consent calendar. Thank you. Secretary, Please call the roll.

[Roll Call]

Bill's out, but we'll hold the roll open. Assemblywoman Rodriguez, would you like to present AB943?

Yes thank you Madam Chair for allowing me to present AB943. I also want to thank the Committee staff for working with my office on this Bill and I will be accepting my author's amendments California's Existing Produce California is a existing producer Pre licensing requirements create unnecessary barriers to economic self reliance, particularly for individuals from economically disadvantaged backgrounds.

The rigid 20 hour line specific instruction mandate disproportionately sorry impacts aspiring insurance professionals with limited financial resources and time constraints. Analysis of leading curriculum materials reveals that approximately 35% of the content is redundant, adding time and cost burdens without improving competency. These efficiencies hinder workforce entry and limit opportunities for economic mobility in the insurance sector.

AB943 streamlines pre licensing education by removing time based requirements per insurance line while retaining 12 General hours of ethics and code study. Key benefits include increased accessibility, enhanced workforce development and in alignment with national best practices.

But by adopting this measure, California can support more diverse and economically self sufficient insurance workforce, empowering individuals to build sustainable careers while ensuring consumer protection and professional accountability.

Having with me here today to Testify are Sherry Mchugh and Matthew Powers who represent the Association of California Life and Health Insurance Companies and the National Association of Insurance and Financial Advisors.

Thank you Assemblymember Rodriguez and good morning Chair and Members Matt Powers with the Association of California Life and Health Insurance Companies or ACLHIC. We're proud co sponsors of AB943 and we appreciate the Assembly Members leadership in bringing forward this important measure to modernize California's producers pre licensing requirements.

Just building on the Assembly Members remarks, this Bill is about meeting people where they're at and creating more flexible, accessible pathways to licensure.

While prospective producers will still need to study and pass the state's licensure exam, removing the overly prescriptive time based requirements better reflects the diversity of personal and professional circumstances for those seeking to enter the profession.

It's also worth noting that a 2011 analysis by the National Association of Insurance Commissioners found no correlation, positive or negative between mandatory education hours and exam performance. In other words, even without a mandate, applicants are demonstrating sufficient knowledge to pass the licensing exam.

I also want to emphasize that this Bill preserves the 12 hour study requirements for ethics in the code and for good reason. The Training focuses on real world decision making skills that directly benefit consumers and professionals. And unlike the 20 hour per line requirement, it does not multiply with each line of authority.

And so this cuts down on duplication and simply makes sense. So AB943 keeps the right safeguards in place while modernizing the rest. We respectfully ask for your support. With that, I'll turn it over to my colleague Sherry Mchugh.

Great, thank you. Good morning Madam Chair, Members of the Committee. Shari McHugh representing the National Association of Insurance and Financial Advisors, NAFA California represents thousands of insurance agents and advisors in California who are dedicated to protecting the financial well being of their clients and consumers. Your constituents.

Along with ACLC, NFA California is a proud sponsor of AB943 and we thank the author for her work on this Bill. As stated by the Assemblymember, this is a straightforward measure about flexibility. The reality is that the baby boomers are retiring and the industry needs new agents and advisors wanting to enter the profession.

Unfortunately, the current pre licensing requirements can be an unnecessary or barrier to entry. This Bill helps open the door for working parents, veterans, caregivers and others who perhaps the pre licensing could be a barrier to entry into the profession. It's very important to emphasize that the person needs to pass the exam.

The exam is the most important barrier to entry into the profession and it confirms that the consumer protections are known and necessary in order to be a good agent and advisor in our State of California. So for these reasons we're in strong support of the Bill and really thank you for your consideration.

Thank you. Do we have any other witnesses in support in the room?

Good morning Chair and Members. Meghan Loper on behalf of the American Council of Life Insurers in support and. We thank the author.

Thank you. Are there any lead witnesses in opposition? Please come forward.

Good morning, Madam Chair. Robert Harell with the Consumer Federation of California. We have an opposed unless amended position on this bill. We think it's always appropriate to look at. Right. Sizing the pre education requirements here.

I, I looked at the NAIC report as well and I think the solution is not to eliminate the pre licensing, it's to maybe modernize it and make it more relevant. We don't disagree that there may not be any correlation between certain hours of pre licensing and how people do on the exam.

I would also just point out for the Committee there's a broader issue here that has concerned us for the past couple of years and that is that some of the professional standards for insurance agents are lower than for other kinds of similarly situated folks, e.g. brokers and others.

What we have actually seen and Stanford University did a report on this, it relates to the issue of fiduciary. Fiduciary is whether the agent that you're talking to is there to represent your best interest or the best interest of the company.

I won't bore you with all the details, but our view is that the agent ought to be there to represent you, your best interest, your financial interests, et cetera. In far too many cases that's not the case. And so we think that. Right. Sizing education requirements could help with that.

We've literally seen an outflux from certain agents in other areas that get in trouble into the insurance regime because there are lower professional standards that concerns us. And what that directly leads to is, for example, someone being put into an annuity or a product that is not well suited to them.

And we've been active in that space for a number of years. So we're happy to engage with the author, the sponsors, the industry on all of that, but we think eliminating these 20 hours is probably a bridge too far and maybe right. Sizing it or adjusting it to be more relevant to issues would be correct.

So for that reason we're opposing less amended. Thank you, Madam Chair.

Thank you. Are there any other witnesses in opposition in the room? Seeing none. I'll bring it back to the Committee. Do we have any questions for the author? Okay. Would you like to close?

I would like to add that we understand that the opposition. The opposition's concerns with the bill and definitely welcome the conversation to find ways to improve this bill. Thank you. And ask for an aye vote.

Okay. We have a motion first and a second, so we will call the roll.

[Roll call]

Okay, that bill's out. Would you like to present AB 1209? Whenever you're ready.

Thank you, Madam Chair and Members, for allowing me to present AB 1209. I would first like to thank the Committee for working with my staff on the Bill.

Assembly Bill 1209 establishes a convenient pathway for employees in the cannabis industry to secure workers' compensation coverage for all their employees, including those who use the services of temporary or staffing agencies. Existing law requires all employers with 1 or more employees to provide workers' compensation coverage to their employees.

But considerable number of work—considerable number of workers of—sorry, considerable number of employers in the cannabis industry have faced difficulty in obtaining full coverage for all their employees. Cannabis remains illegal under federal law.

Consequently, insurance companies aren't reluctant—are reluctant—to write insurance policies for employers that are engaged in the business of growing, processing, and selling a product that is illegal under federal law. This can also affect cannabis employers' ability to gain access to banking services.

AB 1209 authorizes the Administrative Director of the Division of Workers Comp to contract with third-party agents to serve as benefit coordinators, to assist cannabis employers by establishing and maintaining a network of licensed insurance carriers who have agreed to underwrite workers and compensation insurance for the cannabis industry. The insurers would be able to offer competitive group rates, consistent with the rates offered to non-cannabis employers.

The Administrative Director on their agents would also establish and maintain a network of providers that are willing to provide banking, payroll, and related services to cannabis employers that have faced some difficulty in obtaining those services.

There is no opposition to the Bill. We have worked with interested stakeholders, and will continue to do so, as the Bill moves through the process.

I have Robert Mortensen of Mortensen Advisors, and Lori Kramer...

That's close enough.

Okay, who is representing California Risk and Insurance Management Society, here in support of the Bill, who can provide further details on the background and research findings underlying this proposal.

I'll go first, if that's okay. Yes. Good morning, Madam Chair and Members. Lori Kammerer, but I'll go with Kramer, either way. And today, I'm here with the California RIMS, which is the Risk Insurance Management Society and National Association of Risk Managers in the workers' compensation space, and also, MedX Healthcare.

That is in the workers' compensation space, providing network treatments and coordinating benefits for California employees. We are here in support of this Bill. We think that, that there are—there is a very strong need to be able to provide workers' compensation to the cannabis employers, so that they can protect and offer these benefits to their workers.

We know that, because of the banking issues, and because of the workers' compensation insurers who are not inclined to write for this particular industry, we feel that having a path forward to help the cannabis industry come into compliance is a very good idea, very good public policy bill that we're working on. So, we urge your support.

Thank you. Your "Aye" vote.

Am I up? Okay, thank you. Good morning, Madam Chair and Members. My name is Robert Mortensen. I'm the President of Mortensen Advisors. For more than 35 years, I've been involved in the California workers' compensation system, at multiple levels of the industry. My most notable role was—I was President of Anthem Blue Cross of California Worker Compensation Delivery System.

If you were injured on the job, there was probably a 60% chance that my Program administered the medical delivery for that care. So, that gave me a very unique understanding of the entire system and how it works and every aspect of it. The majority of my clients were workers' compensation insurance companies.

This unique understanding was brought to bear in the analysis, that we did over the last year and a half, of the California cannabis industry, in understanding what is the coverage and where are the gaps in the cannabis industry, in particular, due to federal constraints and federal regulations.

My firm looked at the department of cannabis-controlled business license information, and we compared that to the source of truth, which is considered, in the industry, the best way of confirming coverage, which was the Workers' Compensation Insurance Rating Bureau of California website information.

I can get into the details of that, but the bottom line is, what technically can only be confirmed in this industry is about 11.5% coverage. In other words, the employers can only have 11.5% confirmation. Now, that's supposed to be somewhere around 100%. So, the difference between the 11.5% and the 100% is the gap question that we have.

And the interesting thing about this is that this also correlates with some of the concerns. There was a study that was done by the National Association of Insurance Commissioners, specifically on cannabis, and all of the information in there cross correlates to the fact pattern that we found in California.

So, where, when, and who is maybe not complying, is the issue, because the DIR and the Administrative Director have the responsibility of enforcing workers' compensation insurance, yet they have no transparency into the fact patterns of this industry.

So, this Bill, AB 1209, provides the Administrative Director with the authority and the information, and the process, to be able to see to the insurance layer of what the underlying coverage actually is, versus the 11.5%, which is transparent.

In addition to that, what I want to say is that this Bill is very important, but without the passage of it, there's no way that the AD or the DIR can never fulfill its obligation of enforcement, confirmation, and clarification of the insurance coverage. They're essentially blinded. This Bill again provides that full transparency.

I continue to hear that word today, but that's exactly what this is. And then the other aspect of the Bill, that it's important, is that there are legitimate constraints in this industry, so, it's the 11.5%—probably doesn't manifest out of a lack of willingness or desire, but inability.

The—AB 1209—provides a mechanism to facilitate the migration to full compliance. Thank you very much for your time.

Good morning, Madam Chair and Members. I'm Phil Vermeulen representing Acclamation Insurance Management Services and Allied Managed Care. We're in strong support of this measure and urge your "Aye" vote. Thank you.

Thank you. Do we have any additional support in the room? Seeing none. Is there any lead opposition to this Bill? Seeing none. Okay. We're going to bring it back to the Committee for questions. Assemblyman Ellis.

Yes. Assemblyman—woman—Rodriguez, is, is it—or any of the experts—is it not state law that you have to have workman's comp?

It's a constitutional mandate. Yeah, I think it's Article 14, I'm not sure. But it's constitutionally required of every employer to have workers' compensation.

Except for a few cases.

Exactly.

I appreciate the Author—where you're headed with this. I have a question though. If 11% of the cannabis dealers now have workman's comp, and 89% do not, why?

That's a deep rabbit hole I can go into. And the fact patterns show that there's a multitude of reasons why. Some of it, I think, comes into this idea of there's some constraints at the federal level, at the IRS level, for the accounting under one of the rules, I think it's 280-E.

That's the argument that most of the companies use that they say, well, we can't write off the workers' compensation insurance, so we have to create an adjacent LLC, and the staffing is adjacent to the business. So, the business—in some cases—this 11.5% might be what we call minimum premium.

So, it's just a few people in this shell, who are maybe the owners of the business, who are covered. And then they have an adjacent LLC, where the staffing occurs, that may or may not be covered or may be covered under different insurance coverage models.

So, I don't want to imply that the 11.5% is the—90% is not. Although that could be.

What we're saying is that, since there's no factual information to show what that is, we need to empower the Administrative Director with the authority to prove and verify, because all fact patterns show that there's a lot of different ways of avoiding coverage misclassification for one.

Are you saying that then, by this Bill, that a cannabis dealer who had an employee—my concern is for the employee of the prior...

Mine too.

So, so the employee, if they're excluded prior—from prior activities—according to this Bill, would not the employer that got hurt potentially does not have a claim legally?

Well, okay, let me address that in one way differently. When you say employee, I've used the word worker. And then, what's the classification of the worker, the fact patterns show this...

Do me a favor. When you're talking about—what's the difference between an employee or worker?

I would classify an employee as a W2 employee—W2 employees. So, to your point about the California Constitution...

Are these 1099 workers then?

Likely. Many.

Likely, but you don't know.

We don't know the degree, and that's what the Bill provides. So, in the case when you ask the question, is it mandated by the Constitution? It's mandated that an employer who has employees have workers' compensation coverage.

A 1099 worker, gig worker, consultant, independent contractor, whatever term you want to use, which there's a lot of staffing agencies out there that actually promote this. So, we see the fact pattern of that they're advocating for this kind of employment relationship, are not covered under workers' compensation, when in fact they may be AB 5—under an AB 5 test, they should be classified as W2.

So, the 1099 worker wouldn't be subject to a, I guess, historical workers' compensation claim.

So, what you're saying is that they have to take other litigious means than, if they were not—if they got hurt on the job, then?

I'm not a lawyer, but you might have a civil case under a 1099, if there was negligence or something of that nature.

But if you're a 1099 employee, or cash-based employee, even an off the books employee, or in some cases, we found incidences of commodity-based payments, in other words, commodity, in kind for work, there's no record of you and then, you're not subject to workers' compensation coverage.

Now, if you went through the AB 5 test, you wouldn't probably qualify as an independent contractor by that test. So, you should be W2 employee, but technically, legally, I think you're not.

Are you saying that, through this conversation, that cannabis dealers are not complying with the law?

Well, we can only validate 11.5% have workers' compensation coverage. And there's even a question there about what I said, the minimum coverage policy concept. There are other means that they accommodate the law, or deal with the constraints of federal licensing, or federal—non-federal licensing—right, It's a federal restriction.

Largely it comes down to tax accounting, marijuana-related businesses tracking, and information like that. So, they're doing different mechanisms that, if the DIR had the adequate information, they can answer that question specifically.

So, it's a primarily a cash business because of federal regulations, is that what you're saying?

There's a high proportion of cash businesses because banking companies, banking risk management, won't allow banking. I've talked to BMO Bank, the Bank of Montreal.

I talked to their cannabis people directly, and I asked them a lot of these questions, and they said even their Risk Management Department, who banks in cannabis in Canada, won't come into the United States typically for risk management. Until it's federally legal, very few banks or credit unions would be willing to participate in this process.

But there are—the point is that there are companies out there. California licensed credit unions, California licensed or chartered banks. Not the big ones—Wells Fargo, Bank of America, Bank of Montreal. They'll stay out of the business, knowingly, stay out of business.

Now, what happens is that some companies under these shells create shells that have names that are not cannabis. What do I want to say? Cannabis directly related or correlated. Bob's Manufacturing doesn't sound like anything other than—I don't know what I do.

Can I just add—I was just going to add maybe directly to your question. Are they—is the cannabis industry knowingly, willingly, not insuring their employees?

I think it's more that they are unbankable or they're having a difficult time, as Bob had said, finding a bank that will take their cash, and also finding a workers' compensation insurer who will write their policy. That's the simple answer.

And that's why—I'll just deviate a little bit. And that's why it's different maybe than in the contracting industry. I think it was Dodd 216 that came about a couple years ago.

It was identified, almost using the exact same data, the WCIRB database, found a fact pattern that about 50% to 55% of the California contractors didn't have workers' compensation insurance coverage.

Well, in that case, it was easy to fairly mandate that the Contracting Licensing Bureau for the administrative process just simply mandated, as a process of licensure, that you provide a workers' compensation insurance certificate. That was easy because that industry can, they just didn't. This industry is constrained, and they try to comply or do constraints.

So, there's two things here that are important. One, it's simply not an administrative check-the-box process. So, you can't just give it to the administrators to say check the box of coverage. You have to go deeper because these are adjacent companies in some cases, or these are W2, or 1099-misclassed employees.

And that has to be clarified. And then, you have to go to the next level to say, well, who are the willing service providers of workers' compensation insurance, that even want to participate? Now, there are companies that want to participate, given that they can confirm accurate information.

So, insurance companies will say, well, I'll get into the cannabis business if I know I don't—if I'm not short covering or minimum premium policy writing, I'm not covering adjacent businesses that are unrelated, that I can account for the cash, where it comes from. The sources of the cash are identifiable. The payroll companies would do the same.

And so, there's kind of a cleanup process that, say, the contracting industry didn't have to go through. That the administrator—and it all starts with the Administrative Director's power to have the full transparency to what are the fact patterns in the industry.

Once you get through that layer and understand what the insurance layer is, how the insurance layer works, you're then able to, kind of, move the industry forward into full compliance. That 11.5% should go to—like in the contracting industry, I think it's above 90%-95%.

You should be getting into the 90%-95%. Confirmable information in the WCIRB database.

I appreciate your comments. Thank you.

Assemblymember Hadwick.

Is that too much information? Some people tell me I give too many facts.

But I had similar questions. So, I called some of the people that owned cannabis stores in my district, and none of them have this problem. They, they were very offended that there would be amnesty granted to people that weren't following the rules.

How do we know that this isn't a choice, that it's a choice that they're making, not that they can't get it? Are they giving you proof of this, or how did you guys get that 11%?

Yeah. So, I would say, those people, one of the problems is those people are disadvantaged, right? They're competitive disadvantaged because their cost structure, their wage structure, they probably all have W2 employees. They're following the rules, right? So, those folks, if someone's not following the rules, who they're competing with, they're disadvantaged.

So, they should want a law that brings everybody into compliance. Now, your question is a little bit different. It's unfair to give them "amnesty."

I think what we're saying here is that, unlike maybe in the contracting industry where I wouldn't propose amnesty, there are legitimate constraints to these businesses, in many cases, to probably getting workers' compensation insurance. You can see it in the fact pattern of who's doing the insurance and who's willing to do the insurance.

Mainstream companies aren't willing to largely provide workers' compensation insurance. I think the other point of it is it's probably, in my opinion, a necessary element for support or lack of what a challenge—I'm not sure what the term is—to this Bill by the cannabis industry.

Their position is going to be, my people follow the law in one way or another. In other words, maybe the 11.5% is the pure way to comply, but they're doing things in different ways that probably still fulfill a layer of insurance or an insurance model. I don't think that that's fully the case.

So, the point is that there's legitimate reasons. Federal regulation does create legitimate constraints. In other words, I don't want to say it's not their fault, or that they're victims, but they're coping and dealing with historical constraints that are real. Some of them may not be. Some of them may be being mischievous, right?

We have a business and, as business owners, that's the biggest complaint I have right now, or from people, is that the workman's comp is expensive and it's hard on them, especially small businesses.

This is really another good point. I don't want to dig into it.

Have we ever done that for another sector—where we've given them that?

I don't think there's ever been another sector that's had this problem that became illegal to legal California, but still illegal nationally. But the other point about the workers' compensation cost is, the cost in this industry, if you do get workers' compensation, is about $8 per payroll.

We believe, through this mechanism and focused and kind of allowing a safe harbor and working with companies, we can get that down to about $6 per $100 of payroll.

And given there's about $4 billion of—4 to $4.5 billion of payroll—in this industry, moving an industry, in aggregate, from $8 a payroll down to $6 a payroll, having companies compete for business and then having and setting up a mechanism for companies to specialize in segments of this business, is a good thing for the workers. It's a good thing for the employers. It's a good thing for the cost of workers' compensation.

So, there is a cost reduction model in this Bill as well, too, to bring everybody into compliance.

It feels like a slippery slope for me, so.

It's what?

It feels like a slippery slope for me, so, I will be opposing respectfully.

Because of the amnesty?

Yeah. I just—I don't think a sector should be exempted from costs that everyone else has already.

I know. I get it.

Thank you so much. I appreciate your comments. Thank you. Do we have a second? Okay. Would you want to close?

Thank you. I respectfully ask for an "Aye" vote.

Secretary, please call the roll.

[Roll Call]

Assemblyman Connolly, would you like to present AB 1?

Thank you, Chair and members. Good morning. Proud to present AB Number one, a bill that would require the California Department of Insurance to review and consider updates to the Safer from Wildfire regulations every five years, starting in January 2030.

This is an issue that is near and dear to communities throughout my district and the state, where wildfire risks are high and insurance is increasingly unaffordable and absent. The Safer from Wildfires program is the only avenue open to consumers to receive direct discounts for hardening their homes and neighborhoods.

These insurance discounts are a great incentive, and it costs the state nothing to offer it. Right now, there is no requirement for CDI to open up the regulations for evaluation. All this bill does is require CDI to periodically consider whether or not these regulations need to be updated to reflect the future needs of consumers and the industry.

The final say will be left with the Insurance Commissioner. While CDI works on other strategies to improve the insurance market in California, AB 1 is a reasonable step the Legislature can take to help consumers save money on their insurance bills and reduce the risk of disaster for vulnerable communities and the families that live there.

This bill is supported by a broad coalition including insurance consumers, the Insurance Commissioner, and insurers themselves. With me to testify today is Josephine Figueroa, Legislative Director with the Department of Insurance, and Melanie Law with the North American Insulation Manufacturers Association.

Good morning, Madam Chair and members of the committee. Josephine Figueroa, Deputy Commissioner and Legislative Director for the Department of Insurance under the leadership of Insurance Commissioner Ricardo Lara.

As a proud sponsor of AB 1, Insurance Commissioner Lara would like to thank Assemblymember Connolly for his leadership in authoring this critical measure to strengthen wildfire mitigation efforts and protect California homeowners. Wildfires are an escalating crisis. More than 2 million homes, 1 in 4 Californians are located in high or very high fire hazard zones.

As wildfire risks increase, homeowners are facing rising insurance costs and in many cases, losing coverage altogether. To better safeguard communities, California has established programs that promote fire-resistant construction and proactive mitigation efforts. In 2022, the department released, in partnership with others, the first in the nation's Safer for Wildfires Regulations to incentivize homeowners to strengthen their properties against wildfires by offering insurance discounts.

To date, nearly 60 companies, including Western Mutual, USSA, Liberty Mutual, State Farm, and the Fairplan, have been approved to provide discounts under this program, helping more homeowners afford coverage. AB 1 would require the department to regularly evaluate every five years whether it's necessary to update the Safer from Wildfire regulations.

New wildfire mitigation tools and measures are constantly being developed and the partners we worked with to create these regulations, such as CAL FIRE and the State Fire Marshall, are continually updating their guidance. To ensure homeowners receive the full benefit of the latest wildfire safety advancements, the department must also keep pace with these updates.

Mitigation is the key to lowering wildfire risk, reducing costs and bringing insurers back to the market. The Safer from Wildfires regulations play a critical role in this effort by promoting proven wildfire protection measures that makes homes and communities more resilient.

This approach is a core component of Insurance Commissioner Ricardo Lara's sustainable insurance strategy, which emphasizes risk reduction as a pathway to restoring and maintaining insurance availability. On behalf of Insurance Commissioner Ricardo Lara, I ask for your aye vote. Thank you.

Good morning, Madam Chair and Committee members. My name is Melanie Law, here today on behalf of the North American Insulation Manufacturers Association, or NAIMA, here in support of AB 1. NEMA is the trade association for North American insulation manufacturers of fiberglass, stonewall, and slag wool insulation products.

As part of our role, we support policies that promote passive fire protection strategies in wildland urban interface areas to help reduce fire spread severity and loss of life and property. AB 1 would require CDI to review the Safer from wildfire regulations by January 1, 2030 and every five years thereafter to determine if additional building hardening measures and community level wildfire mitigation programs should be adopted to further incentivize California consumers to adopt home-hardening measures that will reduce their wildfire risk.

The first evaluation will take place three years from now under the next Insurance Commissioner. As part of CDI's first evaluation, they are required to consider integrating fire-safe building materials such as those on the state fire marshals building materials listing. These fire-safe building materials on the BML have all been tested and certified by state fire marshal accredited laboratories for their fire safety performance.

The most stringent and fire protective building materials on the BML are categorized as non-combustible. We support the author's efforts to encourage CDI to add non-combustible building materials to the Safer from Wildfire regulations. This will help accelerate the adoption of BML certified building materials in the wildfire prone areas.

Reviewing the Safer from Wildfire regulations every five years will give consumers, fire service professionals, and insurance providers an opportunity to examine the effectiveness of the regulations and make necessary changes that will further the intent of the regulations to incentivize consumers to reduce their wildfire risk. For these reasons, we encourage your support and ask for an aye vote. Thank you.

Thank you. Are there any other witnesses in support in the room?

Good morning. Allison Adey on behalf of the Personal Insurance Federation. Happy to be here in support today. Thank you.

Terry McHale with Aaron Read and Associates representing CAL FIRE's safety team in strong support. Thank you.

Kasha Hunt here with Nossaman on behalf of the County of Monterey Board of Supervisors in support.

Zach Cefalu on behalf of the Rural County Representatives of California and the League of California Cities, both in support. Thank you.

Pat Joyce on behalf of Rockwool North America. Thank you.

Erik Turner on behalf of the California Construction and Industrial Materials Association in support. Thank you.

Thank you. Is there any lead opposition to this bill? See none. Any opposition in the room? No. Okay. Do we have any questions from the committee? Assemblywoman Krell.

Thank you. I would thank the author. I just want to thank the author for. Bringing this important bill and all of the supporters and sponsors this bill is number one for a reason and I will be supporting it.

Thank you.

Assemblymember Gipson.

Yes. I want to say again, thank the author for bringing this bill forward. Being number one, that means you was in line first.

There's a story there.

I'm sure it is. I would like to be considered as a co-author of this bill because I think all this, everyone that's been suffering and all those who the victims certainly need help and I believe this is a step in the right direction. This provides the help, the hope, let them know they're not alone. So please add me. Thank you.

Assemblymember Alvarez.

I just want to recognize the work of the author and thank him for the work not just on this bill but prior to getting here. It's not easy to have no opposition, especially in bills related to insurance, as you all know. So just want to thank you for. The work that you're doing on this, the work that you've been focusing all us, all of us around wildfire issues as it relates to insurance and would be honored to join you as a co-author as well. Thank you.

Assemblywoman Petrie-Norris.

Well, you know, three is whatever. Three is the lucky number. So I would also love to be added as a co-author and I think this is kind of a unicorn bill where I think a lot sometimes when you have bills that have no opposition and a huge coalition of support, it means because they're just sort of, you know, easy and this isn't and this is something that is actually going to, I think help provide a little bit of a light at the end of the tunnel for so many Californians. So echoing what my colleagues have said, really, really grateful for your work on this and for all of the supporters who have engaged as well. Thanks.

And I'd also. Oh, go ahead, Assemblywoman Hadwick.

I just thank you for the bill. I'd love to be bipartisanship co-author.

Assemblymember Ellis.

Yeah, I'd like to also thank the author and I'd also like to add that this actually from my science background inspires different composites that could actually inhibit some of these fires and really protect our our people. So thank you very much. Good job. Appreciate it.

And Assemblywoman Farias

Thank you for bringing this bill forward. I also would like to join the bill and I always appreciate people that can take difficult situations and still move them forward. So thank you for doing that.

Assemblymember Addis.

Now. Thank you so much, Assemblymember. And would also love to be added as a co-author.

All right. Yes. Assembleman Connolly, I'd like to thank you for, you've been working on this for two years, and last year it flew through this house. And so thank you for your patience and understanding and bringing this back. And I'm proud to be a co-author. And with that, did you close?

I respectfully asked for an aye vote. Thank you.

Yeah. I think the committee closed for you. Okay. Secretary, please call the roll.

[Roll Call]

That bill's out. Thank you. You're welcome. Now we're going to allow Members to add on. Okay. We're going to. Secretary.

[Roll Call]

Okay, we're going to leave the roll open for five minutes for absent Members. If you'd like to come back to add on, you have five minutes.

[Roll Call]

Assembly Insurance committees adjourned.