Legislative Committee Report

Legislative Committee Report: 10/27/2020

Table of Contents

Two wins for the SLA in this year’s legislative session:

  1. Amendment to Assembly Bill 3012, which includes a provision that will create a clearinghouse for the California FAIR Plan to offload significant numbers of fire policies. The FAIR Plan has been inundated with new fire policies in recent years by homeowners in wildland-urban interface areas who have been unable to find coverage in the admitted market.
    1. The initial version of the bill would have limited the potential pool of carriers for these policies to the admitted market. In discussions with legislative staff and the FAIR Plan, it was clear that there was no desire or intent to exclude surplus line brokers from writing this business if admitted carriers decline to take it on. But there were concerns that there might not be a feasible way to include surplus lines.
    1. Cliston Brown spoke with legislative staff and the FAIR Plan and worked with them to figure out a way that surplus lines could be included while still respecting the legally stated prerogatives of the admitted market to have the first shot at writing policies in California. With that agreement in place, the bill was amended to specifically allow surplus line insurers to participate as long as admitted carriers got the first opportunity to take on these policies, and went on to pass with the SLA’s requested amendment included.
  2. Withdrawal of Assembly Bill 1552, a proposal that effectively would have forced insurers to pay COVID-related claims that had been specifically excluded within business interruption policies.
    1. The bill was similar to bills introduced in a number of other states, and also similar to the gambit being used in lawsuits by plaintiffs’ attorneys in court cases across the nation. It would have mandated that these claims should be considered to have been caused by “physical damage” to the affected establishments. This would have overridden the virus or pandemic exclusions included in many business interruption policies.
    1. Cliston made our case to legislative staff, and Ben wrote a letter to the chair of the State Senate Insurance Committee explaining that this legislation, though understandable and well-intended, would ultimately create unintended short-term and long-term consequences, both for the insurance industry and for consumers.
    1. In the end, the bill’s sponsor withdrew his proposal before the Senate Insurance Committee could take it up for consideration, effectively killing the bill for the year. We understand, from our discussions with our Sacramento sources, that he might be looking at revising it and putting forward another proposal next year. We will keep an eye out for whatever happens on this issue in the coming year. With the COVID-19 pandemic clearly not going away anytime soon, this is an issue that is going to be with us for the foreseeable future.

Proposition 22

This initiative, which is on the ballot this year, would allow app-based transportation and delivery services, like Uber, Lyft and Doordash, to continue classifying their personnel as contractors. This may have a lot to say about whether such services continue to do business in California, which could have a material impact on the SLA, given the size of the surplus line insurance policies these services need to insure their operations.

  • The chief backers of Proposition 22 are Uber, Lyft and DoorDash, each of whom has contributed between $48 million and $57 million to fund the campaign. Instacart has given more than $31 million dollars, and Postmates has contributed more than $13 million. Nearly 100% of the funding for the campaign has come from these five contributors.
  • In all, the Yes on 22 campaign has received more than $199 million in contributions, which is the most money ever contributed to an initiative campaign in California.
  • Meanwhile, No on 22 has received about $19 million, most of which has been contributed by labor unions.
  • The spending gap is also very large. Yes on 22 has spent more than $186 million on advertising and organizing, while No on 22 has spent less than $13 million.
  • The Yes campaign is supported by the Chamber of Commerce and several subgroups, such as the CalAsian Chamber of Commerce, the California Black Chamber of Commerce, and the California Hispanic Chambers of Commerce. Additionally, the NAACP and National Action Network, two leading African-American advocacy groups, support Yes on 22, as well as the National Taxpayers Union and Crime Victims United of California.
    • One of the chief selling points by ridesharing companies is that they serve areas where taxis often won’t go, especially neighborhoods where ethnic or racial minorities are prevalent.
    • The fact that so many minority advocacy groups support Yes on 22 indicates that this selling point has been successful.
  • Several law enforcement unions also support Yes on 22, including the California Peace Officers Association, the California State Sheriffs’ Association, and the California Police Chiefs Association. Advocates within the law enforcement community say that ridesharing has helped combat drunk driving.
  • The opposing side is almost entirely comprised of labor unions and Democratic politicians, including Democratic presidential and vice presidential candidates Joe Biden and Kamala Harris.
    • Their premise is that allowing app-based companies to treat their workforce as contractors will rob them of the protections that employees would get, including health care benefits, fair wages, overtime pay and the like.
    • However, the Yes on 22 proposition does address a number of these issues, including payments to bridge any gap between minimum wage and contractor earnings, health care subsidies of up to 82% depending on hours worked, and the availability of occupational accident insurance for up to $1 million in coverage for disability or lost income, as well as two-thirds of a driver’s average weekly earnings for up to two years.
  • Based on the numbers, one would expect Proposition 22 is likely to pass.
    • The gap between the fundraising and spending numbers is going to be very difficult for opponents to overcome.
    • The opponents simply cannot advertise and organize as effectively, even with the unions in their corner, when they are being outspent by about 10-to-1, per an article yesterday in the LA Times. That margin was 30-to-1 until recently, so clearly, opponents have received some cash infusions.
    • However, a poll result published yesterday by the LA Times shows that the Yes campaign is only leading 46% to 42%, so this may not be as much of a slam dunk as the funding and spending numbers might indicate.
    • If the proposition fails, then these ridesharing and delivery companies are going to have to make some decisions about whether they continue to operate in California, and that could have an impact on all of us, because these companies are putting up some very big insurance premiums, which impacts our bottom line through our stamping fees.  

Export List Hearing

We have been notified that an Export List hearing will take place in December. One issue that is still of great interest to a number of our members is the continued absence of Commercial DIC/Stand-Alone Earthquake policies of less than $10 million from the list, after the CDI decided two years ago to remove that coverage.

Despite our submission of a comprehensive report by the Milliman Corporation finding no adequate admitted market exists, the CDI declined to restore this coverage to the Export List. A number of our members want to see it back on the list, but some admitted market players continue to make the case that there is an adequate market for this coverage. Restoring this coverage to the Export List appears likely to be an uphill battle.