Viewpoint: A New California Law Means New Obligations for Insurance Producers

Recent action by California Gov. Gavin Newsom should be of real interest to insurance agents and brokers doing business in the Golden State.

With a swipe of his pen, Newsom signed into law Senate Bill 1242, written by the Senate Insurance Committee and aimed at protecting California consumers by imposing a variety of requirements upon producers.

The omnibus bill is essentially a kitchen sink of unrelated topics covered under a single piece of legislation. It takes effect on Jan. 1, 2023, and addresses, among other things, insurance fraud reporting and education mandates, fingerprinting and licensing disclosures.

Reporting Fraud

At the start of the year, agents and brokers will be required to report fraud to the California Department of Insurance (CDI). More specifically, SB 1242 amends the California Insurance Code to require producers who suspect or know a fraudulent application for insurance is being made to submit to the DOI Fraud Division via the electronic Consumer Fraud Reporting Portal information regarding the factual circumstances of a dubious application and the alleged misrepresentations it contains.

This must be done within 60 days after the producer determines fraud has or may have occurred. Of note, the mandated notification cannot be made anonymously.

Where suspected or known fraud is discovered after an application has been placed with a carrier, the agent or brokers will be obligated from January 1 onward to report it to the impacted insurer (specifically, their special investigation unit), along with all documents and evidence that the unit may later request.

These reporting obligations are entirely new. Only carriers were previously burdened with fraud reporting requirements.

Consequently, agents and brokers should not turn a blind eye to obvious fraudulent conduct by any insurance applicant. Doing so could come with risk. SB 1242 creates regulatory exposure for failing to comply with the law.

The good news is that agents and brokers who fulfill their duties by reporting fraud or assisting with related investigations are insulated from civil liability, assuming they have acted in good faith.

Continuing Education

While on the topic of fraud, producers looking to be licensed as well as current licensees fulfilling their continuing education requirements will have to complete one hour of study on insurance fraud. This mandate, commencing on March 1, 2023, will be folded into the existing hourly requirement for ethics training, meaning an additional hour of course work will not be imposed.

Fingerprinting

SB 1242 also amends the California Insurance Code to compel the insurance commissioner to submit to the Department of Justice fingerprint images and related information that pertains to applicants for licensing—fingerprints that could serve to reveal criminal convictions.

This should serve as a wakeup call to would-be licensees, all of whom must now think through their criminal histories, if any—whether or not prior convictions may have been expunged. Remember, failure to disclose criminal convictions on a license application can result in the denial of a license. Consequently, applicants must ensure that their complete criminal profiles are fully disclosed on individual license applications before submission.

Disclosure of License Information on Emails

Before SB 1242 was signed into law, agents and brokers were required by statute to include their license numbers on business cards, premium quotes and print advertisements for insurance products distributed exclusively in California. Now, that mandate is being extended to emails.

Beginning on Jan. 1, all producers conducting business in California will need to include their license number in emails involving the transaction of insurance. This information is to be presented in a font no smaller than the largest telephone number, street address or producer email address appearing on a given email and must be located adjacent to or on the line below an agent or broker’s name or title. Similarly, the license number of an organizational licensee is to be set forth adjacent to or on the line below the organization’s name, which begs the question: Is the listing of an individual’s license number even necessary when an entity’s license number is included in an email message? The answer is “Yes,” as made clear in a notice issued this week issued by Insurance Commissioner Ricardo Lara.

Producers on Notice

Agents and brokers are encouraged to pay heed to this mixed bag of new mandates given that the new year—and with it, the effective date of SB 1242—is fast approaching.

Robinson is a founding partner of Michelman & Robinson LLP, a national law firm headquartered in Los Angeles. In his capacity as Property & Casualty Regulatory Chair at M&R, he primarily represents retail brokers and agents. He can be contacted at 310-299-5500 or mrobinson@mrllp.com.

Topics California