HOUSE BILL REPORT

SHB 1032

This analysis was prepared by non-partisan legislative staff for the use of legislative members in their deliberations. This analysis is not a part of the legislation nor does it constitute a statement of legislative intent.

As Passed House:

March 4, 2013

Title: An act relating to portable electronics insurance.

Brief Description: Addressing portable electronics insurance.

Sponsors: House Committee on Business & Financial Services (originally sponsored by Representatives Kirby, Chandler, Ryu and Hudgins).

Brief History:

Committee Activity:

Business & Financial Services: 1/23/13, 1/29/13 [DPS].

Floor Activity:

Passed House: 3/4/13, 98-0.

Brief Summary of Substitute Bill

  • Modifies rate and form filing requirements for portable electronics insurance.

  • Modifies cancellation and nonrenewal requirements for portable electronics insurance.

  • Provides the Insurance Commissioner with additional authority to take enforcement actions against a licensee.

HOUSE COMMITTEE ON BUSINESS & FINANCIAL SERVICES

Majority Report: The substitute bill be substituted therefor and the substitute bill do pass. Signed by 13 members: Representatives Kirby, Chair; Ryu, Vice Chair; Parker, Ranking Minority Member; Vick, Assistant Ranking Minority Member; Blake, Habib, Hawkins, Hudgins, Kochmar, MacEwen, O'Ban, Santos and Stanford.

Staff: Jon Hedegard (786-7127).

Background:

Certain transactions that fall within the definition of insurance have been addressed by exemptions from the Insurance Code or the creation of a specific regulatory structure. Entities regulated under these chapters may not be required to comply with the same capitalization and reserve requirements, reporting and solvency oversight, and claims handling practices as are required of an insurer selling a traditional insurance product. Persons regulated under these chapters may not have to be licensed or have the same degree of training. There are unique regulatory standards for the persons who sell portable electronics insurance and the people who process the claims for portable electronics insurance.

Inland Marine Insurance.

"Inland marine insurance" is not defined in the Insurance Code. It is generally defined as insurance for portable goods, whether in transit or not. The policies may be for an individual's goods or for the goods of a business. The Office of the Insurance Commissioner (OIC) has adopted rules that characterize over 30 different risks as types of inland marine insurance. Included among these risks are: accounts receivable; agricultural machinery, farm equipment and livestock coverage; bicycles; pleasure boats twenty-six feet and under in length; cameras; photographic equipment and musical instruments; communications equipment, including cell phones, pagers, and portable personal computers; fine arts private collections; golf equipment; furs; jewelry; silverware; and stamp and coin collections.

Regulation of Insurance Rates and Contracts.

The rates and forms used in insurance contracts are filed with the OIC. There are two main types of review for property and casualty insurance forms in Washington:

Portable Electronics Insurance.

"Portable electronics" is defined as "personal, self-contained, easily carried by an individual, battery-operated electronic communication, viewing, listening, recording, gaming, computing, or global positioning devices and other similar devices and their accessories, and service related to the use of such devices."

A retailer or "vendor" must be licensed by the OIC as a specialty producer if the vendor wants to offer or sell insurance products related to portable electronics. Before a license may be issued to a vendor, the vendor must be appointed as the agent of an authorized insurer.  The vendor must affiliate with a licensed insurance agent who must supervise a training program for the vendor's employees. A vendor selling the communications equipment insurance must provide prospective customers with written materials disclosing the terms of the insurance.  The license of a vendor may be denied, suspended, or revoked upon a conviction of a felony if the facts demonstrate the licensee is not trustworthy to maintain the license. The OIC may adopt rules regarding specialty producers of portable electronics insurance

Cancellation and Nonrenewal.

The general cancellation provisions and the nonrenewal provisions in the Insurance Code apply to portable electronics insurance. An insurer of portable electronics may cancel or nonrenew a property or casualty insurance policy:

Disclosure Materials.

A vendor must make written disclosure materials available to prospective customers. The written materials must:

Summary of Substitute Bill:

It is specified that a master, corporate or group policy for personal electronics insurance is classified as commercial inland marine insurance. An individual policy of personal electronics insurance may be sold on a monthly or other periodic basis.

Portable Electronics Insurance Rates, Contracts, and Disclosure Materials.

An insurer of a portable electronics insurance program:

The written disclosure materials are not required to be filed for the review or approval of the commissioner.

Sanctions.

The license of a vendor may be denied, suspended, or revoked for a number of different reasons, including fraudulent, coercive, or dishonest practices and violations of the Insurance Code.

Cancellation and Nonrenewal.

An insurer may cancel, modify, or otherwise change the terms and conditions of a policy of portable electronics insurance:

A policyholder terminating a portable electronics insurance policy must advise each enrolled customer of the termination of the policy and the effective date of termination by providing a written notice to the enrolled customer. The written notice must be mailed or delivered to the enrolled customer at least 30 days prior to the termination.

Disclosure Materials.

The written disclosure materials made available to prospective customers must also disclose what circumstances and subject to what limitations an insurer may cancel, terminate, modify, or otherwise change the terms and conditions of a policy of portable electronics insurance. The written disclosure materials are not required to be filed for the review or approval of the Insurance Commissioner.

Until July 1, 2015, a vendor must deliver materials to enrolled customers that disclose what circumstances and subject to what limitations an insurer may cancel, terminate, modify, or otherwise change the terms and conditions of a policy of portable electronics insurance.

Contract Changes.

If an insurer changes the terms and conditions, then the insurer must provide the vendor policyholder with a revised policy or endorsement and each enrolled customer with:

Written Notices.

The must be sent to:

If an enrolled customer provides an electronic mail means, the enrolled customer consents to receive notices and correspondence by electronic mail. The enrolled customer must be provided with a disclosure to that effect at the time the electronic mail address is provided.

The insurer or vendor of portable electronics, as the case may be, must maintain proof that the notice or correspondence was sent.

Appropriation: None.

Fiscal Note: Available.

Effective Date: The bill takes effect 90 days after adjournment of the session in which the bill is passed, except for section 6 which replaces an expiring section and takes effect July 1, 2015.

Staff Summary of Public Testimony:

(In support) This is an ongoing exercise in modernizing our insurance regulation. Society develops new products and devices and\ the law must be altered to accommodate those new products and devices. The stakeholders and regulators have been working to resolve some outstanding issues and appear to have reached an agreement. That will be a proposed substitute and the stakeholders will direct some remarks to the differences between the agreement and the underlying bill. The stakeholders that worked on the law that passed last year are bringing this bill. Last year's bill modernized the regulatory framework. There were a few issues where the stakeholders and the OIC did not reach agreement last year. Those are the issues addressed in this bill. The stakeholders have worked with the OIC and have an agreement. That agreement is being processed and will be a proposed substitute to the bill. The sellers of portable electronics insurance may offer the product in every state. The goal is to have similar regulatory oversight in every state. Washington had one of the first laws in the country on this subject, but that law became outdated. One key provision in the bill is it recognizes the unique nature of the product. The insurer usually sells the product to a master policyholder, called a vendor. A vendor can sell enrollment on the policy to consumers. A consumer buys from the vendor but has contractual rights with both the vendor and insurer. Both the insurer and vendor are licensed by the OIC. It is similar to a commercial product but it is regulated in this state as a personal lines product. Commercial purchasers, the vendors, are usually more sophisticated purchasers. Because the purchaser is more sophisticated, the regulatory oversight for commercial lines is not as exhaustive as personal lines. It is agreed that rates and forms will still be subject to prior approval by the OIC. The rest of the regulatory structure is modified to make it more uniform with the rest of the country.

(Opposed) None.

Persons Testifying: Representative Kirby, prime sponsor; and Mel Sorensen, Asurion Financial.

Persons Signed In To Testify But Not Testifying: None.