Under a new law, passed by California legislators earlier this week, the state will now require health insurers and health maintenance organizations to provide 45 days’ notice of material changes in an agency agreement, such as changes to commissions.
The bill passed unanimously and takes effect Jan. 1, 2016. It was introduced in response to two insurers slashing commissions last year, during open enrollment. “We got bit last year,” says Kevin Roberts, principal at KR Benefits in Concord, Calif. “[During] open enrollment, a carrier said, ‘We are reducing commissions and will pay you less.’” While Roberts declined to name the carrier, it follows a move by Assurant around the same time, which cut its agent commissions to 1% from approximately 5%.
“This is a law that came with unfortunate circumstances and was promoted by an incident with Assurant,” says Michael Lujan, president of the California Association of Health Underwriters. “It was a fairly dramatic [commission] decrease” and took effect three days after Assurant issued the notice.
“In the middle of the holidays and open enrollment, having a fairly significant change to the agent agreement prompted concern if agents could afford to promote these products and [raised questions] on the financial stability of Assurant,” Lujan, co-founder of Limelight Health in San Francisco, adds.
Assurant later announced that it would stop selling plans in the state of California — and then its health division, Assurant Health, would close. In September, Sun Life Financial Inc., Canada’s third-largest life insurer, agreed to buy the employee-benefits business.
The new law is a boon for the 30,000 agents and brokers in California, Lujan explains. “The protections for agents were limited to what is already in the Statue of Insurance code,” he says. “We’ve gone through a significant transformation with implementation of the Affordable Care Act and that’s starting to create new challenges for agents.”
“The majority of businesses get their coverage through brokers and agents,” he adds. “There are … opportunities like this bill to protect the agent. We didn’t need it before, but apparently now we do.”
It is possible this may expand to other states as much of what happens in California get adopted in other states once it proves to be successful, Roberts says. "Giving insurance agents and brokers advance warning about pending changes in compensation is a protection that lawmakers from either party could support," he explains. "It speaks more towards fairness and I'm sure in states where this has happened the health underwriters and other insurance organizations will be discussing this with their lawmakers."
"We're fortunate that here in our state, CAHU employs an excellent lobbying firm in Sacramento to help get our concerns heard by lawmakers," he adds. "Our health underwriter dues are higher than most states to fund this, but they have proved to be invaluable in opening doors for us and counseling us to get our members in front of legislators and their staff."
Passing the bill is a result of the agent community working together with state legislators, Roberts says. “The fact that we got [it] through … is a testament to how strong health underwriters are and how valuable we are to our clients,” he says. “The legislators are starting to see that.”
Lujan explains there was some initial opposition to the bill from insurers until “we removed some ambiguous language on what is meaningful change.”
By softening the language to make it more relevant to commissions, the bill, which was authored by Assembly Member Freddie Rodriguez (D-Pomona), passed unopposed.
The law does not apply to mutually agreed upon changes, or changes made necessary by revisions to state or federal law.
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