Who Regulates Insurance and Provides Protection to Insurance Consumers in California?

Several organizations protect consumers of insurance products in California. The California Department of Insurance (CDI) regulates the over 1,400 insurance companies operating in the state’s insurance industry and ensures that they abide by the laws while carrying out their business activities. In addition to insurance regulation, CDI:

• Oversees the licensing of insurance agents and brokers
• Conducts market research
• Monitors insurance companies for early signs of insolvency
• Investigates and prosecute insurance companies guilty of fraudulent acts
• Educates customers about available products
• Ensures the stability of the insurance industry in the state

Prior to working with a California insurance agent - verify their license status and learn about the companies they are able to represent, through the California insurance license lookup.

One of the primary functions of the California insurance department is protecting individuals from exploitation by insurance companies and their representatives operating within the state. It also regulates insurers’ market conduct. The CDI does not achieve this goal alone; it has the support of the state insurance guaranty associations, the state Attorney General’s Office, and government agencies like the Federal Trade Commission (FTC) and Federal Environmental Management Agency (FEMA). While the FTC and CID ensure that insurers within the state do not contravene federal and California Consumer Financial Protection Laws, FEMA protects California residents against financial losses caused by natural disasters. The FEMA National Flood Insurance Program is available to approximately 99% of California communities, guaranteeing access to funds to cushion the financial losses that may result from floods.

The California Insurance Guaranty Association (CIGA) and the California Life and Health Insurance Guarantee Association protect policyholders of insolvent insurance companies in the state against financial losses that may result from the bankruptcy of their insurers. In addition to the above entities, Californians are also protected by the Department of Financial Protection and Innovation (DFPI). The DFP monitors and regulates institutions that render banking services, as well as non-bank mortgage lenders, credit unions, money transmitters, student loan servicers, and many others. Frauds and misdemeanors related to banking and other institutions can be reported to the DFPI.

The state mandates that all licensed insurance companies in California be members of one or more state guarantee associations.

What is the California Department of Insurance?

California Insurance Department: The California Department of Insurance (CDI) is the department responsible for insurance regulation in the state. CDI was established in 1868 to oversee and monitor the activities of all entities involved in the provision and consumption of insurance products in the state. In addition, CDI ensures that insurance product providers meet the state’s required standards before being licensed to operate in California.

The CDI controls the largest insurance market in the U.S (also the fourth largest in the world) with an estimated annual direct premium of $340 billion. In addition, it is the largest state agency and entertains over 170,000 consumer assistance calls, investigates over 35,000 complaints, and recovers more than $63 million for consumers annually. The California Department of Insurance, through the Office of State Insurance Commissioner, also monitors the activities of entities like the California Insurance Guaranty Association (CIGA), and the California Life and Health Insurance Guarantee Association. One of the CDI's major roles is to protect consumers against fraud by insurance companies and their agents. The CDI’s primary source of funds is licensing and assessment fees of its members and proposition 103 recoupment fees.

Who Regulates the California Department of Insurance?

California insurance commissioner: The California Commissioner of Insurance (CA DOI) regulates the California Department of Insurance (CDI). The Commissioner of Insurance directs the activities of the insurance department and, with the support of over 3,500 employees of the department, ensures it carries out its statutory functions as laid out by the laws establishing the department. The roles of the California Commissioner of Insurance include:

• Directing all the activities of the CDI
• Enforcing compliance with California Insurance Codes and implementation of laws
• Protection of insurance consumers from fraud
• Ensuring fair market practices
• Examining and licensing insurance companies

The post of the California Insurance Commissioner is an elected position that runs for four years per term and a maximum of two terms per individual. At present, the job of insurance regulation in California is overseen by the Commissioner of Insurance, Ricardo Lara, who was elected to the post as the 8th Insurance Commissioner in November 2018.

What are the Unfair Trade Practices in California?

The unfair trade practices in California consist of using unlawful, unethical, and fraudulent means to gain an advantage over competitors in business. In California, unfair trade practices can erode consumers' confidence and undermine the values of the insurance industry. Unfair trade practices in California include:

• Misrepresentation of facts about an insurance product to influence the decisions of consumers about a product or business
• Creating a product or business monopoly
• Offering gifts (or prizes) to intending consumers to influence their choices
• Non-conformity with insurance industry standards
• False advertising of insurance products
• Outlining the pros only while selling insurance products to individuals without explicitly explaining the cons
• Defaming a rival insurer to gain an advantage
• Coercive tied selling of insurance products. For instance, selling insurance products on the condition that the consumer must buy another product
• Coercing policyholders into running down their contracts with a view of introducing them to new insurers
• As an agent, non-remittal of money collected from a policyholder to the insurance company and denying them coverage.

The California Unfair Trade Practices Law plays a vital role in insurance regulation within the state by outlining the consequences of engaging in unfair trade practices. For cases filed by the California Attorney General's Office, the court may impose a civil penalty that does not exceed $2,500 per violation. To arrive at a judgment, the court considers the nature, severity, persistence, and length of time for which the violation occurred. Private individuals' allegations are settled by injunctive reliefs and restitution, whereby the defendant returns all money made through unlawful practices. In addition, the court will issue an order that the guilty parties cease engaging in such acts.

Also, based on the Insurance Producer Licensing Model Act, the California Insurance Commissioner may revoke the license of any insurer, agent, or broker who engages in unlawful trade practices. In addition to state laws, U.S federal laws prohibit unfair practices in other types of trade, irrespective of where such crimes are carried out. For instance, Chapter 53 Title 12 Subchapter V of Wall Street Bank and Banking Reform and Consumer Protection law provides protection for both offline and online banking.

If you are a victim of unfair trade practices in California, you may need to seek the guidance of a legal professional to help you navigate the complex legal process involved and ensure that your rights are not violated. Also, a legal professional will answer your questions on how to avoid acts that contravene the Unfair Trade Practices law. Speak with a California attorney.

How to Report Suspected Unfair Trade Practices in California?

The job of insurance regulation in California does not fall on only one agency. Californians can report suspected cases of unfair trade practices in California in several ways. These include:

• Online at the California Attorney General’s Office Complaints Portal. They will need to provide the required information. You can also download a Consumer Complaint Form, fill it out, and send it to:

The Public Inquiry Unit

P.O. Box 944255

Sacramento, CA 94244-2550

• Online at the United States Government portal. You can seek support from any of the County Consumer Protection Agencies by clicking on their provided web addresses.
• By logging on to the California Department of Insurance online consumer complaint webpage to file a complaint. You can also print out a downloadable consumer complaint form, fill it out, and send it to:

The California Department of Insurance

Consumer Service Division

300 S. Spring Street, Los Angeles

CA 90013.

You can get additional information by calling the California Department of Insurance at (800) 927-4357.

Insurers in California seeking to report cases of unfair trade practices within the state insurance industry can do so by logging into their accounts on the California Department of Insurance website’s producer complaint center. If they do not have pre-existing accounts, they can create one, log in, and provide the required information.

They can also call the California Department of Insurance via their Consumer Hotline at 1(800) 927-4357.

• By reporting fraud and identity theft cases online at the Federal Trade Commission’s website and following the outlined procedures. You can report antitrust violations by sending an email to antitrust@ftc.gov or through mail to:

Office of Policy and Coordination

Room CC-5422

Bureau of Competition

Federal Trade Commission

600 Pennsylvania Avenue, NW

Washington, DC 20580

Telephone: (202) 326-3300

• Through the file-a-complaint portal of the Department of Financial Protection and Innovation. You can either fill out an online form or download the form, fill it out, and mail it to:

Department of Financial Protection and Innovation

Attn: Consumer Services

2101 Arena Boulevard

Sacramento, CA 95834

When an individual reports a case of unfair trade practice, the respective agency takes up the case and investigates it.

What is the California Life and Health Insurance Guaranty Association?

The California Life and Health Insurance Guarantee Association (CLHIGA) is a statutory entity established in 1991 by the California Legislature through Article 1067 - 1067.19 of the California Insurance Code. California insurance regulation makes it mandatory for all life, health, and annuity insurance providers within the state to be members of CLHIGA. California Life and Health Insurance Guarantee Association protect consumers of insurance products who are policyholders of:

• Health insurance
• Life insurance
• Long Term Care (LTC) insurance
• Disability insurance
• Annuities from financial losses in the event of insolvencies of their insurers

Suppose a member of CLHIGA becomes bankrupt and is declared insolvent by a court of competent jurisdiction. In that case, the association will step in and pay for covered claims up to the limits of the association’s Act. Such payments would be 80% of the insurer’s contractual obligation to the insured if the insurer were to be solvent. For instance, if you have a $250,000 life insurance policy, you will be paid $200,000 (0.8 x $250,000). However, an individual with a $500,000 life insurance policy will be paid $300,000 and not $400,000 because the association does not pay above $300,000 for life insurance coverage. Regardless of the insured amount, payments must not exceed the following amounts:

• Concerning life insurance, regardless of the number of policies or contracts:
• $300,000 death benefit for any one life insurance
• $100,000 as net cash surrender and net cash withdrawal value
• $250,000 as annuity benefit (including net cash surrender and net cash withdrawal values)
• $250,000 to beneficiaries of payee structured settlement annuity as annuity benefit (including net cash surrender and net withdrawal values)
• For health insurance, regardless of the number of policies or contracts, CLHIGA will pay a maximum of $200,000 as a benefit in the event of the insurer's insolvency. This amount may increase or reduce based on the change in the cash cost component of the consumer price index as of the day the insurer was declared insolvent.

CLHIGA will not pay more than $5,000,000 to a single owner of multiple non-group life insurance policies, regardless of whether the policies belong to an individual or a corporation.

To have the protection of the California Life and Health Insurance Guarantee Association, your insurer must belong to the association. All life and health insurance companies in California must be registered members of CLHIGA. Typically, the California Life and Health Insurance Guaranty Association will protect you if your insurer has a license from the California Department of Insurance to operate in the state. You can confirm your insurer’s license status through the California Department of Insurance License Lookup or by calling 1(800) 927-4357.

How Does the California Life and Health Insurance Guaranty Association Work?

The California Life and Health Insurance Guarantee Association (CLHIGA) provides limited protection against financial losses to policyholders of life, health, and annuity insurance if their insurers should become insolvent. In California, if a court of competent jurisdiction liquidates a life, health, or annuity insurance company, it will freeze the bank accounts of such an insurer, stop all business activities, and appoint a receiver (liquidator). The liquidator will assess the insurance company’s financial resources, physical assets, and liabilities and report back to the court. After the assessment, the CLHIGA will take over such an insurer’s commitment to its policyholder. The CLHIGA will pay for covered claims up to the limits stated in the association’s law.

If a member of the CLHIGA is insolvent, the primary aim of the association is to transfer the contracts of policyholders to more capable insurance companies if such policyholders desire to continue with their policy. A policyholder who wants to continue a policy must pay a premium regularly to the association when due. While the transfer process is ongoing, the CLHIGA will provide protection and pay for covered claims up to the stated limits for such policies. To transfer a policy to a new insurer, the CLHIGA must have the court's permission. However, premiums should be paid to the new insurer if the policy is successfully transferred.

A policyholder or the court may decide to cancel an insurance contract. In such a situation, the policyholder will be paid the cash surrender value for the contract as outlined in the association’s Act.

The FAQs below answer more questions on how the California Life and Health Insurance Guarantee Association works.

• What if I move permanently out of California after purchasing life or health insurance?

  The California Life and Health Insurance Guarantee Association (CLHIGA) protects policyholders of members that are residents of the state. If you no longer reside in California, you will not be protected by the association. However, you will have protection if your insurer is a member of the new state’s Life and Health Insurance Guarantee Association. Insurance guarantee associations protect policyholders of member companies regardless of where they purchase their policies. For example, if you move to texas, the Texas Life and Health Insurance Guaranty Association will take over your protection if your insurer operates in their state.

• If I am a resident of California but insured by an insurance company not registered in California, will I be protected by CLHIGA?

  No, you will not have protection under the association. You will have protection only if your insurer is registered by the California Department of Insurance and is a member of the association.

• Will I be protected if I am on employer-provided health insurance?

  Yes, CLHIGA protects policyholders of group health plans up to the limit stated in the association’s Act for such plans if their insurers are registered with the association. However, you will not be protected by CLHIGA if you are an employee with a self-insured health plan. Under the self-insured plan (also known as the Employee Retirement Income Security Act (ERISA)) plans, the employer and not an insurance company provide coverage to the insured.

• My spouse and I have an annuity plan worth $300,000, does the annuity benefit limit of $250,000 apply to us jointly or individually?

  The annuity benefit limit will apply individually, and you will each be paid $240,000 (0.8 x $300,000). However, further reductions may occur due to interest rate adjustments.

• The cash surrender value of my life insurance policy is $200,000, will this amount be protected if my insurer becomes insolvent?

  No, you will not get $200,000 if your insurer is liquidated, you are entitled to $160,000 (0.8 x $200,000). However, your payout will be reduced to $100,000, which is the maximum payout for life insurance net cash surrenders.

• How will I know if my insurer is declared insolvent?

  If your insurer is declared insolvent by a competent court or the California Insurance Commissioner, you will receive a letter of notification from the California Department of Insurance. The letter will inform you that your insurer is under receivership.

• Does payment from CLHIGA affect my claim against my insolvent insurer?

  Yes, it does because CLHIGA may subrogate your insurer, and the association may require an assignment of your rights under the covered policy before making payment to you.

• To what extent am I protected if I purchase three different annuity insurance from my insurer?

  Regardless of the number of similar policies you have with an insolvent insurer, your payment will not exceed the maximum amount for one policy. Your payment for three annuity plans will not exceed $250,000.

• What if my promised benefit exceeds the payment limit of the guarantee association?

  The California Life and Health Insurance Guarantee Association will not pay above what the law stipulates. If your benefit exceeds the payment limit, you are only entitled to the maximum amount stated in the association laws. However, you may file a claim for the excess amount against the insolvent insurer’s estate. Payments for such claims are made based on available resources. Else, you forfeit the excess amount.

• What types of insurance plans do not have the protection of the California Life and Health Insurance Guarantee Association?

  Certain individuals, insurance contracts, and benefits do not have the protection of the California Life and Health Insurance Guarantee Association. They include:

• Self-insured employers’ plans

• Individuals who buy plans from insurance companies not registered by the California Department of Insurance

• Holders of Fraternal Benefit Insurance Certificates

• Managed care plan policyholders

• Policyholders who purchase plans from medical, health, and dental care corporations

• Benefits that are not guaranteed by insurers. For instance, CLHIGA does not protect the non-guaranteed portion of variable life insurance

• Guaranteed interest yields with values higher than the rates specified by the California Life and Health Insurance Association Act

• Charitable gift annuities

• Benefits for which the policyholder has assumed the risk of loss

• Unallocated annuity contracts.

If you are unsure about the status of your policy, you should seek clarification from your insurer.

What Is the California Property and Casualty Insurance Guaranty Association?

The California Insurance Guarantee Association (CIGA) protects the insured who are using the California casualty insurance and property insurance. The California Legislature established the CIGA in 1969 to protect policyholders of workers’ compensation plans, homeowners and auto insurance, and liability insurance. California Insurance Code Sections 1063 - 1063.17 outlines the duties of the association. The California Insurance Guarantee Association administers three separate funds that pay for the following:

• The Workers’ Compensation claims
• Homeowners and automobile claims (including personal injury)
• Other types of claims. For instance, commercial properties and liability claims and product liability claims.

If a member of CIGA is insolvent, the association will pay the following for covered claims:

• Full payment for workers compensation claims
• Full payment or amount not exceeding $1,000,000 (whichever comes first) for damages or loss of dwelling structure under residential property insurance
• $500,000 for other claims like automobile and personal injury claims

CIGA derives revenue for claim payments by assessment of members, distribution of assets of insolvent members, and the money realized from investments. Also, the association can request the issuance of bonds to generate additional funding to pay for covered workers’ compensation claims. In 2004, California Insurance Guarantee Association issued a $750 million bond.

How Does the California Property and Casualty Insurance Guarantee Association Work?

The California Insurance Guarantee Association (CIGA) works similarly to other state guarantee associations in the insurance industry. If an insurance company registered in California becomes insolvent, the office of the California Insurance Commissioner (the receiver or liquidator) will freeze the company’s bank account and review its assets and liabilities. In addition, the receiver will send out notification and proof of loss forms to all affected policyholders. A policyholder of an insolvent insurer must complete the proof of loss form and send it to the receiver on or before the date stated for such returns.

After the mandatory assessment, the California Insurance Guarantee Association will take over the commitment of the insolvent insurer. CIGA will pay for covered claims up to the limits stated in the California Insurance Guarantee Association Act; these covered claims include those of:

• Workers’ compensation insurance
• Homeowners and Automobile insurance
• Commercial properties and liability policies

The California Insurance Guarantee Association may transfer the insurance policies of insolvent members to new insurers if the policyholders so desire. Policyholders must pay their premiums on time to have coverage.

Note: CIGA does not write new policies or alter the coverage of existing plans. It only applies the terms of the original policy. Any adjustment to your policy must be in line with what your original insurer will do under such conditions.

For answers to more questions, read the FAQs below.

• If I have a claim for covered legal expenses before the insolvency, will it be paid by CIGA?

  The California Insurance Guarantee Association will pay for legal expenses incurred after the insolvency of its members. If you have a legal expense claim before the date of liquidation, you should refer the claim to the receiver of the insolvent member (the Commissioner of Insurance)

• Will my payment be delayed?

  Payment for covered claims depends on the time the liquidator spends on the assets and liability review process. CIGA will subject the insolvent insurer’s assets and liabilities to reviews that may take weeks or months to accomplish. Payments for covered claims will begin after the assessment stage is complete.

• If I have a claim pending with my insurer before it becomes bankrupt and is declared insolvent, do I need to file a new claim with CIGA?

  You do not have to file a fresh claim if your claim is in the insurer’s record.

• Is there a deadline for me to file a claim?

  Statutory workers compensation claims do not have a deadline. However, the California Workers Compensation Act requires you to file claims early for early review. For other types of claims, you must submit the claim on or before the last day indicated by the receiver/liquidator in the proof of loss form.

• What should I do if I receive a notice of a new claim or get served with a lawsuit that is covered by my policy?

  For notice of new claims and lawsuits covered by your policy, you should immediately contact CIGA and send a copy of such claim/lawsuit. You may also need to send a copy to the receiver/liquidator of your insurer.

• Who do I contact for information about my policy?

  For information on the status of your policy, reach out to the California Insurance Guarantee Association on the phone at (818) 844-4300