BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
98 (Calderon)
Hearing Date: 5/4/2009 Amended: 4/20/2009
Consultant: Katie Johnson Policy Vote: B,F, & I 10-0
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BILL SUMMARY: SB 98 would revise and recast provisions relating
to viatical settlements to define those and other specified
financial arrangements as life settlements and would provide for
the licensure of brokers and providers of and the regulation of
such settlements by the California Department of Insurance
(CDI).
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Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11 2011-12 Fund
CDI regulatory costs $262 $105 - $195
$536 - $1,158 Special*
CDI enforcement ($124 -
$13,700)Special*
And fee revenue
*Insurance Fund
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
Existing law establishes when an interest with respect to life
and disability insurance is insurable. Existing law defines
"viatical settlement" and requires life and disability agents,
among others, to file a declaration with the Insurance
Commissioner that their agent license is valid in order to
engage in the viatical settlements business. Existing law
provides that a person who enters into or solicits a viatical
settlement without a license is punishable by a misdemeanor and
that the commissioner may suspend the agent's ability to
transact viatical settlements.
This bill would revise and recast provisions relating to
viatical settlements to define those and other specified
financial arrangements as life settlements and would provide for
the licensure of brokers and providers of and the regulation of
such settlements by the CDI. This bill would prohibit a person
from entering into, brokering, or soliciting life settlements
unless that person holds a license issued by the commissioner of
the CDI. This bill would specify that the requirements necessary
to obtain a license pursuant to these provisions and that a
licensee would be required to pay a $177 annual renewal fee.
This bill would allow life agents who have been licensed as a
viatical settlement broker or provider as of December 31, 2009,
to be deemed licensed pursuant to these provisions.
Additionally, a life insurance producer who has been licensed as
a life agent for at least one year would be permitted to meet
the licensing requirements of this bill, provided they notify
the commissioner within 10 days of transacting a life
settlement. The CDI currently licenses approximately 219,000
life agents. The CDI does not expect a large influx of
individuals seeking the new Life Settlement Broker License
because life agents may simply inform the commissioner of their
transacting life settlements and be
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SB 98 (Calderon)
deemed licensed pursuant to this bill. They would pay a one-time
fee of $136 to CDI and would not need to pay a renewal fee. So,
in FY 2010-11, there could be revenues of $124,000 - $13,700,000
depending on the number of people who pay the initial
notification fee licensing fees. Revenues due to licensing fees
and renewals in the out-years are unknown and unlikely to be
significant. Anyone who has been licensed as a life agent and
who would like to transact life settlements, but who has not
completed a year as a licensed life agent, would apply for a
Life Settlement Broker License. However, by the time of annual
renewal of his or her license, the broker would have completed
one year as a life agent and would simply notify the CDI that he
or she was transacting life settlements as a life agent. They
would not need to renew their Life Settlement Broker License.
This bill would define various specified terms including a "life
settlement contract" as a written agreement solicited,
negotiated, or entered into in this state between a provider and
an owner, establishing the terms under which compensation or
anything of value will be paid, which compensation or thing of
value is less than the expected death benefit of the insurance
policy or certificate, in return for the owner's assignment,
transfer, sale, devise, or bequest of the death benefit or any
portion of an insurance policy or certificate of insurance for
compensation, provided that the minimum value for a life
settlement contract shall be greater than a cash surrender value
or accelerated death benefit available at the time of an
application for a life settlement contract. "Life settlement
contract" also includes a premium finance loan and the transfer
for compensation or value of ownership or beneficial interest in
a trust or other entity that owns such policy if the trust or
entity was formed for the purpose of acquiring one or more life
insurance contracts.
This bill would define "stranger-originated life insurance"
(STOLI), a practice to initiate the issuance of a life insurance
policy for the benefit of a third-party investor, who at the
time of policy origination, had no insurable interest in the
life of the insured. This bill would also define "fraudulent
life settlement act," as specified.
This bill would prohibit the transaction of a life settlement
within the two-year period commencing the date of the issuance
of the policy, as specified.
This bill would provide that the commissioner may suspend or
revoke a person's license to transact life settlements if he or
she determines that it is contrary to the best interests of the
public that the person continue to transact life settlements.
This bill would also permit the commissioner to assess a civil
penalty of up to $10,000 on a licensee.
This bill would also specify the rights of and the notifications
to policy applicants.
The CDI estimates that it would require one staff counsel at and
incur technology costs of $262,000 in FY 2009-10; a full-time
staff counsel at $105,000 - $195,000 in FY 2010-11; and $536,000
- $1,158,000 in FY 2011-12, and $452,000 - $1,074,000 annually
ongoing to for 1-3 staff counsels and 3-7 investigators to
implement this bill.
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SB 98 (Calderon)
This bill is similar to SB 1224 (Machado), a bill that failed
passage in the Assembly Health Committee in 2008. SB 1543
(Machado) contained similar provisions to SB 1224 and was vetoed
by the Governor in 2008. The veto message read, "?Although I
share the proponents' goal to ensure that life settlement
transactions are properly regulated, I cannot sign this measure
at this time. The provisions of this bill were amended into it
very late in the legislative session. While many of the
provisions were agreed to by all the parties involved, some of
the provisions are still subject to worthwhile debate?." Due to
the subjective nature of the veto message, it is unclear whether
or not this bill addresses the Governor's comments.