BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 1408|
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CONSENT
Bill No: SB 1408
Author: Senate Banking, Finance and Insurance Committee
Amended: As introduced
Vote: 21
SENATE BANKING, FINANCE, AND INS. COMMITTEE : 9-0, 4/21/10
AYES: Calderon, Cogdill, Correa, Florez, Kehoe, Lowenthal,
Padilla, Price, Runner
NO VOTE RECORDED: Cox, Liu
SUBJECT : California Life and Health Insurance Guarantee
Association Act
SOURCE : Author
DIGEST : This bill includes within the stated purpose of
the California Life and Health Insurance Guarantee
Association Act law, which applies to a member insurers
failure to perform its contractual obligations because of
an impairment or insolvency of the insurer that issued the
policies, that it includes coverage of "annuities or other"
contracts.
ANALYSIS : Existing law:
1.Provides a mechanism, within the California Life and
Health Insurance Guarantee Association (CLHIGA) Act, for
the payment of claims against insolvent life and health
insurance companies if the claims arise under qualifying
insurance policies.
CONTINUED
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2.Authorizes coverage for qualified persons under direct,
nongroup life, health, annuity and supplemental policies,
and contracts and includes special provisions pertaining
to annuity contracts, and certificates under group
annuity contracts, as defined, and includes subsequent
excluding from the CLHIGA Act coverage specified types of
unallocated annuity contracts as defined.
3.Specifies that Section 1067.01, which states the purpose
of the CLHIGA Act, shall be liberally construed to effect
the purpose of the Act and shall constitute an aid and
guide to interpretation.
This bill revises the provision of law describing the
purpose of the CLHIGA Act to expressly state it applies to
matters "arising" under the kinds of polices covered by the
Act and to include reference to the impairment or
insolvency of the member insurer that issued the
"annuities", in addition to current references to its
application to the impairment or insolvency of an insurer
which issued the policies and contracts.
Background
In the current fiscal times, California's system of
insurance company regulatory oversight works in tandem with
CLHIGA to provide important protections for California's
buyers of life and health insurance policies and contracts,
including annuities, other than specified unallocated
annuities.
This bill provides interested parties more express
assurance that the purpose of California's CLHIGA law,
which applies to a member insurer's failure to perform its
contractual obligations because of an impairment or
insolvency of the insurer that issued the policies,
includes coverage of "annuities".
In the current economic environment, the relative
importance of annuities for those who own them has
increased in importance. A simple way to view annuities is
that they function like life insurance in reverse. Life
insurance safeguards an individual and their loved ones in
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the event of an early death while an annuity protects its
owner running out of money over a long life.
As with life insurance, annuities rely on the concept of
pooled risk so that an individual's uncertainty as to the
length of their life is shifted from them to their
insurance company and all the other annuitants who purchase
annuities from that company.
Annuities are the only financial instruments available
today, other than Social Security and pensions, that offer
a guaranteed lifetime stream of income during retirement.
Along with giving retirees the peace of mind that comes
from knowing that they will not outlive their assets,
annuities provide another important benefit, a way to
increase current income.
This ability of annuities to provide a guaranteed stream of
income makes their strength, and reliability, highly
important in this period when many other investments have
suffered serious declines in value and other setbacks.
This bill does not expand the scope of California's Life
and Health Insurance Guarantee Association Act but will, at
a time when annuities have increased in importance as a
retirement tool, make the stated purpose and protections
provided by CLHIGA for annuities more explicit to insureds
and the public alike.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
JA:nl 4/23/10 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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