BILL ANALYSIS                                                                                                                                                                                                    

                                                                  SB 1408
                                                                  Page  1

          Date of Hearing:   June 23, 2010

                           ASSEMBLY COMMITTEE ON INSURANCE
                                 Jose Solorio, Chair
              SB 1408 (Committee on Banking, Finance and Insurance) - As  
                               Amended:  June 1, 2010

           SENATE VOTE  :   Not relevant
          SUBJECT  :   California Life and Health Insurance Guarantee  

           SUMMARY  :   Increases the coverage limits payable by the  
          California Life and Health Insurance Guarantee Association  
          (Association) on several categories of life insurance products  
          and modernizes the language of the life insurance guarantee  
          association law to more closely conform to the national  
          standards based on the National Association of Insurance  
          Commissioners' (NAIC) Model Law.   Specifically,  this bill  :   

          1)Increases the coverage limit for death benefits from life  
            insurance policies from $250,000 to $300,000.

          2)Increases the coverage limit for annuities and structured  
            settlements from $100,000 to $250,000.

          3)Increases the interest rate rollback calculation in cases  
            where an interest rate must be calculated or recalculated, and  
            establishes a uniform trigger date for when an interest rate  
            calculation is to be made.  The effect of this change is that  
            policyholders with variable interest rates will receive a  
            higher return than authorized by the current calculation  

          4)Increases the amount that insurers can be assessed to fund the  
            obligations of the Association from 1% to 2% of premiums.

          5)Clarifies and extends the coverage of structured settlements  
            for California residents, even if the owner of the structured  
            settlement annuity is resident of another state.

          6)Clarifies who is entitled to coverage by the Association by  
            coordinating California law with the law of other states to  
            eliminate gaps in coverage provided by current law.


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          7)Clarifies that a person is only entitled to benefits from one  
            guarantee association.

          8)Ensures that a portion of a contact or policy is not excluded  
            from coverage because other portions are excluded.

          9)Repeals a definition of health insurance that has the effect  
            of limiting the scope of coverage of certain health insurance  

          10)Eliminates an unnecessary distinction between a "domestic"  
            (both organized under California law, and licensed in  
            California) and a "foreign" (licensed in California but  
            organized under the laws of another state) insurer.  Coverage  
            is based on the nature of the policy, and whether the person  
            is a covered person, regardless of which type of insurer  
            issued the policy.

          11)Provides that the Insurance Commissioner (IC) may act to  
            carry out the functions of the Association if the Association  
            fails to carry out its duties.

          12)Authorizes the Association to recover payments improperly  

          13)Provides that any lawsuits filed against the Association  
            shall be filed in Los Angeles County (where the Association is  

          14)Repeals the provision that allows the IC approval authority  
            over the executive director hired by the Association's board.

          15)Repeals the provision that the act is to be "liberally"  

          16)Repeals the $250 cap on non-pro-rata assessments that are  
            used to fund administrative activities of the Association, and  
            instead authorizes the Association's Board to determine the  
            proper assessment.

          17)Provides that the Association may assess in future years to  
            make up for a necessary assessment that exceeds the annual  

          18)Requires the Association to amend its plan of operation to  


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            include a method for the removal of directors for cause, and  
            to adopt a conflict of interest policy for directors.

          19)Adopts numerous technical and clarifying amendments to  
            conform with the NAIC Model Law without changing the  
            substantive effect of the California laws.

           EXISTING LAW  :

          1)Establishes the Association to provide a basic level of  
            protection to life and health insurance policyholders in the  
            event that a life or health insurer becomes insolvent.

          2)Establishes the Association's coverage limits, as described  

          3)Provides that the act shall be "liberally" construed to effect  
            the purposes of providing benefits to policyholders of  
            insolvent insurers.

          4)Allows an aggrieved policyholder to file suit against the  
            Association in any appropriate venue in California.

          5)Contains numerous provisions that are drafted differently than  
            the NAIC Model Law, with minor variations in interpretation  
            between California Law and the NAIC Model.

           FISCAL EFFECT  :   Undetermined.

           COMMENTS  :  

           1)Purpose  .  According to the author and the bill's sponsor, the  
            Association, the purpose of the bill is both to increase  
            coverage levels to the amounts now recommended by the NAIC,  
            and to redraft numerous provisions using the Model Law  
            language in order to achieve greater national conformity.   
            Since most life insurer insolvencies involve insurers that  
            transact in many states, multi-state conformity of law is  
            efficient, and allows more resources to be devoted to claims  
            payments, as opposed to resolving conflict of laws problems.

           2)Urgency clause  .  The author has requested permission from the  
            Assembly Rules Committee to add an urgency clause to the bill.  
             The rationale for urgency is that there is no reason to deny  
            Californians enhanced benefits any longer than necessary.   


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            Since the proponents believe the bill will easily garner 2/3  
            votes on both floors, they prefer to increase coverage sooner,  
            rather than later.

           3)"Liberal" construction  .  California law provides that the  
            guarantee fund act should be liberally construed to effectuate  
            the purposes of providing benefits to policyholders, whereas  
            the Model Law does not use the term "liberally."  The bill  
            proposes the Model Law language in the construction provision.  
             It is suggested that California law be retained in this  

           4)Los Angeles venue  .  The Association is located in Los Angeles,  
            and therefore the bill proposes Model Law language that suits  
            against the Association be filed in the venue where the  
            Association has its offices.  However, California venue law  
            would generally afford a consumer who resides in a county  
            other than Los Angeles to seek a remedy for a wrong committed  
            by the Association in the county where the consumer resides.   
            It is suggested that California law be retained in this  

           5)Department of Insurance concerns  .  The Department has  
            expressed concerns that some of the changes to Model Law  
            language may have negative implications for consumers, and  
            negative implications for the IC as receiver.  The proponents  
            and Department have worked through the substance of these  
            issues and have agreed in principle on resolving differences,  
            but the drafting process has not been completed.


          Allstate Insurance Company 
          Association of California Life and Health Insurance Companies
          California Life and Health Insurance Guarantee Association
          Kansas City Life Insurance Company
          Massachusetts Mutual Life Insurance Company
          National Association of Insurance and Financial Advisors of  
          Northwestern Mutual Life Insurance Company
          Prudential Financial 
          Transamerica Life Insurance Company


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          None received

           Analysis Prepared by  :    Mark Rakich / INS. / (916) 319-2086