BILL ANALYSIS
SB 1408
Page 1
SENATE THIRD READING
SB 1408 (Banking, Finance and Insurance Committee)
As Amended August 2, 2010
2/3 vote. Urgency
SENATE VOTE :33-0
INSURANCE 12-0 APPROPRIATIONS 17-0
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|Ayes:|Solorio, Gaines, |Ayes:|Fuentes, Conway, |
| |Anderson, Caballero, | |Bradford, |
| |Charles Calderon, Carter, | |Charles Calderon, Coto, |
| |Feuer, Hagman, Hayashi, | |Davis, |
| |Niello, Salas, Torres | |De Leon, Gatto, Hall, |
| | | |Harkey, Miller, Nielsen, |
| | | |Norby, Skinner, Solorio, |
| | | |Torlakson, Torrico |
|-----+--------------------------+-----+--------------------------|
| | | | |
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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 $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
method.
4)Increases the amount that insurers can be assessed to fund the
SB 1408
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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.
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
policies.
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.
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
made.
13)Repeals the $250 cap on non-pro-rata assessments used to fund
administrative activities of the Association, and instead
authorizes the Association to determine the proper assessment.
14)Provides that the Association may assess in future years to
make up for a necessary assessment that exceeds the annual
cap.
15)Requires the Association to amend its plan of operation to
include a method for the removal of directors for cause, and
to adopt a conflict of interest policy for directors.
SB 1408
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16)Specifies that the amendments to the guarantee association
law accomplished by the bill shall only apply to insolvencies
that occur after its effective date.
17)Provides that the bill is an urgency measure, to take effect
immediately.
18)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
above.
3)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 : No direct fiscal effect on the Department of
Insurance.
COMMENTS : 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 provides many benefits.
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086
FN: 0005680