BILL ANALYSIS                                                                                                                                                                                                    

                                                                  SB 1408
                                                                  Page  1

          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        
          |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        |
          |     |                          |     |                          |
           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  

          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  

          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  

          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  

          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.


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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  

          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  

          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  

           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 

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