BILL ANALYSIS Ó AB 793 Page 1 Date of Hearing: April 13, 2011 ASSEMBLY COMMITTEE ON INSURANCE Jose Solorio, Chair AB 793 (Eng) - As Amended: April 4, 2011 SUBJECT : Insurance producers: reverse mortgages SUMMARY : Prohibits an insurance broker or agent from participating in or employing any party that participates in the origination of a reverse mortgage, except as specified. Specifically, this bill : 1)Prohibits an insurance broker or agent from participating in, being associated with, or employing any party that participates in the origination of a reverse mortgage, unless that agent or broker maintains procedural safeguards designed to ensure that the agent or broker transacting insurance has no direct financial incentive to refer the policyholder to a reverse mortgage lender. 2)Generally prohibits individuals transacting insurance from receiving compensation, commission, or direct incentive for providing reverse mortgage borrowers with an insurance product that is connected to or a result of the reverse mortgage. 3)Creates an exception to the general prohibition on compensation if the agent or broker offers title insurance, hazard, flood, or other peril insurance, or similar products that are customary and normal under a reverse mortgage loan. EXISTING LAW: 1)Specifies that insurers, brokers, agents, and others engaged in the transaction of insurance owe a prospective insured who is 65 years of age or older, a duty of honesty, good faith, and fair dealing. 2)Provides several exceptions to this duty, including Medicare supplement insurance, long-term care insurance, disability coverage through the insured's employer, and certain travel accident insurance. FISCAL EFFECT : Undetermined. AB 793 Page 2 COMMENTS : 1)Purpose. The purpose of this bill is to place restrictions on insurance agents and brokers to help prevent seniors from falling victim to predatory practices associated with reverse mortgage transactions. 2)Background. In 2009, AB 329 (Feuer) (Chapter 236, Statutes of 2009) was enacted into law to prohibit a reverse mortgage lender or mortgage broker from participating with, employing, or making referrals to, an individual involved in the sale of financial or insurance products. While reverse mortgage lenders and brokers are prohibited from promoting annuities or insurance, insurance agents can legally direct senior clients to get a reverse mortgage to fund insurance products. According to the author, as a result of existing law, seniors are still targeted with aggressive and abusive cross promotions of other financial products such as long term care insurance or annuities that may not be suitable for them. 3)Support. The author and the Department of Insurance state that a reverse mortgage should be an option of last resort only for seniors with an immediate need for cash who are unable to obtain the cash by other means. The Department of Insurance states that this bill would provide another level of protection for seniors from being persuaded to use the proceeds of a reverse mortgage to purchase inappropriate insurance products, primarily long term care insurance and annuities. The Department states that there is an increasing need for this bill as the growth of the reverse mortgage business has been accompanied by aggressive marketing and abuse, especially when reverse mortgages are marketed along with insurance products or financial investment vehicles. This bill can help to return the concept of a reverse mortgage to its original form. The Congress of California Seniors and the California Advocates for Nursing Home Reform state that some insurance agents are aggressively pursuing seniors and convincing them to tap into their home equity and purchase insurance products. These organization state that it is not suitable to use reverse mortgages to fund annuities because annuities yield AB 793 Page 3 substantially less interest for the senior (1.5 to 3%) than what the reverse mortgage loan costs (5 to 8%). Thus, the senior can only lose money on that deal. 4)Opposition. The Metropolitan Life Insurance Company (MetLife), which opposes the bill unless amended, states that one provision of the bill needs clarifying. MetLife states that its amendment would clarify that a producer is not forever barred from receiving a commission on a non-casualty product simply because the consumer purchased an unrelated reverse mortgage. The author and the Department of Insurance have not agreed with that proposed amendment. REGISTERED SUPPORT / OPPOSITION : Support Department of Insurance AARP California California Advocates for Nursing Home Reform California Retired Teachers Association Congress of California Seniors Opposition Metropolitan Life Insurance Company (unless amended) Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086