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
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           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
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            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