BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 599
                                                                  Page  1

          Date of Hearing:   August 17, 2011

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                Felipe Fuentes, Chair

                     SB 599 (Kehoe) - As Amended:  June 28, 2011 

          Policy Committee:                              InsuranceVote:11 
          - 0 

          Urgency:     No                   State Mandated Local Program: 
          No     Reimbursable:              

           SUMMARY  

          This bill allows life insurance companies to place benefits in a 
          retained-asset account (RAA) only if the beneficiary does not 
          choose one of the other available settlement options, such as a 
          lump sum payment. In addition, an RAA can only be used if a 
          prominent disclosure has been provided on the claim form. 

           FISCAL EFFECT  

          There are no significant costs associated with this legislation. 


           COMMENTS  

           1)Rationale  . The purpose of this bill is to assure that life 
            insurers cannot require beneficiaries to receive death 
            benefits in the form of a RAA, and to provide that the 
            beneficiary will have the option to choose how the benefits 
            will be paid.

           2)Background  . According to the Department of Insurance (DOI), 
            which is the sponsor of this bill, existing law permits 
            insurers to require beneficiaries to be paid life insurance 
            proceeds only via an RAA.  DOI also states that existing law 
            enables insurers to provide information to beneficiaries 
            regarding their life insurance proceeds in a manner that can 
            result in the insurers automatically establishing an RAA.

            Beneficiaries are not always emotionally prepared to determine 
            a secure place to deposit life insurance payouts following the 
            loss of a loved one.  Recognizing that situation, several life 








                                                                  SB 599
                                                                  Page  2

            insurance companies automatically deposit beneficiaries' 
            payouts into an RAA, where in recent years interest rates paid 
            often exceeded the rates available from banking institutions.  
            The author and the DOI state that while an RAA provides some 
            favorable options for beneficiaries, there are some causes for 
            concern as well.  One concern is that RAAs allow insurers to 
            use their proceeds to accrue investment benefits for 
            themselves in excess of the benefits distributed to the 
            beneficiaries.

           3)Contingency enactment  . The bill becomes operative only if SB 
            713 (Calderon) of the current session is enacted and becomes 
            effective. SB 713 (Calderon) proposes a set of disclosures 
            that insurers must follow when they use RAAs to pay death 
            claims to beneficiaries.  In 2010, the National Association of 
            Insurance Commissioners (NAIC) developed an informational 
            bulletin on RAAs.  SB 713 is based on the NAIC bulletin, and 
            includes some enhanced disclosures to help life insurance 
            beneficiaries obtain the information needed to make an 
            informed decision on whether an RAA is the appropriate option 
            for them.  

            SB 599 guarantees beneficiaries are afforded the opportunity 
            to choose how they want to receive their benefits.  Together, 
            these two bills create a consumer protection package.  

           Analysis Prepared by  :    Julie Salley-Gray / APPR. / (916) 
          319-2081