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