BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                   SB 599|
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                              UNFINISHED BUSINESS


          Bill No:  SB 599
          Author:   Kehoe (D), et al.
          Amended:  8/29/11
          Vote:     21

           
           SENATE INSURANCE COMMITTEE  :  5-3, 4/27/11
          AYES:  Calderon, Corbett, Lieu, Lowenthal, Price
          NOES:  Gaines, Anderson, Wyland
          NO VOTE RECORDED:  Correa

           SENATE JUDICIARY COMMITTEE  :  5-0, 5/03/11
          AYES:  Evans, Harman, Blakeslee, Corbett, Leno

           SENATE APPROPRIATIONS COMMITTEE  :  Senate Rule 28.8

           SENATE FLOOR  :  37-1, 05/19/11
          AYES:  Alquist, Berryhill, Blakeslee, Calderon, Cannella, 
            Corbett, Correa, De León, DeSaulnier, Dutton, Emmerson, 
            Evans, Fuller, Gaines, Hancock, Harman, Huff, Kehoe, La 
            Malfa, Leno, Lieu, Liu, Lowenthal, Negrete McLeod, 
            Padilla, Pavley, Price, Rubio, Runner, Simitian, 
            Steinberg, Strickland, Vargas, Wolk, Wright, Wyland, Yee
          NOES:  Anderson
          NO VOTE RECORDED:  Hernandez, Walters

           ASSEMBLY FLOOR  :  78-0, 8/31/11 - See last page for vote


           SUBJECT  :    Life insurance:  retained-asset account

           SOURCE  :     California Department of Insurance

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           DIGEST  :    This bill requires life insurers to provide 
          beneficiaries with settlement options on the life insurance 
          benefit claim form.  This bill authorizes a retained asset 
          account (RAA) to be the default method of settlement 
          payment provided that the claim form provides a prominent 
          disclosure, as specified, that the RAA will be the default 
          payment mechanism if no other option is selected by the 
          beneficiary, and requires that a life insurer who 
          recommends to a policyholder or beneficiary that the 
          beneficiary receive life insurance proceeds in the form of 
          a RAA or any arrangement other than a lump-sum payment 
          provide in writing to the policyholder or beneficiary the 
          terms of each settlement option.  

           Assembly Amendments  provide that this bill is contingent 
          upon successful enactment of SB 713 (Calderon), specify 
          that if the beneficiary of a life insurance policy is 
          provided settlement options in addition to a lump-sum 
          payment or settlement option selected by the policyholder, 
          the beneficiary shall have the option to choose how 
          benefits will be paid to him or her, add coauthors, and 
          make technical changes.

           ANALYSIS  :    Existing law:

          1.Prohibits insurers from knowingly misrepresenting to 
            claimants pertinent facts or insurance policy provisions 
            relating to any insurance coverage. 

          2.Requires an insurer to disclose to a first party claimant 
            or beneficiary that all benefits, coverage, time limits, 
            or other provisions of any insurance policy issued by 
            that insurer that may apply to the claim presented by the 
            claimant. 

          This bill:

            1.  Requires all life insurance benefits to be paid in 
              the form of a lump-sum payment to the beneficiary or by 
              another settlement option that is clearly described in 
              the claim form. 

            2.  Provides that if the beneficiary is provided 

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              settlement options in addition to a lump-sum payment or 
              a settlement option selected by the policyholder, the 
              beneficiary shall have the option to choose how 
              benefits are to be paid to the beneficiary. 

            3.  States that if the beneficiary does not choose one of 
              the available settlement options, an RAA may be the 
              default option only if the claim form provides a 
              prominent disclosure in easy-to-understand language in 
              bold 12-font type that, in the absence of a choice by 
              the beneficiary, payment of policy benefits shall be 
              made through the RAA on the beneficiary's behalf. 

            4.  Defines a "retained-asset account" as any mechanism 
              whereby the settlement of proceeds under a life 
              insurance policy is payable by depositing these 
              proceeds into an account with check or draft writing 
              privileges, and where those proceeds are retained by 
              the insurer pursuant to a supplemental contract not 
              involving annuity benefits. 

            5.  Requires life insurers to provide the beneficiary a 
              series of written disclosures proposed by SB 713 
              (Calderon), Chapter 130, Statutes of 2011, regarding 
              RAAs. (See proposed Section 10509.937 of the Insurance 
              Code in SB 713 (Calderon).) 

            6.  Provides that if the life insurer offers an option or 
              recommends the option that the beneficiary receive life 
              insurance proceeds in the form of an RAA or any 
              arrangement other than a lump-sum payment, the insurer 
              shall provide the policyholder written information 
              describing each of the settlement options available and 
              specific details relevant to those options. 

            7.  Requires that if the life insurer offers or 
              recommends to a beneficiary that the beneficiary 
              receive life insurance proceeds in the form of an RAA 
              at the time the claim is being made, the insurer shall 
              comply with the procedures proposed in SB 713 
              (Calderon), which proposes to enact the Life Insurance 
              Proceeds Disclosure Act of 2011. 

            8.  Provides that an insurer that fails to conform to the 

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              requirements of this bill shall become subject to the 
              state laws governing unfair insurance practices. 

            9.  Authorizes the Insurance Commissioner to adopt 
              regulations specifying reasonable requirements for the 
              form of agreements entered into and written disclosures 
              in connection with this bill. 

            10. Specifies that this bill shall only become operative 
              if SB 713 (Calderon) of this Session is enacted and 
              becomes effective. 

           Background
           
          An RAA is an interest-bearing money market checking account 
          that is established by an insurer for the beneficiary of a 
          life insurance policy, and into which the insurer deposits 
          the policy's death benefit.  Insurers are increasingly 
          defaulting to depositing beneficiary insurance settlement 
          payments into RAAs, which are not FDIC insured.  

          Last year, the life insurance industry came under fire for 
          paying life insurance benefits to families of deceased 
          soldiers into RAAs.  These RAAs accrue interest, some of 
          which is distributed to the beneficiary, but much of the 
          interest is distributed to the insurer maintaining the 
          account.  (David Evans,  Fallen Soldiers' Families Denied 
          Cash as Insurers Profit,  Bloomberg (Jul. 28, 2010) 
          http://www.bloomberg.com/news/2010-07-28/fallen-soldiers-fam
          ilies-denied-cash-payout-as-life-insurers-boost-profit.html 
          as of Apr. 23, 2011.)

          The California Department of Insurance participates in an 
          insurance regulator accreditation program developed by the 
          National Association of Insurance Commissioners (NAIC).  
          This accreditation program provides uniformity among the 
          member state insurance departments as well as consumer 
          protections.  Periodically, NAIC develops uniform insurance 
          standards which are included in NAIC's model laws.  

          After the media fallout regarding RAAs maintained by 
          insurers, the NAIC began drafting revisions to its RAA 
          bulletin in order to provide for better consumer 
          protection.  In December 2010, NAIC adopted a sample 

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          bulletin which provided minimum disclosures by insurers 
          regarding the use of RAAs.  This bulletin contains 
          disclosure language which the NAIC recommends to be adopted 
          by each member state.   Another measure, SB 713 (Calderon 
          2011), provides most of these recommended disclosures.  
          This bill differs from SB 713 in that, although it provides 
          disclosure language, this bill also provides disclosure 
          procedures for insurers.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes   
          Local:  No

           SUPPORT  :   (Verified  8/24/11)

          California Department of Insurance (source) 
          American Council of Life Insurers
          Association of California Life and Health Insurance 
          Companies
          Congress of California Seniors
          Consumer Attorneys of California
          Consumer Watchdog
          United Policyholders

           ARGUMENTS IN SUPPORT  :    The California Department of 
          Insurance writes:

               SB 599 requires insurers to obtain a beneficiary's 
               expressed written declaration as to preferred method 
               of benefit payment.  If the beneficiary does not make 
               a designation, RAAs may be used as a default form of 
               payment only if the claim form clearly discloses that 
               in the section of the form where payment is selected.  
               The bill also requires insurers to issue the 
               beneficiary with all RAA-related disclosures specified 
               in SB 713 (Calderon), which are similar, if not more 
               heightened, to the RAA-related disclosures endorsed by 
               the National Association of Insurance Commissioners, 
               in all cases, whether by beneficiary choice or 
               default, that an RAA is established.

               SB 599 preserves consumer choice and ensures 
               beneficiaries are made aware of how their benefits 
               will be paid if they fail to make a payment 
               designation on their claim form.

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           ASSEMBLY FLOOR :  78-0, 8/31/11
          AYES:  Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, 
            Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, 
            Brownley, Buchanan, Butler, Campos, Carter, Cedillo, 
            Chesbro, Conway, Cook, Davis, Dickinson, Donnelly, Eng, 
            Feuer, Fletcher, Fong, Fuentes, Furutani, Beth Gaines, 
            Galgiani, Garrick, Gatto, Gordon, Grove, Hagman, 
            Halderman, Hall, Harkey, Hayashi, Roger Hernández, Hill, 
            Huber, Hueso, Huffman, Jeffries, Jones, Knight, Lara, 
            Logue, Bonnie Lowenthal, Ma, Mansoor, Mendoza, Miller, 
            Mitchell, Monning, Morrell, Nestande, Nielsen, Norby, 
            Olsen, Pan, Perea, V. Manuel Pérez, Portantino, Silva, 
            Skinner, Smyth, Solorio, Swanson, Torres, Valadao, 
            Wagner, Wieckowski, Williams, Yamada, John A. Pérez
          NO VOTE RECORDED:  Charles Calderon, Gorell
           
          JJA:nl  8/31/11   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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