BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 599| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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 CONTINUED SB 599 Page 2 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 CONTINUED SB 599 Page 3 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 CONTINUED SB 599 Page 4 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 CONTINUED SB 599 Page 5 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. CONTINUED SB 599 Page 6 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 **** END **** CONTINUED