BILL ANALYSIS Ó
SENATE INSURANCE COMMITTEE
Senator Ronald Calderon, Chair
SB 713 (Calderon) Hearing Date: April 13, 2011
As Amended: April 4, 2011
Fiscal: No
Urgency: No
SUMMARY Would require life insurers establishing retained
asset accounts to do so using a supplemental contract and
require extensive disclosures concerning such accounts
DIGEST
Existing law
1. Specifies insurance upon life may be made payable
various ways including on the death of the insured. (CIC
Section 10170)
2. Requires insurance companies not to knowingly
misrepresent to claimants pertinent facts or policy
provisions relating to any issues of coverage and under
related regulations of the Department of Insurance,
insurers are required to disclose to a beneficiary all
benefits, coverage, time limits or other provisions of the
insurance policy. (CIC Sec. 790.03(h)(1) and CCR Sec.
2695.4(a) of Title 10)
3. Provides that the relationship between the insurer and
the policyholder or beneficiaries under any agreement
concerning the terms and conditions for payment shall be
that of debtor and creditor and the insurer shall not be
required to segregate funds so held but shall hold them as
a part of its general corporate assets. (CIC Sec. 10170
(e))
4. Establishes the California Life and Health Guaranty
Association which provides a guarantee, in the event an
insurer going into default, of 80 percent of the defaulting
insurer's contractual obligations for each valid claim
under a policy or contract up to a maximum of 300,000
dollars in life insurance death benefits on any one life.
SB 713 (Calderon), Page 2
(CIC Secs. 1067 et seq., including 1067.02(c)(1),
1067.02(c)(2) (A)(i))
5. Provides that the CLHIGA coverage guarantee does not
extend to:
a. Any portion of a policy or contract not
guaranteed by the insurer, or under which the risk is
borne by the policy or contract owner. (CIC Sec.
1067.02(b)(2)(A))
b. An obligation that does not arise under the
express written terms of the policy or contract issued
by the insurer to the contract or policy owner,
including, inter alia, "claims based on side letters,
riders, or other documents that were issued by the
insurer without meeting applicable policy form filing
or approval requirements". (CIC Sec. 1067.02(J)(ii))
This bill
1. Enacts the Life Insurance Proceeds Disclosure Act of
2011.
2. Includes Findings and Declarations on the strain of
bereavement and the value of consumers knowing available
life insurance payment options.
3. States the Act's purpose to be establishing disclosure
standards related to payment of life insurance benefits by
means of a retained asset account.
4. Defines "Retained asset account" as a mechanism where
life insurance settlement proceeds are payable by the
insurer depositing the proceeds into an account with check
or draft writing privileges, where the proceeds are
retained by the insurer under a supplementary contract not
involving annuity benefits.
5. Requires that insurers give beneficiaries, when a claim
is made, written information describing the settlement
options available under the policy, and any other option
available for the receipt of proceeds, including retained
asset accounts, and how to obtain specific details relevant
to those options.
6. If a retained asset account is an option, before the
SB 713 (Calderon), Page 3
retained asset account is established, the insurer shall
disclose:
a. That payment of the full benefit is
accomplished by delivery of the draft book or
checkbook.
b. That one draft or check may be written to
access the entire amount, including interest, of the
retained asset account at any time.
c. Whether the available settlement options are
preserved until the entire balance is withdrawn or the
balance drops below the insurer's minimum balance
requirements.
d. A statement identifying the account as either
a checking or draft account and an explanation of how
the account works, including, but not limited to, any
minimum check or draft amount requirements.
e. Information about the account services
provided and contact information where the beneficiary
may request and obtain more details about those
services.
f. A description of any fees charged, if
applicable.
g. The frequency of statements showing the
current account balance, the interest credited, drafts
or checks written, and any other account activity.
The insurer shall send the beneficiary at least one
statement per quarter, and a statement for any month
in which there has been account activity other than
just the crediting of interest.
h. The minimum interest rate to be credited to
the account and how the actual interest rate will be
determined.
i. That the interest earned on the account may be
taxable.
j. Retained asset account funds held by insurance
companies are not guaranteed by the Federal Deposit
Insurance Corporation (FDIC), but are guaranteed by
State Guaranty Associations, and that the State
Guaranty Association coverage limits vary by state.
aa. A statement that advises the beneficiary to
contact the National Organization of Life and Health
Insurance Guaranty Associations (NOLHGA) to learn more
about the coverage limitations applicable to his or
her account, and that provides the beneficiary with
the current Internet Web site address and telephone
number for NOLHGA.
SB 713 (Calderon), Page 4
bb. A description of the insurer's policy
regarding retained asset accounts that become
inactive, including the policy with respect to
inactive accounts that are at risk of escheating to
the state pursuant to the California Unclaimed
Property Law (Chapter 7 (commencing with Section 1500)
of Title 10 of Part 3 of the Code of Civil Procedure).
7. Requires insurers which settle life insurance benefits
through a retained asset account to provide the beneficiary
with a supplemental contract that clearly discloses the
rights of the beneficiary and the obligations of the
insurer.
COMMENTS
1. Purpose of the bill : According to the Author, SB 713
proposes adoption of the disclosure model adopted last
December by the National Association of Insurance
Commissioners for the protection of consumers when insurers
propose to settle life insurance policies through creation
of a retained asset account. It provides for disclosure to
beneficiaries of the key facts and features of a retained
asset account which is offered to them upon the filing for
settlement of a life insurance policy. The NAIC model is
modified by SB 713 to provide for at least quarterly
statements of the status of funds in the RAA.
2. Background and Discussion: A Retained Asset Account (RAA)
is an account, established by an insurer on behalf of the
beneficiary of a life insurance policy settlement whose
initial balance is a life insurance or annuity death
benefit. As a way to hold funds which is both highly liquid
and earns interest from the date it is established, such
accounts permit beneficiaries time to consider all of the
financial options available. Upon the establishment of the
account, the consumer receives a "checkbook" or a book of
drafts
.
3. Whatever potential advantages the use of an RAA may offer a
beneficiary, the National Association of Insurance
Commissioners (NAIC) has determined that life insurance
beneficiary's need to know their rights and options with
respect to such accounts, including that they can withdraw
the funds at any time and deposit them elsewhere.
SB 713 (Calderon), Page 5
4. Current California law does not have clear ground rules for
how life insurers who make use of RAA's disclose to their
beneficiaries key facts about the RAA and their rights with
respect to them.
5. Summary of Arguments in Support:
a. SB 599 is based on a National Association of
Insurance Commissioners 2010 Model which is intended to
provide detailed, significantly enhanced disclosures to
beneficiaries of life insurance proceeds and ensure that
they receive regular statements concerning the account,
its earnings, and its activity.
6. Summary of Arguments in Opposition:
a. None received
7. Suggested Amendments:
a. On page 3, line 6, the term "supplementary" should be
changed to "supplemental" to conform the statute to the
terminology of the California Life and Health Guaranty
Association Act and to Section 10509.935 of the bill.
b. On page 3, line 20, after contract, insert ",
including the guaranteed minimum interest rate"
c. On page 4, line 7 after "interest.", insert:
"Each such statement shall include the following
"Reminder: You may access the entire balance of this
account at any time without penalty by writing a check for
that amount." If appropriate, substitute the term "draft"
for the term "check".
1. Prior and Related Legislation:
SB 599 (Kehoe) of the 2011 Session requires that life insurance
proceeds be paid solely by issuance to a beneficiary of a lump
sum check unless the beneficiary elects in writing to receive
payment by another method; insurer recommendations to a
policyholder or beneficiary to accept an alternative payment to
a lump sum check must be accompanied by disclosures which are
more general than those of SB 713.
SB 713 (Calderon), Page 6
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
Liberty Mutual Group
MetLife
Pacific Life Insurance Company
Opposition
None received
Consultant: Ken Cooley (916) 651-4110