BILL ANALYSIS                                                                                                                                                                                                    

                             SENATE INSURANCE COMMITTEE
                           Senator Ronald Calderon, Chair

          SB 713 (Calderon)        Hearing Date:  April 27, 2011  

          As Amended: April 13, 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.  
          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 

             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. 
                  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 

             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 supplemental 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 
                  a.        That payment of the full benefit is 
                    accomplished by delivery of the draft book or 
                  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 
                  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 
                  f.        A description of any fees charged, if 
                  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 
                  i.        That the interest earned on the account may be 
                  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 

            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 at the 
              time of the settlement of a life insurance claim an insurers 
              proposes to create a retained asset account. 

          2.  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 of a claim 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.

           3.  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 
          4.  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 


                                              SB 713 (Calderon), Page 5

              the funds at any time and deposit them elsewhere.

          5.  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. 

          6.  Summary of Arguments in Support:   

               a.     SB 713 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.
               b.     SB 713 will dramatically expand the scope of 
                 information which California law requires beneficiaries 
                 to be provided if, at the time a life insurance policy 
                 claim is submitted, a retained asset account is offered 
                 as the means for policy payment.

               c.     The disclosure provisions of this bill are intended 
                 to operate in tandem with the consumer choice-related 
                 provisions of SB 599 (Kehoe); the measures do not 

           7.  Summary of Arguments in Opposition:    

               a.     None received
          8.  Suggested Amendments:  

                a.     It is suggested the bill be amended to add a 
                  cross-reference to the applicability of the Insurance 
                  Code's Unfair Practices Act to this measure to parallel 
                  the handling of Senator Kehoe's SB 599. If agreeable to 
                  the Committee, this should be handled as a "Due Pass" on 
                  the bill with the amendment to be taken in the Senate 
                  Judiciary committee.

           9.  Prior and Related Legislation:   

          SB 599 (Kehoe) of the current session requires that life 
          insurance proceeds be paid by issuance to a beneficiary of a 
          lump sum check or another option that is clearly described in 


                                              SB 713 (Calderon), Page 6

          the claim form. If the beneficiary is provided choices and does 
          not designate a form of desired payment, a retained asset 
          account may be established on their behalf as the method of 
          payment only if the fact this will be the default option is 
          prominently disclosed on the claim form.  At the time of a 
          claim, SB 599 requires the procedures of SB 713 be complied with 
          if the insurer offers or recommends that a beneficiary use a 
          retained asset account payment mechanism.

          Liberty Mutual Group
          Pacific Life Insurance Company
          None received

          Consultant: Ken Cooley (916) 651-4110