BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                   SB 713|
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                                 THIRD READING


          Bill No:  SB 713
          Author:   Calderon (D)
          Amended:  5/17/11
          Vote:     21

           
           SENATE INSURANCE COMMITTEE  :  8-0, 4/27/11
          AYES:  Calderon, Gaines, Anderson, Corbett, Lieu, 
            Lowenthal, Price, Wyland
          NO VOTE RECORDED:  Correa

           SENATE JUDICIARY COMMITTEE  :  5-0, 5/10/11
          AYES:  Evans, Harman, Blakeslee, Corbett, Leno


           SUBJECT  :    Insurance:  proceeds:  disclosure

           SOURCE  :     Author


           DIGEST  :    This bill establishes the Life Insurance 
          Proceeds Disclosure Act of 2011, which requires life 
          insurers to provide disclosures regarding death settlement 
          payment options, including retained asset accounts, to 
          policyholders and beneficiaries, as specified.  This bill 
          requires the insurer to provide to the beneficiary a 
          supplemental contract disclosing the rights of the 
          beneficiary and obligations of the insurer if the 
          beneficiary chooses death settlement payment to be placed 
          into a retained asset account.

           ANALYSIS  :    Existing law prohibits insurers from knowingly 
          misrepresenting to claimants pertinent facts or insurance 
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          policy provisions relating to any insurance coverage.  

          Existing law 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 may apply to the claim presented by 
          the claimant.

          This bill:

          1. Enacts the Life Insurance Proceeds Disclosure Act of 
             2011, which establishes disclosure standards for payment 
             of life insurance benefits to a beneficiary by means of 
             a retained asset account if a life insurance company 
             offers consumers a retained asset account or establishes 
             such an account as an alternative to the receipt of 
             lump-sum payment made directly to the beneficiary.

          2. Defines "insurer" to mean an insurance company that 
             delivers or issues for delivery in this state any policy 
             of individual or group life insurance.

          3. Defines "retained asset account" to mean any mechanism 
             where the settlement of proceeds payable under a life 
             insurance policy is accomplished by the insurer, or an 
             entity acting on behalf of the insurer, by depositing 
             the 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.

          4. Requires life insurers to provide the beneficiaries, at 
             the time a claim is made, written information describing 
             the settlement options available under the policy and 
             any other option available to the beneficiary for the 
             receipt of proceeds, including retained asset accounts, 
             and how to obtain specific details relevant to those 
             options.

          5. Requires the life insurer, if the life insurance 
             benefits are placed in a retained asset account, send 
             the beneficiary one statement per quarter, and a 
             statement anytime there has been account activity other 
             than just the crediting of interest.

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          6. Requires the life insurer, if the insurer settles the 
             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 under the 
             supplemental contract.

          7. Requires the life insurer to provide the following 
             written disclosures to the beneficiary before the 
             retained asset account is established:

             A.    Payment of the full benefit is accomplished by 
                delivery of the draft book or checkbook.

             B.    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 would be required to send the 
                beneficiary at least one statement per quarter, 
                and a statement for any month in which there has 

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                been account activity other than just the 
                crediting of interest.

             H.    The minimum guaranteed interest rate to be 
                credited to the account and how the actual 
                interest rate will be determined, and the actual 
                interest rate that will be credited as of the date 
                of disclosure to a newly opened account.  Provides 
                the interest rate may be disclosed along with 
                other disclosures provided with the claim 
                documents sent to the beneficiary, through a 
                toll-free telephone number established by the 
                insurer, or through the insurer's Internet Web 
                site.

             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.

             K.    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 
                website address and telephone number for NOLHGA.

             L.    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.

          8. Provides that an insurer that fails to conform to the 
             requirements under this bill would be in violation of 
             existing law prohibiting unfair methods of competition 
             and unfair and deceptive acts or practices.

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           Background
           
          A retained asset account (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.  (Evans, Fallen Soldiers' Families Denied Cash as 
          Insurers Profit, Bloomberg (Jul. 28, 2010) 
           Ưas of Apr. 23, 2011].)

          The 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 RAA 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 
          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.   

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

           SUPPORT  :   (Verified  5/16/11)


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          Liberty Mutual Group
          Metropolitan Life Insurance Company
          Pacific Life Insurance Company


           ARGUMENTS IN SUPPORT  :    The author's office states, that 
          under current law, there Ưare] no specific statutory rules 
          on RAAs.  The alternative of RAA's for settlement of a life 
          insurance policy emerged in the 1980's.  This was a time 
          when two factors in the United States (U.S.) economy had 
          people in a vise:  (1) payment of interest by banks was 
          restricted under federal law, and yet (2) high inflation in 
          the U.S. economy was eroding the value of people's savings. 
           In this environment, the innovation represented by RAAs 
          offered a distinct advantage relative to the bank options 
          available to consumers.

          This bill mandates that the disclosures it sets forth be 
          provided to a beneficiary at the time of a claim under a 
          life insurance policy and before the RAA is selected or 
          established.  It imposes requirements for at least a 
          quarterly statement to the beneficiary of the status of the 
          funds in the RAA account.


          JJA:do  5/16/11   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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