BILL ANALYSIS Ó
SB 713
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Date of Hearing: June 22, 2011
ASSEMBLY COMMITTEE ON INSURANCE
Jose Solorio, Chair
SB 713 (Calderon) - As Amended: June 15, 2011
SENATE VOTE : 39-0
SUBJECT : Life insurance benefits: retained asset accounts:
disclosures
SUMMARY : Adopts the Life Insurance Proceeds Disclosure Act of
2011 (Act). Specifically, this bill :
1)Includes legislative findings and declarations on the strain
of bereavement and the value of consumers knowing available
life insurance payment options.
2)States the Act's purpose is to establish disclosure standards
related to payment of life insurance benefits by means of a
retained asset account (RAA).
3)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.
4)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 an RAA, and how to obtain
specific details relevant to those options.
5)Provides that if an RAA is an option, before the RAA is
established, the insurer must 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preserved until the entire balance is withdrawn or the
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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 any.
g) The frequency of statements showing the current
account balance, the interest credited, drafts or checks
written, and any other account activity.
h) The minimum interest rate to be credited to the
account, how the actual interest rate will be determined,
and what the actual interest rate is at the time of the
disclosure.
i) That the interest earned on the account may be
taxable.
j) That RAA 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.
bb) A description of the insurer's policy regarding RAAs
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.
6)Requires insurers to send the beneficiary at least one
statement per quarter, and a statement for any month in which
there has been account activity.
7)Requires insurers which settle life insurance benefits through
an RAA to provide the beneficiary with a supplemental contract
that clearly discloses the rights of the beneficiary and the
obligations of the insurer.
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8)Specifies that the failure to comply with the requirements of
the bill would subject the life insurer to the penalties
provided by the Unfair Practices Act.
9)Provides that the bill will become operative only if SB 599 of
this session also is enacted and becomes effective.
EXISTING LAW :
1)Specifies that insurance on a life may be made payable in
various ways, including on the death of the insured.
2)Prohibits insurance companies from knowingly misrepresenting
to claimants pertinent facts or policy provisions relating to
any issues of coverage or claims handling.
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 is not be required to segregate
funds, but may hold them as a part of its general corporate
assets.
4)Establishes the California Life and Health Guaranty
Association (CLHIGA), which provides a guarantee in the event
an insurer insolvency, of 80 percent of the defaulting
insurer's contractual obligations up to a maximum of $300,000
in life insurance death benefits.
FISCAL EFFECT : No fiscal impact identified.
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 (NAIC) for the protection of consumers when
at the time of the settlement of a life insurance claim an
insurer proposes to create an RAA. The bill provides for
disclosure to beneficiaries of the key facts and features
of an RAA. The NAIC model is modified by SB 713 to provide
for at least quarterly statements of the status of funds in
the RAA.
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2) Background: An 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, these 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.
.
Whatever potential advantages the use of an RAA may offer a
beneficiary, the NAIC has determined that life insurance
beneficiary's need to know their rights and options with
respect to these accounts, including that they can withdraw
the funds at any time and deposit them elsewhere. Current
California law does not have clear ground rules for how life
insurers that make use of RAAs disclose to their beneficiaries
key facts about the RAA and their rights with respect to them.
3)Life insurers support proposal: Life insurers support the
bill because it is based on an NAIC Model that is intended to
provide detailed, significantly enhanced disclosures to
beneficiaries of life insurance policies. The insurers
support clear and consistent disclosure requirements. The
Department of Insurance supports the bill because it ensures
that beneficiaries receive the information they need to make
informed choices on whether an RAA is the appropriate
settlement option.
4)Related Legislation: SB 599 (Kehoe), also scheduled to be
heard at the June 22, 2011, hearing of the Insurance
Committee, 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 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.
REGISTERED SUPPORT / OPPOSITION :
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Support
American Council of Life Insurers
Association of California Life and Health Insurance Companies
(ACLHIC)
California Department of Insurance (CDI)
Liberty Mutual Group
MetLife
Pacific Life Insurance Company
Opposition
None received.
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086