BILL ANALYSIS                                                                                                                                                                                                    

                                                                  SB 713
                                                                  Page  1

          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: 

           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 

          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                 preserved until the entire balance is withdrawn or the 


                                                                  SB 713
                                                                  Page  2

                 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 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 
               i)     That the interest earned on the account may be 
               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 
               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 

          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.


                                                                  SB 713
                                                                  Page  3

          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 

          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.


                                                                  SB 713
                                                                  Page  4

              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.



                                                                  SB 713
                                                                  Page  5

           American Council of Life Insurers
          Association of California Life and Health Insurance Companies 
          California Department of Insurance (CDI)
          Liberty Mutual Group
          Pacific Life Insurance Company
          None received.

           Analysis Prepared by  :    Mark Rakich / INS. / (916) 319-2086