BILL ANALYSIS Ó SENATE INSURANCE COMMITTEE Senator Ronald Calderon, Chair SB 1184 (Corbett) Hearing Date: April 11, 2012 As Amended: April 9, 2012 Fiscal: Yes Urgency: No SUMMARY Would prohibit an insurance agent from providing assistance to a senior in obtaining veterans benefits through government programs, unless the agent maintains procedural safeguards designed to ensure that the agent or broker transacting insurance has no direct financial incentive to refer the policyholder or purchaser to any government benefits program. DIGEST Existing law 1. Requires all insurers, brokers, agents, and others engaged in the transaction of insurance to owe to a prospective insured who is 65 years of age or older, a duty of honesty, good faith, and fair dealing. This bill 1. Would prohibit an insurance broker or agent from participating in, being associated with, or employing any party that participates in, or is associated with, the obtaining of veterans benefits for a senior, unless the insurance agent or broker maintains procedural safeguards designed to ensure that the agent or broker transacting insurance has no direct financial incentive to refer the policyholder or prospective policyholder to any government benefits program. COMMENTS 1. Purpose of the bill According to the CANHR, to protect veterans from bad acting insurance agents who mislead seniors about the Veterans Aid and Attendance benefits program. SB 1184 (Corbett), Page 2 2. Background Current federal law prohibits any individual from charging a fee for helping a veteran file an initial application for benefits with the U.S. Department of Veterans Affairs (limited fees may be charged for prosecuting an appeal before the Board of Veterans Appeals). According to CANHR, some aggressive marketers selling insurance products target senior veterans and charge fees to "educate" veterans or help them prepare claims. In particular, the CANHR points to the Veterans Aid and Attendance program designed to provide low-wealth veterans with financial support to pay for care and allow the veteran to remain independent. Eligibility is based, in part, on the applicant's income and net worth. An agent may advise a senior to "hide" assets in an annuity or trust in order to qualify for these benefits with intent to sell that product. By requiring that agents and brokers "maintain procedural safeguards" designed to avoid a conflict of interest, this bill adopts a similar approach and language applied to questionable practices related to reverse mortgages as addressed in AB 793 (Chapter 223, Statutes of 2011) and AB 329 (Chapter 236, Statutes of 2009). 3. Summary Arguments in Support a. CANHR supports this bill because it separates licensed California insurance agents from profiteers who are charging aged and disabled veterans to qualify for the free veterans' benefits. SB 1184 makes sure insurers do not deceptively peddle their products if they are working with other groups or individuals who are assisting veterans with benefits. b. AFSCME supports this bill to avoid the confusion created by agents that cross sell products - assisting senior veterans with, or referring them to, Aid and Attendance for a fee and then selling them policies, such as annuities. This confuses senior veterans and conflicts with the spirit of federal law. SB 1184 (Corbett), Page 3 c. Consumer Attorneys of California supports this bill because it safeguards veterans from bad acting insurance agents who mislead seniors about the Veterans Aid and Attendance benefits program and charge a fee for services that the VA or veterans service organizations offer for free. 4. Summary of Arguments in Opposition None received 5. Questions a. What safeguards are anticipated by the bill? b. Should "procedural safeguards" be more precisely defined? On the other hand, would more defined terms also outline loopholes in the protections? 1. Suggested Amendments None 2. Prior and Related Legislation a. AB 329 (Feuer) (enacted as Chapter 236, Statutes of 2009) enacted the Reverse Mortgage Elder Protection Act of 2009. b. SB 180 (Corbett) (enacted as Chapter 79, Statutes of 2011) prohibits a person from charging or receiving an unreasonable fee to prepare; aid; or advise certain persons in procuring; maintaining; or securing public social services, including activities and functions administered or supervised by the United States Department of Veterans Affairs or the California Department of Veterans Affairs, including pension benefits. c. AB 793 (Eng) (enacted Chapter 223, Statutes of 2011) prohibits an insurance broker or agent from participating in the origination of a reverse mortgage, unless the insurance agent or broker maintains procedural safeguards designed to ensure that the agent or broker transacting SB 1184 (Corbett), Page 4 insurance has no direct financial incentive to refer the policyholder or prospective policyholder to a reverse mortgage lender. POSITIONS Support California Advocates for Nursing Home Reform (CANHR)/ Sponsor American Federation of State, County and Municipal Employees (AFSCME) American Association of Retired Persons (AARP) Consumer Attorneys of California Oppose None received Consultant: Hugh Slayden, (916) 651-4773