BILL ANALYSIS                                                                                                                                                                                                    Ó




                   Senate Appropriations Committee Fiscal Summary
                            Senator Kevin de León, Chair


          SB 281 (Calderon) - Life Insurance
          
          Amended: May 1, 2013            Policy Vote: Ins 9-0
          Urgency: No                     Mandate: No
          Hearing Date: May 23, 2013      Consultant: Maureen Ortiz
          
          SUSPENSE FILE.
          
          
          Bill Summary:  SB 281 establishes a single set of standards and  
          requirements pertaining to life insurance policies or riders  
          that accelerate death benefits in the event of certain  
          qualifying events.

          Fiscal Impact: 
          
           CDI estimates that the cost to implement in FY 2013-14 will be  
            $250,000, in FY 2014-15 will be $734,000, and in FY 2015-16  
            and ongoing will be $407,000.
             
           Application fee revenue is projected to be $119,000 in FY  
            2013-14, $119,000 in FY 2014-15 and $15,500 in FY 2015-16 and  
            subsequent fiscal years.

           Additional fee revenue of $50,000 to $90,000 over FY 2013-14  
            and FY 2014-15 for the $1 special assessment insurers pay for  
            each life insurance policy issued, dependent on whether or not  
            consumers purchase the accelerated death benefit under a new  
            policy or as a rider to an existing policy.

          The cost estimate provided by CDI is based on the expected need  
          for additional attorneys to review insurer filings for  
          accelerated death benefit riders and policies, and an actuary to  
          certify that any rider or policy is sound.  In addition, the  
          department anticipates the need for 3.2 PYs at a cost of  
          $324,000 in the Consumer Services Division to handle questions  
          and complaints.  Other costs result from additional  
          investigators, and compliance officers.  It is not likely,  
          however, that many complaints will be generated during the first  
          year - but more likely that complaints/questions will flow in  
          over the years and that most consumers will contact the  
          department during the period of time when the benefit will be  








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          accessed.

          Application fee revenue estimates provided by CDI are based on  
          an expected 100 insurers filing for approval of the accelerated  
          death benefit riders and that only about 60% of those  
          applications will be approved.  Insurers only pay the fees upon  
          approval of the filings.  

          Background:  Accelerated death benefits are a life insurance  
          benefit that allows a policy holder to access all or a portion  
          of a death benefit based on the occurrence of a qualifying  
          event. These benefits can be incorporated into the original  
          policy or added as a rider. Currently, at least 42 other states,  
          41 of which are members of the Interstate Insurance Product  
          Regulation Commission (IIPRC) and New York, offer some form of  
          accelerated death benefits.

          Existing law requires life insurance contracts to be submitted  
          to the Insurance Commissioner for approval before the contracts  
          are delivered or issued for delivery in this state.

          Life insurance provides a cash benefit to beneficiaries when the  
          insured dies. According to the American Council of Life Insurers  
          (ACLI), in 2011, total life insurance coverage in the United  
          States amounted to over $19.2 trillion dollars.  Although life  
          insurance may be sold as group policies, individual life  
          insurance accounts for over 57% of the life insurance market.   
          Individual life insurance policies are commonly bought as either  
          permanent or term policies. 

          An accelerated death benefit permits the owner of a life  
          insurance policy to access a portion or all of the death benefit  
          prior to the death of the insured (the measuring life of the  
          policy) on the occurrence of a qualifying event while the  
          insured is still alive.  California law does not currently  
          recognize most of the common triggers for accelerated death  
          benefits.  The following description is based on the Standards  
          for Accelerated Death Benefits adopted by the Interstate  
          Insurance Product Regulation Commission (IIPRC) in 2007.  

          Under the IIPRC standards, qualifying events or "triggers" must  
          include a terminal illness trigger and may include additional  
          triggers for one or more of the following conditions:








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                 i.       A condition that requires extraordinary medical  
                   intervention, such as major organ transplant or  
                   continuous artificial life support, without which the  
                   insured would die;


                 ii.      A condition that usually requires continuous  
                   confinement in an institution, as defined in the form,  
                   and the insured is expected to remain there for the  
                   rest of his or her life;


                 iii.     A specified medical condition that, in the  
                   absence of extensive or extraordinary medical  
                   treatment, would result in a drastically limited life  
                   span (such as end-stage renal failure, invasive cancer,  
                   Acquired Immune Deficiency Syndrome, etc.);


                 iv.      A chronic illness defined as permanent inability  
                   to perform, without substantial assistance from another  
                   individual, a specified number of activities of daily  
                   living (bathing, continence, dressing, eating,  
                   toileting and transferring), and/or permanent severe  
                   cognitive impairment and similar forms of dementia.

          Proposed Law:   SB 281 defines "special benefit" to mean an  
          accelerated death benefit that is added to a life insurance  
          contract to provide for the advance payment of any part of the  
          death proceeds to the insured upon the occurrence of certain  
          qualifying events.  "Qualifying events" includes specified  
          chronic illnesses or situations where the insured requires  
          continuous confinement in an eligible institution and is  
          expected to remain there for the rest of his or her life.

          Any insurer that offers an accelerated death benefit must comply  
          with all of the following:

          a)  The contract must specify that the accelerated death benefit  
          is fixed at the time the insurer approves the request for the  
          accelerated death benefit.








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          b)  The contract must specify that the payment of the  
          accelerated death benefit is not conditioned on the receipt of  
          long-term care or medical services.

          c)  The contract must include an option to provide the benefit  
          in a lump sum, and may include an option to receive the benefit  
          in periodic payments.

          d)  The contract must not restrict the use of the proceeds of  
          the accelerated death benefit.

          e)  The contract must specify that payment is due immediately  
          upon receipt of the due written proof of eligibility.

          Additionally, the policy must include other items such as a  
          sample calculation of the accelerated death benefit, all policy  
          benefits, premium payments, as the cost of insurance charges and  
          values.

          Staff Comments:   SB 281 specifically authorizes the Department  
          of Insurance to adopt reasonable rules and regulations that are  
          necessary to implement the provisions of this bill.

          SB 476 (Steinberg), currently pending before this committee,  
          requires insurers to pay a special assessment of $1 on each life  
          insurance/annuity policy issued.  Of the total amount of revenue  
          collected, 50% is distributed to district attorneys for  
          investigating and prosecuting individual life insurance and  
          annuity product financial abuse cases involving insurance  
          licensees.  The remaining 50% is used by the CDI to regulate and  
          oversee life insurance products and to respond to consumer  
          inquiries and complaints related to life insurance or annuity  
          products.