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.