BILL ANALYSIS Ó SENATE COMMITTEE ON INSURANCE Senator Richard Roth, Chair 2015 - 2016 Regular Bill No: SB 924 Hearing Date: April 13, 2016 ----------------------------------------------------------------- |Author: |Roth | |-----------+-----------------------------------------------------| |Version: |March 28, 2016 | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |Yes | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant:|Erin Ryan | | | | ----------------------------------------------------------------- Subject: Insurance: annuity transactions SUMMARY Adds to the definition of "suitability information" whether the consumer intends to apply for means-tested government benefits, including but not limited to, Medi-Cal or the veterans' aid and attendance benefit. DIGEST Existing law 1. Provides that all insurers, brokers, agents and others engaged in the transaction of insurance owe a prospective insured who is 65 or older a duty of honesty, good faith and fair dealing, in addition to any other duty, whether express or implied; (IC §785.5) 2. Requires insurers and insurance agents and brokers, in recommending the purchase or exchange of an annuity, to have reasonable grounds for believing that the recommendation is suitable for the consumer based on facts disclosed by the consumer, as specified; (IC §10509.910) 3. Defines "suitability information" to be provided by the consumer to include: a. Age; b. Annual income; c. Financial situation and needs, including the financial SB 924 (Roth) Page 2 of ? resources that will be used to fund the annuity; d. Financial experience; e. Financial objectives; f. Intended use of the annuity; g. Financial time horizon; h. Existing assets, including investment and life insurance holdings; i. Liquidity needs; j. Liquid net worth; aa. Risk tolerance; bb. Tax status; cc. Whether or not the consumer has a reverse mortgage; (IC §10509.913) 4. Prohibits the sale of an individual annuity to a senior if the purpose of the sale is affect eligibility for Medi-Cal, under specified conditions (Insurance Code §789.9); 5. Prohibits an insurance agent or broker from participating in efforts to obtain veterans benefits or services for a senior unless the agent or broker has no direct financial incentive to refer the policyholder or prospective policyholder to any veterans benefits program offered through the government. (IC §785.5) This bill 1. Adds to the definition of "suitability information" whether the consumer intends to apply for means-tested government benefits, including but not limited to, Medi-Cal or the veterans' aid and attendance benefit. COMMENTS 1. Purpose of the bill To ensure that insurance agents and brokers and insurance companies have the information they need to determine if an annuity product is suitable for a senior or is being sold or issued for the purpose of shielding assets to qualify for means-tested government benefits. SB 924 (Roth) Page 3 of ? 2. Background It is illegal for an insurance agent or broker to sell an annuity to a senior if the purpose of the sale is for the senior to qualify for government benefits, including Medi-Cal and the Veteran's Aid and Attendance Benefit. They also have a statutory duty of honesty, good faith and fair dealing to all seniors. Despite this, some unscrupulous brokers have targeted wealthy elderly residents of nursing homes to reposition their assets in order to apply for certain benefits from the U.S. Department of Veterans Affairs (VA). An integral part of the scheme is selling unwitting retirees unsuitable annuities that earn the brokers large commissions and profits. Part of the scam is convincing the senior that these benefits are actually entitlements. These annuities can tie up assets for years and carry hefty surrender penalties if the senior is denied the government benefits they have been promised or find they need access to their assets to pay unexpected medical or other expenses. Some agents have also been accused of selling unsuitable annuities to seniors for the sole purpose of qualifying for Medi-Cal and shielding assets from Medi-Cal recovery. Legislation was enacted in 2011 (AB 689 Blumenthal, Chap. 295 Statutes of 2011) that required insurers to establish a system to supervise the suitability of annuity sale recommendations so that the insurance needs and financial objectives of consumers at the time of the transaction are appropriately addressed. That bill established a list of specified information the consumer must provide to determine suitability, including age, annual income, financial situation and needs, intended use of the annuity, risk tolerance, net worth and tax status. This bill would add whether the consumer intends to apply for government benefits to the above list. These benefits provide an essential lifeline for the low-income seniors they were designed to assist, allowing them to stay in their home or the community rather than in an institution. Because of these abuses, the VA has proposed regulations that would make it even more difficult than it already is to qualify for those that really need the benefits. SB 924 (Roth) Page 4 of ? 3. Support According to the California Department of Insurance, it is illegal for California insurance agents to sell annuities to seniors if the purpose is for the senior to qualify for the Veterans Aid and Attendance Benefit or under certain circumstances to qualify for Medi-Cal. Since insurers are required to supervise and ultimately take responsibility for producer annuity recommendations and sales, whether or not a consumer intends to apply for government benefits should be added to the suitability criteria. California Advocates for Nursing Home Reform have sponsored SB 924 because on occasion unscrupulous agents will attempt to mislead seniors into believing that government benefits intended for low-wealth or impoverished seniors such as the Veterans Aid and Attendance Benefit are actually entitlements, and in order to qualify it is necessary liquidate assets and convert them into annuities they claim are "government friendly". These annuities can tie up the senior's assets for years and can create hefty surrender penalties if the senior needs to access their assets prematurely. 4. Opposition None received. 5. Prior and Related Legislation AB 689 Blumenthal, Chap. 295 Statutes of 2011 required insurers to establish a system to supervise the suitability of annuity sale recommendations so that the insurance needs and financial objectives of consumers at the time of the transaction are appropriately addressed. POSITIONS Support California Advocates for Nursing Home Reform (Sponsor) California Department of Insurance California Long-Term Care Ombudsman Association Consumer Attorneys of California Contra Costa Advisory Council on Aging SB 924 (Roth) Page 5 of ? Retired Public Employees Association San Diego County District Attorney Oppose None received -- END --