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 --