BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Ronald Calderon, Chair
SB 1408 (Comm. On Banking, Finance & Insurance) Hearing Date:
April 21, 2010
As Introduced: February 19, 2010
Fiscal: No
Urgency: No
SUMMARY Would include within the stated purpose of
California's CLHIGA law, which applies to a member insurer's
failure to perform its contractual obligations because of an
impairment or insolvency of the insurer that issued the
policies, that it includes coverage of "annuities or other"
contracts.
DIGEST
Existing law
1. Provides a mechanism, within the California Life and Health
Insurance Guarantee Association (CLHIGA) Act, for the payment of
claims against insolvent life and health insurance companies if
the claims arise under qualifying insurance policies.
2. Authorizes coverage for qualified persons under direct,
nongroup life, health, annuity and supplemental policies, and
contracts and includes special provisions pertaining to annuity
contracts, and certificates under group annuity contracts, as
defined, and includes subsequent excluding from the CLHIGA Act
coverage specified types of unallocated annuity contracts as
defined.
3. Specifies that Section 1067.01, which states the purpose of the
CLHIGA Act, shall be liberally construed to effect the purpose
of the Act and shall constitute an aid and guide to
interpretation.
This bill
1. Would revise the provision of law describing the purpose of
the CLHIGA Act to expressly state it applies to matters
"arising" under the kinds of polices covered by the Act and
SB
1408 (Comm. On B,F&I), Page 2
to include reference to the impairment or insolvency of the
member insurer that issued the "annuities", in addition to
current references to its application to the impairment or
insolvency of an insurer which issued the policies and
contracts.
COMMENTS
1. Purpose of the bill This bill clarifies the purpose
statement of the California Life and Health Insurance
Guarantee Association Act, which by law is intended as an
aid and guide to interpretation of the CLHIGA Act, that it
applies to "annuities and other" contracts which are
specified in the Act and its subsequent amendments.
2. Background In the current fiscal times, California's system
of insurance company regulatory oversight works in tandem
with the California Life and Health Insurance Guarantee
Association (CLHIGA) to provide important protections for
California's buyers of life and health insurance policies
and contracts, including annuities, other than specified
unallocated annuities.
3. SB 1408 provides interested parties more express assurance
that the purpose of California's CLHIGA law, which applies
to a member insurer's failure to perform its contractual
obligations because of an impairment or insolvency of the
insurer that issued the policies, includes coverage of
"annuities".
4. In the current economic environment, the relative
importance of annuities for those who own them has increased
in importance. A simple way to view annuities is that they
function like life insurance in reverse. Life insurance
safeguards an individual and their loved ones in the event
of an early death while an annuity protects its owner
running out of money over a long life.
5. As with life insurance, annuities rely on the concept of
pooled risk so that an individual's uncertainty as to the
length of their life is shifted from them to their insurance
company and all the other annuitants who purchase annuities
from that company.
6. Annuities are the only financial instruments available
SB
1408 (Comm. On B,F&I), Page 3
today, other than Social Security and pensions, that offer a
guaranteed lifetime stream of income during retirement.
Along with giving retirees the peace of mind that comes from
knowing that they will not outlive their assets, annuities
provide another important benefit-a way to increase current
income.
7. This ability of annuities to provide a guaranteed stream of
income makes their strength, and reliability, highly
important in this period when many other investments have
suffered serious declines in value and other setbacks.
8. AB 1408 does not expand the scope of California's Life and
Health Insurance Guarantee Association Act but will, at a
time when annuities have increased in importance as a
retirement tool, make the stated purpose and protections
provided by CLHIGA for annuities more explicit to insureds
and the public alike.
9. Support None
10. Opposition None
11. Questions None
12. Suggested Amendments . None
13. Prior and Related Legislation None
POSITIONS
Support
None
Oppose
None
Consultant: Kenneth Cooley (916) 651-4102