BILL ANALYSIS
SB 1408
Page 1
Date of Hearing: June 23, 2010
ASSEMBLY COMMITTEE ON INSURANCE
Jose Solorio, Chair
SB 1408 (Committee on Banking, Finance and Insurance) - As
Amended: June 1, 2010
SENATE VOTE : Not relevant
SUBJECT : California Life and Health Insurance Guarantee
Association
SUMMARY : Increases the coverage limits payable by the
California Life and Health Insurance Guarantee Association
(Association) on several categories of life insurance products
and modernizes the language of the life insurance guarantee
association law to more closely conform to the national
standards based on the National Association of Insurance
Commissioners' (NAIC) Model Law. Specifically, this bill :
1)Increases the coverage limit for death benefits from life
insurance policies from $250,000 to $300,000.
2)Increases the coverage limit for annuities and structured
settlements from $100,000 to $250,000.
3)Increases the interest rate rollback calculation in cases
where an interest rate must be calculated or recalculated, and
establishes a uniform trigger date for when an interest rate
calculation is to be made. The effect of this change is that
policyholders with variable interest rates will receive a
higher return than authorized by the current calculation
method.
4)Increases the amount that insurers can be assessed to fund the
obligations of the Association from 1% to 2% of premiums.
5)Clarifies and extends the coverage of structured settlements
for California residents, even if the owner of the structured
settlement annuity is resident of another state.
6)Clarifies who is entitled to coverage by the Association by
coordinating California law with the law of other states to
eliminate gaps in coverage provided by current law.
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7)Clarifies that a person is only entitled to benefits from one
guarantee association.
8)Ensures that a portion of a contact or policy is not excluded
from coverage because other portions are excluded.
9)Repeals a definition of health insurance that has the effect
of limiting the scope of coverage of certain health insurance
policies.
10)Eliminates an unnecessary distinction between a "domestic"
(both organized under California law, and licensed in
California) and a "foreign" (licensed in California but
organized under the laws of another state) insurer. Coverage
is based on the nature of the policy, and whether the person
is a covered person, regardless of which type of insurer
issued the policy.
11)Provides that the Insurance Commissioner (IC) may act to
carry out the functions of the Association if the Association
fails to carry out its duties.
12)Authorizes the Association to recover payments improperly
made.
13)Provides that any lawsuits filed against the Association
shall be filed in Los Angeles County (where the Association is
located).
14)Repeals the provision that allows the IC approval authority
over the executive director hired by the Association's board.
15)Repeals the provision that the act is to be "liberally"
construed.
16)Repeals the $250 cap on non-pro-rata assessments that are
used to fund administrative activities of the Association, and
instead authorizes the Association's Board to determine the
proper assessment.
17)Provides that the Association may assess in future years to
make up for a necessary assessment that exceeds the annual
cap.
18)Requires the Association to amend its plan of operation to
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include a method for the removal of directors for cause, and
to adopt a conflict of interest policy for directors.
19)Adopts numerous technical and clarifying amendments to
conform with the NAIC Model Law without changing the
substantive effect of the California laws.
EXISTING LAW :
1)Establishes the Association to provide a basic level of
protection to life and health insurance policyholders in the
event that a life or health insurer becomes insolvent.
2)Establishes the Association's coverage limits, as described
above.
3)Provides that the act shall be "liberally" construed to effect
the purposes of providing benefits to policyholders of
insolvent insurers.
4)Allows an aggrieved policyholder to file suit against the
Association in any appropriate venue in California.
5)Contains numerous provisions that are drafted differently than
the NAIC Model Law, with minor variations in interpretation
between California Law and the NAIC Model.
FISCAL EFFECT : Undetermined.
COMMENTS :
1)Purpose . According to the author and the bill's sponsor, the
Association, the purpose of the bill is both to increase
coverage levels to the amounts now recommended by the NAIC,
and to redraft numerous provisions using the Model Law
language in order to achieve greater national conformity.
Since most life insurer insolvencies involve insurers that
transact in many states, multi-state conformity of law is
efficient, and allows more resources to be devoted to claims
payments, as opposed to resolving conflict of laws problems.
2)Urgency clause . The author has requested permission from the
Assembly Rules Committee to add an urgency clause to the bill.
The rationale for urgency is that there is no reason to deny
Californians enhanced benefits any longer than necessary.
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Since the proponents believe the bill will easily garner 2/3
votes on both floors, they prefer to increase coverage sooner,
rather than later.
3)"Liberal" construction . California law provides that the
guarantee fund act should be liberally construed to effectuate
the purposes of providing benefits to policyholders, whereas
the Model Law does not use the term "liberally." The bill
proposes the Model Law language in the construction provision.
It is suggested that California law be retained in this
respect.
4)Los Angeles venue . The Association is located in Los Angeles,
and therefore the bill proposes Model Law language that suits
against the Association be filed in the venue where the
Association has its offices. However, California venue law
would generally afford a consumer who resides in a county
other than Los Angeles to seek a remedy for a wrong committed
by the Association in the county where the consumer resides.
It is suggested that California law be retained in this
respect.
5)Department of Insurance concerns . The Department has
expressed concerns that some of the changes to Model Law
language may have negative implications for consumers, and
negative implications for the IC as receiver. The proponents
and Department have worked through the substance of these
issues and have agreed in principle on resolving differences,
but the drafting process has not been completed.
REGISTERED SUPPORT / OPPOSITION :
Support
Allstate Insurance Company
Association of California Life and Health Insurance Companies
California Life and Health Insurance Guarantee Association
Kansas City Life Insurance Company
Massachusetts Mutual Life Insurance Company
National Association of Insurance and Financial Advisors of
California
Northwestern Mutual Life Insurance Company
Prudential Financial
Transamerica Life Insurance Company
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Opposition
None received
Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086