BILL ANALYSIS
------------------------------------------------------------
|SENATE RULES COMMITTEE | SB 1408|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
------------------------------------------------------------
UNFINISHED BUSINESS
Bill No: SB 1408
Author: Senate Banking, Finance and Insurance Committee
Amended: 8/2/10
Vote: 27 - Urgency
SENATE BANKING, FINANCE, AND INS. COMMITTEE : 9-0, 4/21/10
AYES: Calderon, Cogdill, Correa, Florez, Kehoe, Lowenthal,
Padilla, Price, Runner
NO VOTE RECORDED: Cox, Liu
SENATE FLOOR : 33-0, 4/29/10 (Consent)
AYES: Aanestad, Alquist, Ashburn, Calderon, Cedillo,
Cogdill, Corbett, Correa, Cox, DeSaulnier, Ducheny,
Dutton, Florez, Hancock, Harman, Hollingsworth, Huff,
Kehoe, Leno, Liu, Lowenthal, Negrete McLeod, Oropeza,
Padilla, Pavley, Price, Runner, Simitian, Steinberg,
Walters, Wolk, Wright, Wyland
NO VOTE RECORDED: Denham, Romero, Strickland, Wiggins, Yee,
Vacancy, Vacancy
ASSEMBLY FLOOR : 75-0, 8/18/10 - See last page for vote
SUBJECT : California Life and Health Insurance Guarantee
Association Act
SOURCE : Author
DIGEST : This bill increases the coverage limits payable
by the California Life and Health Insurance Guarantee
Association on several categories of life insurance
CONTINUED
SB 1408
Page
2
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' Model Law.
Assembly Amendments revise and recast provisions of the
California Life and Health Insurance Guarantee Association
Act, including, but not limited to, the powers and duties
of the association, coverage eligibility, the conditions
and procedures for payment of a claim, association
reporting requirements, add and urgency clause, and make
other related changes.
ANALYSIS : 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 affect
the purpose of the Act and shall constitute an aid and
guide to interpretation.
This bill:
1. Increases the coverage limit for death benefits 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
SB 1408
Page
3
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 one percent
to two percent 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.
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.
11. Provides that the Insurance Commissioner 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.
SB 1408
Page
4
13. Repeals the $250 cap on non-pro-rata assessments used
to fund administrative activities of the Association,
and instead authorizes the Association to determine the
proper assessment.
14. Provides that the Association may assess in future
years to make up for a necessary assessment that exceeds
the annual cap.
15. Requires the Association to amend its plan of
operation to include a method for the removal of
directors for cause, and to adopt a conflict of interest
policy for directors.
16. Specifies that the amendments to the guarantee
association law accomplished by the bill shall only
apply to insolvencies that occur after its effective
date.
17. Provides that the bill is an urgency measure, to take
effect immediately.
18. Adopts numerous technical and clarifying amendments to
conform with the National Association of Insurance
Commissioners' Model Law without changing the
substantive effect of the California laws.
Background
In the current fiscal times, California's system of
insurance company regulatory oversight works in tandem with
CLHIGA to provide important protections for California's
buyers of life and health insurance policies and contracts,
including annuities, other than specified unallocated
annuities.
This bill 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".
In the current economic environment, the relative
SB 1408
Page
5
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.
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.
Annuities are the only financial instruments available
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.
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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 8/18/10)
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
SB 1408
Page
6
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Bass, Beall, Bill
Berryhill, Tom Berryhill, Block, Blumenfield, Bradford,
Brownley, Buchanan, Caballero, Carter, Chesbro, Conway,
Cook, Coto, Davis, De La Torre, De Leon, DeVore, Eng,
Feuer, Fletcher, Fong, Fuentes, Fuller, Furutani, Gaines,
Galgiani, Garrick, Gatto, Gilmore, Hagman, Hall, Harkey,
Hayashi, Hernandez, Hill, Huber, Huffman, Jeffries,
Jones, Knight, Lieu, Bonnie Lowenthal, Ma, Mendoza,
Miller, Monning, Nava, Nestande, Niello, Nielsen, Norby,
V. Manuel Perez, Portantino, Ruskin, Salas, Saldana,
Silva, Skinner, Smyth, Solorio, Audra Strickland,
Swanson, Torlakson, Torres, Torrico, Tran, Villines,
Yamada, John A. Perez
NO VOTE RECORDED: Blakeslee, Charles Calderon, Evans,
Logue, Vacancy
JA:nl 8/18/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****