BILL ANALYSIS �
AB 689
Page 1
Date of Hearing: May 11, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 689 (Blumenfield) - As Amended: May 4, 2011
Policy Committee: InsuranceVote:12
- 0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill requires that insurance producers and insurers selling
annuities have reasonable grounds to believe that the products
they are recommending are suitable for consumers. Specifically,
this bill:
1)States that the bill's purpose is to require insurers to
establish a system to supervise recommendations and to set
forth standards and procedures for the recommendations of
annuity products to consumers so that the needs and financial
objectives of consumers are appropriately addressed.
2)Creates a regulatory process for the enforcement of this
requirement.
3)Requires the insurance producer and the insurer when
recommending to a consumer the purchase or exchange of an
annuity have reasonable grounds for believing that the
recommendation is suitable for the consumer.
4)Requires an insurance producer or insurance representative to
follow specific steps in determining suitability and
conducting transactions that are not recommended.
5)Requires the Insurance Commissioner (IC) to adopt reasonable
rules and regulations as necessary to administer this bill.
FISCAL EFFECT
Minor and absorbable costs, likely less than $50,000 per year,
for on-going training of Department of Insurance (DOI) staff.
AB 689
Page 2
COMMENTS
Rationale . This bill is intended to protect consumers from
aggressive insurances agents who are trying to market and sell
insurance annuity products to people, such as seniors, for whom
the investment is likely unsuitable. The author states that this
bill builds on, and in some sections exceeds, the requirements
set forth in the 2010 National Association of Insurance
Commissioners' (NAIC) Annuity Suitability Model Regulation,
which was created as a result of national-level discussions
regarding annuity suitability requirements. It is also the
author's intent to conform to existing California law and
provide additional consumer safeguards.
The author states this bill is needed because annuities are
often complex long-term insurance products in which the premium
monies invested are unavailable for many years and the
withdrawal of funds from annuities frequently involves the
payment of large penalties. It is therefore necessary that the
consumer understands the implications of purchasing an annuity
and that the insurer and producer make a reasonable
determination that the sale of the annuity is suitable for the
consumer's financial circumstances and investment objectives at
the time the annuity is sold to the consumer and prior to the
insurer's issuance of the contract.
Analysis Prepared by : Julie Salley-Gray / APPR. / (916)
319-2081