BILL ANALYSIS �
AB 689
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 689 (Blumenfield)
As Amended June 27, 2011
Majority vote
-----------------------------------------------------------------
|ASSEMBLY: |79-0 |(May 31, 2011) |SENATE: |34-0 |(August 22, |
| | | | | |2011) |
-----------------------------------------------------------------
Original Committee Reference: INS.
SUMMARY : Requires that insurance producers and insurers
selling annuities have reasonable grounds to believe that their
recommendations are suitable for consumers, and adopts a
regulatory process to enforce this requirement.
The Senate amendments specify that nothing in one provision of
the bill shall limit the Insurance Commissioner's ability to
enforce and conduct investigations related to the bill's
provisions.
EXISTING LAW :
1)Requires life insurers selling life insurance and annuity
policies, through the use of agents, to require a statement
signed by the agent as to whether he or she knows replacement
is involved in the transaction, and if replacement is
involved, the insurer must require a list of all of the
applicant's existing life insurance or annuity policies to be
replaced and a written notice that the applicant has a right
for 30 days to a refund of all premiums paid.
2)Prohibits the sale of annuities to seniors where the purpose
of the sale is to affect Medi-Cal eligibility and the
purchaser would already qualify for Medi-Cal.
3)Prohibits the replacement of an existing insurance policy by
the use of a materially inaccurate presentation that
recommends that a senior citizen purchase an unnecessary
replacement annuity and prescribes the administrative
penalties for violating this law.
AS PASSED BY THE ASSEMBLY , this bill:
AB 689
Page 2
1)Required the insurance producer and the insurer when
recommending to a consumer the purchase or exchange of an
annuity to have reasonable grounds for believing that the
recommendation is suitable for the consumer.
2)Provided that an insurer shall not issue an annuity
recommended to a consumer unless there is a reasonable basis
to believe the annuity is suitable based on the consumer's
suitability information. In no event shall an insurance
producer or insurer recommend to a person 65 years or older
the sale of annuity to replace an existing annuity that
requires the insured to pay a surrender charge for the annuity
that is being replaced, where purchase of the annuity does not
confer a substantial financial benefit over the life of the
policy, so that a reasonable person would believe the purchase
is unnecessary.
3)Required an insurer to establish a supervision system, with
specified elements, that is designed to achieve the insurer's
and its insurance producer's compliance with this bill.
4)Made an insurer responsible for compliance with this article.
If a violation occurs, either because of the action or
inaction of the insurer or its insurance producer, the
Insurance Commissioner would be authorized to order the
following:
a) An insurer to take reasonable appropriate corrective
action for any consumer harmed by the insurer's violation
of this bill; and,
b) Administrative penalties and sanctions ranging from
$1,000 to $300,000 for each violation.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, minor and absorbable costs, likely less than $50,000
per year, for on-going training of Department of Insurance
staff.
COMMENTS :
1)This bill expands on 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 important that consumers
AB 689
Page 3
understand 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.
2)Currently, there is no law requiring that insurers and
producers collect information regarding specified criteria
that must be considered in determining whether an annuity is
suitable for a consumer's financial situation, such as the
consumer's financial objectives, financial time horizon,
liquidity needs, existing needs, and whether or not the
consumer has a reverse mortgage. This bill establishes
safeguards to protect consumers from unsuitable annuity
purchases.
The author and Insurance Commissioner Jones state that the
federal Dodd-Frank Wall Street Reform and Consumer Protection
Act indicates that the states should preserve their sole
authority over regulating fixed annuities by adopting
comprehensive suitability standards for annuity sales that
meet or exceed the 2010 NAIC Model Regulation by June 6, 2013,
in order to avoid federal dual authority/oversight of fixed
annuities with the United States Securities and Exchange
Commission. This bill is written to accomplish this
objective.
3)The Senate amendments are technical amendments.
Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086
FN: 0001926