BILL ANALYSIS �
AB 793
Page 1
Date of Hearing: April 13, 2011
ASSEMBLY COMMITTEE ON INSURANCE
Jose Solorio, Chair
AB 793 (Eng) - As Amended: April 4, 2011
SUBJECT : Insurance producers: reverse mortgages
SUMMARY : Prohibits an insurance broker or agent from
participating in or employing any party that participates in the
origination of a reverse mortgage, except as specified.
Specifically, this bill :
1)Prohibits an insurance broker or agent from participating in,
being associated with, or employing any party that
participates in the origination of a reverse mortgage, unless
that agent or broker maintains procedural safeguards designed
to ensure that the agent or broker transacting insurance has
no direct financial incentive to refer the policyholder to a
reverse mortgage lender.
2)Generally prohibits individuals transacting insurance from
receiving compensation, commission, or direct incentive for
providing reverse mortgage borrowers with an insurance product
that is connected to or a result of the reverse mortgage.
3)Creates an exception to the general prohibition on
compensation if the agent or broker offers title insurance,
hazard, flood, or other peril insurance, or similar products
that are customary and normal under a reverse mortgage loan.
EXISTING LAW:
1)Specifies that insurers, brokers, agents, and others engaged
in the transaction of insurance owe a prospective insured who
is 65 years of age or older, a duty of honesty, good faith,
and fair dealing.
2)Provides several exceptions to this duty, including Medicare
supplement insurance, long-term care insurance, disability
coverage through the insured's employer, and certain travel
accident insurance.
FISCAL EFFECT : Undetermined.
AB 793
Page 2
COMMENTS :
1)Purpose. The purpose of this bill is to place restrictions on
insurance agents and brokers to help prevent seniors from
falling victim to predatory practices associated with reverse
mortgage transactions.
2)Background. In 2009, AB 329 (Feuer) (Chapter 236, Statutes of
2009) was enacted into law to prohibit a reverse mortgage
lender or mortgage broker from participating with, employing,
or making referrals to, an individual involved in the sale of
financial or insurance products.
While reverse mortgage lenders and brokers are prohibited from
promoting annuities or insurance, insurance agents can legally
direct senior clients to get a reverse mortgage to fund
insurance products. According to the author, as a result of
existing law, seniors are still targeted with aggressive and
abusive cross promotions of other financial products such as
long term care insurance or annuities that may not be suitable
for them.
3)Support. The author and the Department of Insurance state
that a reverse mortgage should be an option of last resort
only for seniors with an immediate need for cash who are
unable to obtain the cash by other means. The Department of
Insurance states that this bill would provide another level of
protection for seniors from being persuaded to use the
proceeds of a reverse mortgage to purchase inappropriate
insurance products, primarily long term care insurance and
annuities.
The Department states that there is an increasing need for this
bill as the growth of the reverse mortgage business has been
accompanied by aggressive marketing and abuse, especially when
reverse mortgages are marketed along with insurance products
or financial investment vehicles. This bill can help to
return the concept of a reverse mortgage to its original form.
The Congress of California Seniors and the California Advocates
for Nursing Home Reform state that some insurance agents are
aggressively pursuing seniors and convincing them to tap into
their home equity and purchase insurance products. These
organization state that it is not suitable to use reverse
mortgages to fund annuities because annuities yield
AB 793
Page 3
substantially less interest for the senior (1.5 to 3%) than
what the reverse mortgage loan costs (5 to 8%). Thus, the
senior can only lose money on that deal.
4)Opposition. The Metropolitan Life Insurance Company
(MetLife), which opposes the bill unless amended, states that
one provision of the bill needs clarifying. MetLife states
that its amendment would clarify that a producer is not
forever barred from receiving a commission on a non-casualty
product simply because the consumer purchased an unrelated
reverse mortgage.
The author and the Department of Insurance have not agreed with
that proposed amendment.
REGISTERED SUPPORT / OPPOSITION :
Support
Department of Insurance
AARP California
California Advocates for Nursing Home Reform
California Retired Teachers Association
Congress of California Seniors
Opposition
Metropolitan Life Insurance Company (unless amended)
Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086