BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 599|
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THIRD READING
Bill No: SB 599
Author: Kehoe (D)
Amended: 4/25/11
Vote: 21
SENATE INSURANCE COMMITTEE : 5-3, 4/27/11
AYES: Calderon, Corbett, Lieu, Lowenthal, Price
NOES: Gaines, Anderson, Wyland
NO VOTE RECORDED: Correa
SENATE JUDICIARY COMMITTEE : 5-0, 5/03/11
AYES: Evans, Harman, Blakeslee, Corbett, Leno
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SUBJECT : Life insurance: retained-asset account
SOURCE : California Department of Insurance
DIGEST : This bill requires life insurers to provide
beneficiaries with settlement options on the life insurance
benefit claim form. This bill authorizes a retained asset
account to be the default method of settlement payment
provided that the claim form provides a prominent
disclosure, as specified, that the retained-asset account
will be the default payment mechanism if no other option is
selected by the beneficiary, and requires that a life
insurer who recommends to a policyholder or beneficiary
that the beneficiary receive life insurance proceeds in the
form of a retained-asset account or any arrangement other
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than a lump-sum payment provide in writing to the
policyholder or beneficiary the terms of each settlement
option.
ANALYSIS : Existing law:
1.Prohibits insurers from knowingly misrepresenting to
claimants pertinent facts or insurance policy provisions
relating to any insurance coverage. (Ins. Code Sec.
790.03(h)(1).)
2.Requires an insurer to disclose to a first party claimant
or beneficiary that all benefits, coverage, time limits,
or other provisions of any insurance policy issued by
that insurer that may apply to the claim presented by the
claimant. (Cal. Code Regs., tit. 10, sec. 2695.4, subd.
(a).)
This bill:
1.Provides that all life insurance benefits shall be paid
in the form of a lump-sum payment to the beneficiary or
by another settlement option that is clearly described on
the benefit claim form.
2.Authorizes a retained asset account (RAA) to be the
default method of settlement payment only if the claim
form provides a prominent disclosure, in easy to
understand language set in bold and at least 12-point
font, to the beneficiary that, in the absence of the
beneficiary choosing a settlement option, payment of the
policy benefits shall be made into an RAA.
3.Requires that a life insurer who recommends to a
policyholder or beneficiary that the beneficiary receive
life insurance proceeds in the form of an RAA or any
arrangement other than a lump-sum payment provide in
writing to the policyholder or beneficiary the terms of
each settlement option.
4.Defines "lump-sum payment" to mean a single payment made
directly to the beneficiary that satisfies all of the
benefits owed to the beneficiary.
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5.Defines "retained-asset account" to mean any mechanism
whereby the settlement proceeds payable under a life
insurance policy are deposited into an account with check
or draft writing privileges, and where those proceeds are
retained by the insurer pursuant to a supplemental
contract not involving annuity benefits.
6.Provides that an insurer that fails to conform to the
requirements under this bill would be in violation of
existing law prohibiting unfair methods of competition
and unfair and deceptive acts or practices.
7.Authorizes the Insurance Commissioner to adopt
regulations specifying reasonable requirements for the
form agreements and written disclosures required under
this bill.
Background
An RAA is an interest-bearing money market checking account
that is established by an insurer for the beneficiary of a
life insurance policy, and into which the insurer deposits
the policy's death benefit. Insurers are increasingly
defaulting to depositing beneficiary insurance settlement
payments into RAAs, which are not FDIC insured.
Last year, the life insurance industry came under fire for
paying life insurance benefits to families of deceased
soldiers into RAAs. These RAAs accrue interest, some of
which is distributed to the beneficiary, but much of the
interest is distributed to the insurer maintaining the
account. (David Evans, Fallen Soldiers' Families Denied
Cash as Insurers Profit, Bloomberg (Jul. 28, 2010)
http://www.bloomberg.com/news/2010-07-28/fallen-soldiers-fam
ilies-denied-cash-payout-as-life-insurers-boost-profit.html
as of Apr. 23, 2011.)
The California Department of Insurance participates in an
insurance regulator accreditation program developed by the
National Association of Insurance Commissioners (NAIC).
This accreditation program provides uniformity among the
member state insurance departments as well as consumer
protections. Periodically, NAIC develops uniform insurance
standards which are included in NAIC's model laws.
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After the media fallout regarding retained asset accounts
maintained by insurers, the NAIC began drafting revisions
to its retained asset account bulletin in order to provide
for better consumer protection. In December 2010, NAIC
adopted a sample bulletin which provided minimum
disclosures by insurers regarding the use of RAAs. This
bulletin contains disclosure language which the NAIC
recommends to be adopted by each member state. Another
measure, SB 713 (Calderon, 2011), provides most of these
recommended disclosures. This bill differs from SB 713 in
that, although it provides disclosure language, this bill
also provides disclosure procedures for insurers.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 5/17/11)
California Department of Insurance (source)
Congress of California Seniors
Consumer Attorneys of California
Consumer Watchdog
United Policyholders
ARGUMENTS IN SUPPORT : The California Department of
Insurance writes:
SB 599 requires insurers to obtain a beneficiary's
expressed written declaration as to preferred method
of benefit payment. If the beneficiary does not make
a designation, RAAs may be used as a default form of
payment only if the claim form clearly discloses that
in the section of the form where payment is selected.
The bill also requires insurers to issue the
beneficiary with all RAA-related disclosures specified
in SB 713 (Calderon), which are similar, if not more
heightened, to the RAA-related disclosures endorsed by
the National Association of Insurance Commissioners,
in all cases, whether by beneficiary choice or
default, that an RAA is established.
SB 599 preserves consumer choice and ensures
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beneficiaries are made aware of how their benefits
will be paid if they fail to make a payment
designation on their claim form.
JJA:nl 5/17/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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