BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 599|
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UNFINISHED BUSINESS
Bill No: SB 599
Author: Kehoe (D), et al.
Amended: 8/29/11
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
SENATE FLOOR : 37-1, 05/19/11
AYES: Alquist, Berryhill, Blakeslee, Calderon, Cannella,
Corbett, Correa, De Le�n, DeSaulnier, Dutton, Emmerson,
Evans, Fuller, Gaines, Hancock, Harman, Huff, Kehoe, La
Malfa, Leno, Lieu, Liu, Lowenthal, Negrete McLeod,
Padilla, Pavley, Price, Rubio, Runner, Simitian,
Steinberg, Strickland, Vargas, Wolk, Wright, Wyland, Yee
NOES: Anderson
NO VOTE RECORDED: Hernandez, Walters
ASSEMBLY FLOOR : 78-0, 8/31/11 - See last page for vote
SUBJECT : Life insurance: retained-asset account
SOURCE : California Department of Insurance
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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 (RAA) to be the default method of settlement
payment provided that the claim form provides a prominent
disclosure, as specified, that the RAA 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 RAA or any arrangement other than a lump-sum payment
provide in writing to the policyholder or beneficiary the
terms of each settlement option.
Assembly Amendments provide that this bill is contingent
upon successful enactment of SB 713 (Calderon), specify
that if the beneficiary of a life insurance policy is
provided settlement options in addition to a lump-sum
payment or settlement option selected by the policyholder,
the beneficiary shall have the option to choose how
benefits will be paid to him or her, add coauthors, and
make technical changes.
ANALYSIS : Existing law:
1.Prohibits insurers from knowingly misrepresenting to
claimants pertinent facts or insurance policy provisions
relating to any insurance coverage.
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.
This bill:
1. Requires all life insurance benefits to be paid in
the form of a lump-sum payment to the beneficiary or by
another settlement option that is clearly described in
the claim form.
2. Provides that if the beneficiary is provided
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settlement options in addition to a lump-sum payment or
a settlement option selected by the policyholder, the
beneficiary shall have the option to choose how
benefits are to be paid to the beneficiary.
3. States that if the beneficiary does not choose one of
the available settlement options, an RAA may be the
default option only if the claim form provides a
prominent disclosure in easy-to-understand language in
bold 12-font type that, in the absence of a choice by
the beneficiary, payment of policy benefits shall be
made through the RAA on the beneficiary's behalf.
4. Defines a "retained-asset account" as any mechanism
whereby the settlement of proceeds under a life
insurance policy is payable by depositing these
proceeds 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.
5. Requires life insurers to provide the beneficiary a
series of written disclosures proposed by SB 713
(Calderon), Chapter 130, Statutes of 2011, regarding
RAAs. (See proposed Section 10509.937 of the Insurance
Code in SB 713 (Calderon).)
6. Provides that if the life insurer offers an option or
recommends the option that the beneficiary receive life
insurance proceeds in the form of an RAA or any
arrangement other than a lump-sum payment, the insurer
shall provide the policyholder written information
describing each of the settlement options available and
specific details relevant to those options.
7. Requires that if the life insurer offers or
recommends to a beneficiary that the beneficiary
receive life insurance proceeds in the form of an RAA
at the time the claim is being made, the insurer shall
comply with the procedures proposed in SB 713
(Calderon), which proposes to enact the Life Insurance
Proceeds Disclosure Act of 2011.
8. Provides that an insurer that fails to conform to the
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requirements of this bill shall become subject to the
state laws governing unfair insurance practices.
9. Authorizes the Insurance Commissioner to adopt
regulations specifying reasonable requirements for the
form of agreements entered into and written disclosures
in connection with this bill.
10. Specifies that this bill shall only become operative
if SB 713 (Calderon) of this Session is enacted and
becomes effective.
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.
After the media fallout regarding RAAs maintained by
insurers, the NAIC began drafting revisions to its RAA
bulletin in order to provide for better consumer
protection. In December 2010, NAIC adopted a sample
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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 8/24/11)
California Department of Insurance (source)
American Council of Life Insurers
Association of California Life and Health Insurance
Companies
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
beneficiaries are made aware of how their benefits
will be paid if they fail to make a payment
designation on their claim form.
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ASSEMBLY FLOOR : 78-0, 8/31/11
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
Bill Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Campos, Carter, Cedillo,
Chesbro, Conway, Cook, Davis, Dickinson, Donnelly, Eng,
Feuer, Fletcher, Fong, Fuentes, Furutani, Beth Gaines,
Galgiani, Garrick, Gatto, Gordon, Grove, Hagman,
Halderman, Hall, Harkey, Hayashi, Roger Hern�ndez, Hill,
Huber, Hueso, Huffman, Jeffries, Jones, Knight, Lara,
Logue, Bonnie Lowenthal, Ma, Mansoor, Mendoza, Miller,
Mitchell, Monning, Morrell, Nestande, Nielsen, Norby,
Olsen, Pan, Perea, V. Manuel P�rez, Portantino, Silva,
Skinner, Smyth, Solorio, Swanson, Torres, Valadao,
Wagner, Wieckowski, Williams, Yamada, John A. P�rez
NO VOTE RECORDED: Charles Calderon, Gorell
JJA:nl 8/31/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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