BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 713|
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UNFINISHED BUSINESS
Bill No: SB 713
Author: Calderon (D)
Amended: 6/15/11
Vote: 21
SENATE INSURANCE COMMITTEE : 8-0, 4/27/11
AYES: Calderon, Gaines, Anderson, Corbett, Lieu,
Lowenthal, Price, Wyland
NO VOTE RECORDED: Correa
SENATE JUDICIARY COMMITTEE : 5-0, 5/10/11
AYES: Evans, Harman, Blakeslee, Corbett, Leno
SENATE FLOOR : 39-0, 5/23/11 (Consent)
AYES: Alquist, Anderson, Berryhill, Blakeslee, Calderon,
Cannella, Corbett, Correa, De Le�n, DeSaulnier, Dutton,
Emmerson, Evans, Fuller, Gaines, Hancock, Hernandez,
Huff, Kehoe, La Malfa, Leno, Lieu, Liu, Lowenthal,
Negrete McLeod, Padilla, Pavley, Price, Rubio, Runner,
Simitian, Steinberg, Strickland, Vargas, Walters, Wolk,
Wright, Wyland, Yee
NO VOTE RECORDED: Harman
ASSEMBLY FLOOR : Not available
SUBJECT : Insurance: proceeds: disclosure
SOURCE : Author
DIGEST : This bill establishes the Life Insurance
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Proceeds Disclosure Act of 2011, which requires life
insurers to provide disclosures regarding death settlement
payment options, including retained asset accounts, to
policyholders and beneficiaries, as specified. This bill
requires the insurer to provide to the beneficiary a
supplemental contract disclosing the rights of the
beneficiary and obligations of the insurer if the
beneficiary chooses death settlement payment to be placed
into a retained asset account.
Assembly Amendments make enactment of this bill contingent
upon successful enactment of SB 599 (Kehoe).
ANALYSIS : Existing law prohibits insurers from knowingly
misrepresenting to claimants pertinent facts or insurance
policy provisions relating to any insurance coverage.
Existing law 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 may apply to the claim presented by
the claimant.
This bill:
1. Enacts the Life Insurance Proceeds Disclosure Act of
2011, which establishes disclosure standards for payment
of life insurance benefits to a beneficiary by means of
a retained asset account if a life insurance company
offers consumers a retained asset account or establishes
such an account as an alternative to the receipt of
lump-sum payment made directly to the beneficiary.
2. Defines "insurer" to mean an insurance company that
delivers or issues for delivery in this state any policy
of individual or group life insurance.
3. Defines "retained asset account" to mean any mechanism
where the settlement of proceeds payable under a life
insurance policy is accomplished by the insurer, or an
entity acting on behalf of the insurer, by depositing
the 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
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involving annuity benefits.
4. Requires life insurers to provide the beneficiaries, at
the time a claim is made, written information describing
the settlement options available under the policy and
any other option available to the beneficiary for the
receipt of proceeds, including retained asset accounts,
and how to obtain specific details relevant to those
options.
5. Requires the life insurer, if the life insurance
benefits are placed in a retained asset account, send
the beneficiary one statement per quarter, and a
statement anytime there has been account activity other
than just the crediting of interest.
6. Requires the life insurer, if the insurer settles the
life insurance benefits through a retained asset
account, to provide the beneficiary with a supplemental
contract that clearly discloses the rights of the
beneficiary and the obligations of the insurer under the
supplemental contract.
7. Requires the life insurer to provide the following
written disclosures to the beneficiary before the
retained asset account is established:
A. Payment of the full benefit is accomplished by
delivery of the draft book or checkbook.
B. One draft or check may be written to access the
entire amount, including interest, of the retained
asset account at any time.
C. Whether the available settlement options are
preserved until the entire balance is withdrawn or
the balance drops below the insurer's minimum
balance requirements.
D. A statement identifying the account as either a
checking or draft account and an explanation of
how the account works, including, but not limited
to, any minimum check or draft amount
requirements.
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E. Information about the account services provided
and contact information where the beneficiary may
request and obtain more details about those
services.
F. A description of any fees charged, if
applicable.
G. The frequency of statements showing the current
account balance, the interest credited, drafts or
checks written, and any other account activity;
the insurer would be required to send the
beneficiary at least one statement per quarter,
and a statement for any month in which there has
been account activity other than just the
crediting of interest.
H. The minimum guaranteed interest rate to be
credited to the account and how the actual
interest rate will be determined, and the actual
interest rate that will be credited as of the date
of disclosure to a newly opened account. Provides
the interest rate may be disclosed along with
other disclosures provided with the claim
documents sent to the beneficiary, through a
toll-free telephone number established by the
insurer, or through the insurer's Internet Web
site.
I. That the interest earned on the account may be
taxable.
J. Retained asset account funds held by insurance
companies are not guaranteed by the Federal
Deposit Insurance Corporation (FDIC), but are
guaranteed by State Guaranty Associations, and
that the State Guaranty Association coverage
limits vary by state.
K. A statement that advises the beneficiary to
contact the National Organization of Life and
Health Insurance Guaranty Associations (NOLHGA) to
learn more about the coverage limitations
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applicable to his or her account, and that
provides the beneficiary with the current Internet
website address and telephone number for NOLHGA.
L. A description of the insurer's policy regarding
retained asset accounts that become inactive,
including the policy with respect to inactive
accounts that are at risk of escheating to the
state pursuant to the California Unclaimed
Property Law.
8. 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.
9. Makes enactment of the bill contingent upon successful
enactment of SB 599 (Kehoe).
Background
A retained asset account (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. (Evans, Fallen Soldiers' Families Denied Cash as
Insurers Profit, Bloomberg (Jul. 28, 2010)
�as of Apr. 23, 2011].)
The 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
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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 RAA 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
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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 6/30/11)
Liberty Mutual Group
Metropolitan Life Insurance Company
Pacific Life Insurance Company
ARGUMENTS IN SUPPORT : The author's office states, that
under current law, there �are] no specific statutory rules
on RAAs. The alternative of RAA's for settlement of a life
insurance policy emerged in the 1980's. This was a time
when two factors in the United States (U.S.) economy had
people in a vise: (1) payment of interest by banks was
restricted under federal law, and yet (2) high inflation in
the U.S. economy was eroding the value of people's savings.
In this environment, the innovation represented by RAAs
offered a distinct advantage relative to the bank options
available to consumers.
This bill mandates that the disclosures it sets forth be
provided to a beneficiary at the time of a claim under a
life insurance policy and before the RAA is selected or
established. It imposes requirements for at least a
quarterly statement to the beneficiary of the status of the
funds in the RAA account.
JJA:do 7/1/11 Senate Floor Analyses
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SUPPORT/OPPOSITION: SEE ABOVE
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