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The Senate Insurance Committee released its proposed legislative package for 2011. The committee background paper regarding their legislative packages is as follows:
The broad framework of the state-based system of insurance regulation serves as the backdrop for the Senate Insurance Committee's proposed 2011 Committee Bills.
In the United States, the regulation of insurance is still primarily state-based. To address matters of common concern to the 50 states and the national insurance marketplace, the 50 state's collaborate on matters of common concern through the National Association of Insurance Commissioners (NAIC). To promote consistent approaches to common topics, the NAIC administers a system of accreditation of insurance departments and also promulgates Model Statutes and Model Regulations which, while subject to tailoring at the individual state level, establish a common national regulatory framework.
With the onset of the national financial crisis in 2007, while insurance regulators generally concluded that our existing body of regulatory law held up well, in light of recent events the NAIC concluded that a variety of the models were susceptible to strengthening. In addition, under the Dodd Frank Act signed into law last year, state adoption of an existing NAIC model offers new benefits to California.
The result is six proposed Committee Bills, which as in 2010, are each organized around a distinct primary subject matter to enhance the transparency of our Committee's policy work.
The first follows up a 2010 NAIC Conformity bill authored by the Senate Insurance Committee last year (SB 1408). The other five will each update California law to reflect either recent guidance from the National Association of Insurance Commissioners (4 bills) or as a response to last year's Dodd-Frank Wall Street Reform and Consumer Protection Act (1 bill).
While each is expected to be non-controversial, as in prior years, each will be refined by amendment in consultation with California interested parties, subject matter experts, and the Department of Insurance. The six bills are described below:
Proposed Committee Bill #1 - An Act Relating to Insurance (California Life and Health Insurance Guarantee Association/CLHIGA): A 2010 committee bill revised California's Life and Health Guaranty Association law and expanded the scope of key consumer protections. This bill will make some minor clean-up to last year's measure.
Proposed Committee Bill #2 - An Act Relating to Insurance (Code Clean-up & planned NAIC conformity): As introduced, this is a code-clean-up measure, making a variety of modest code revisions, including updating the Insurance Code to include references to him or her when alluding to the Attorney General.
The bill will be amended as a National Association of Insurance Commissioner's (NAIC) accreditation conformity bill prior to its first hearing. The NAIC change is to update California's Property and Casualty Actuary Opinion law to reflect recent changes approved by the National Association of Insurance Commissioners (NAIC). By adoption of the recent changes, California will support the State Department of Insurance's continued accreditation by the NAIC.
Proposed Committee Bill #3 - An Act Relating to Insurance (NAIC recommended Retained Asset Account disclosures): A Retained Asset Account is a device in relatively common use by life insurers whereby the proceeds of a life insurance policy can be retained by the insurer pending direction by the beneficiary, while the funds are accessible to the insured by checks or other financial instruments.
During 2010, an issue arose as to how knowledgeable insurance buyers and life insurance beneficiaries were regarding such Retained Asset Accounts, their rights regarding such funds. And the pros and cons of these and other options for holding the life policy proceeds. In response, the National Association of Insurance Commissioners (NAIC) on December 16, 2010 adopted recommended disclosures which should accompany the use of such products; these recommendations are embodied in this bill.
Proposed Committee Bill #4 - An Act Relating to Insurance (NAICrecommended Insurance Company Holding System Regulatory Act revisions): The National Association of Insurance Commissioners (NAIC) adopted proposed amendments to the Insurance Holding Company System Regulatory Model Act last fall. The amendments update standards for regulating transactions between insurance legal entities and other affiliated entities to address issues that can arise within insurer groups, particularly issues with potentially significant regulatory implications identified during this most recent economic downturn.
Proposed Committee Bill #5 - An Act Relating to Annuity Suitability: The National Association of Insurance Commissioners (NAIC) has adopted Model Suitability in Annuity Transactions language. This measure will add the NAIC model language to California statutory law. The adoption last year of the Dodd- Frank Wall Street Reform and Consumer Protection Act introduces two areas where state adoption of this NAIC Model becomes important:
Transactions Model in a state affects California's continued jurisdiction over indexed securities (otherwise subject to the Securities Act of 1933) under Title IX, Subtitle I, Section 989J of the Dodd-Frank Act.
Proposed Committee Bill #6 - An Act Relating to Insurance (Federal Dodd- Frank Act Follow-up): Title V, Subtitle B of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 included adoption, effective July 21, 2011, of the Nonadmitted and Reinsurance Reform Act of 2010 (NRRA). (See Dodd- Frank at Section 527 of Title V, Subtitle B)
The NRRA, for certain multi-state risks obtaining insurance via surplus line or nonadmitted insurer means, will effective July 1st of this year, preempt certain state surplus lines laws while allowing for the continuation of state-based regulation. This bill is intended to provide a Senate vehicle for conforming California law to the new NRRA framework in advance of the July 21st effective date.