Under existing law, the Insurance Commissioner, who controls the California Department of Insurance, regulates the insurance industry. Existing law requires insurers and insurance producers, as defined, to comply with specified requirements regarding the purchase, exchange, or replacement of an annuity recommended to a consumer, including, but not limited to, having reasonable grounds for the insurance producer believing the annuity transaction would be suitable for the consumer based on suitability information, including, among other factors, age, annual income, and whether the consumer has a reverse mortgage. Existing law authorizes the commissioner to require certain actions by, and impose sanctions and penalties on, insurers and their agents for a violation of these provisions.

This bill would add to the suitability information whether the consumer intends to apply for means-tested government benefits, including, but not limited to, Medi-Cal or the veterans aid and attendance benefit.

Under existing law, the Insurance Commissioner, who controls the California Department of Insurance, regulates the insurance industry. Existing law requires insurers and insurance producers, as defined, to comply with specified requirements regarding the purchase, exchange, or replacement of an annuity recommended to a consumer, including, but not limited to, having reasonable grounds for the insurance producer believing the annuity transaction would be suitable for the consumer based on suitability information, including, among other factors, age, annual income, and whether the consumer has a reverse mortgage. Existing law authorizes the commissioner to require certain actions by, and impose sanctions and penalties on, insurers and their agents for a violation of these provisions.

This bill would add to the suitability information whether the consumer intends to apply for means-tested government benefits, including, but not limited to, Medi-Cal or the veterans aid and attendance benefit.

Under existing law, the Insurance Commissioner, who controls the California Department of Insurance, regulates the insurance industry. Existing law requires insurers and insurance producers, as defined, to comply with specified requirements regarding the purchase, exchange, or replacement of an annuity recommended to a consumer, including, but not limited to, having reasonable grounds for the insurance producer believing the annuity transaction would be suitable for the consumer based on suitability information, including, among other factors, age, annual income, and whether the consumer has a reverse mortgage. Existing law authorizes the commissioner to require certain actions by, and impose sanctions and penalties on, insurers and their agents for a violation of these provisions.

This bill would add to the suitability information whether the consumer intends to apply for means-tested government benefits. benefits, including, but not limited to, Medi-Cal or the veterans aid and attendance benefit.

Under existing law, the Insurance Commissioner, who controls the California Department of Insurance, regulates the insurance industry. Existing law requires insurers and insurance producers, as defined, to comply with specified requirements regarding the purchase, exchange, or replacement of an annuity recommended to a consumer, including, but not limited to, having reasonable grounds for the insurance producer believing the annuity transaction would be suitable for the consumer based on suitability information, including, among other factors, age, annual income, and whether the consumer has a reverse mortgage. Existing law authorizes the commissioner to require certain actions by, and impose sanctions and penalties on, insurers and their agents for a violation of these provisions.

This bill would add to the suitability information whether the consumer intends to apply for government benefits.

Date of Hearing: June 29, 2016

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

SBPCA Bill Id:SB 924

Author:(Roth) – As Amended Ver:March 28, 2016

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill expands the definition of "suitability information" (required information a seller of annuities must seek from a potential purchaser) to include the applicant's intention to apply for means-tested government benefits.

FISCAL EFFECT:

Negligible state fiscal effect.

COMMENTS:

1. Purpose. The author indicates unscrupulous brokers have targeted wealthy elderly residents of nursing homes to reposition their assets in order to apply for government benefits, most commonly through those available through Medi-Cal or Department of Veterans' Affairs. This bill is intended to discourage the practice. This bill is sponsored by California Advocates for Nursing Home Reform (CANHR) and supported by California Department of Insurance, Consumer Attorneys of California, and some aging advocacy groups. It has no opposition.
2. Background. Legislation enacted in 2011 (AB 689 (Blumenfield), Chapter 295, Statutes of 2011) required insurers to establish a system to supervise the suitability of annuity sale recommendations, to ensure the needs and financial objectives of consumers at the time of the transaction are appropriately addressed. That bill established a list of specified information the consumer must provide to determine suitability, including: age, annual income, financial situation and needs, intended use of the annuity, risk tolerance, net worth and tax status. This bill would add whether the consumer intends to apply for government benefits to the above list.
3. Annuities. Annuities are financial products designed to convert premium paid by the purchaser (in either a lump sum or periodic payments) into a stream of payments to the purchaser. They are designed to provide a stable cash flow for the purchaser, most commonly for retirees, and alleviate the risk of outliving one's assets.

Analysis Prepared by: Lisa Murawski / APPR. / (916) 319-2081

Date of Hearing: June 22, 2016

ASSEMBLY COMMITTEE ON INSURANCE

Tom Daly, Chair

SBPCA Bill Id:SB 924

Author:(Roth) – As Amended Ver:March 28, 2016

SENATE VOTE: 36-0

SUBJECT: Insurance: annuity transactions

SUMMARY: Expands the definition of "suitability information" to include the applicant's intention to apply for means tested government benefits.

EXISTING LAW:

1. Requires the seller of an annuity to recommend an annuity to the purchaser only if the seller has a reasonable basis to believe that the annuity is "suitable" for the purchaser based the purchaser's financial situation.
2. Requires the seller of an annuity to obtain specified "suitability information" from a prospective purchaser, including:
   1. Age
   2. Income
   3. Financial Objectives
   4. Risk Tolerance
   5. Tax Status
   6. Other Assets
   7. Investment Horizon
   8. Intended Use of the Annuity

FISCAL EFFECT: The bill was reported out of the Senate Appropriations Committee pursuant to Senate Rule 28.8.

COMMENTS:

1. Purpose. According to the author:

"It is illegal for an insurance agent or broker to sell an annuity if the purpose of the sale is for the consumer to qualify for government benefits, including Medi-Cal and the Veteran’s Aid and Attendance Benefit. They also have a statutory duty of good faith and fair dealing. Despite this, some unscrupulous brokers have targeted wealthy elderly residents of nursing homes to reposition their assets in order to apply for certain benefits from the U.S. Department of Veterans Affairs. An integral part of the scheme is selling unwitting retirees unsuitable annuities that earn the brokers large commissions and profits. They can also convince the senior that these benefits are actually entitlements. These annuities can tie up assets for years and carry hefty surrender penalties if the senior is denied the government benefits they have been promised or find they need access to their assets to pay unexpected medical or other expenses.

Legislation was enacted in 2011 (AB 689 Blumenfield, Chap. 295 Statutes of 2011) that required insurers to establish a system to supervise the suitability of annuity sale recommendations so that the insurance needs and financial objectives of consumers at the time of the transaction are appropriately addressed. That bill established a list of specified information the consumer must provide to determine suitability, including age, annual income, financial situation and needs, intended use of the annuity, risk tolerance, net worth and tax status. This bill would add whether the consumer intends to apply for government benefits to the above list."

1. Annuities. Annuities are financial products designed to convert premium paid by the purchaser (in either a lump sum or periodic payments) into a stream of payments to the purchaser. They are designed to provide a stable cash flow for the purchaser (most commonly for retirees) and alleviate the risk of outliving one's assets. Annuities can be structured so that payments will continue so long as either the purchaser or their spouse (if survivorship benefit is elected) is alive or to pay out funds for a fixed period of time. Annuities can be structured to provide immediate payments or to defer payments to a later date.

REGISTERED SUPPORT / OPPOSITION:

Support

California Advocates for Nursing Home Reform (sponsor)

California Commission on Aging

Consumer Attorneys of California

Department of Insurance

San Diego County District Attorney

Opposition

None received

Analysis Prepared by: Paul Riches / INS. / (916) 319-2086

 CONSENT 

Bill No: SB 924

Author: Roth (D)

Amended: 3/28/16

Vote: 21

SENATE INSURANCE COMMITTEE: 8-0, 4/13/16

AYES: Roth, Gaines, Berryhill, Glazer, Hall, Liu, Mitchell, Wieckowski

NO VOTE RECORDED: Hernandez

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SUBJECT: Insurance: annuity transactions

SOURCE: California Advocates for Nursing Home Reform

DIGEST: This bill adds to the definition of “suitability information” when purchasing an annuity whether or not the consumer intends to apply for means-tested government benefits, including but not limited to, Medi-Cal or the veterans’ aid and attendance benefit.

ANALYSIS:

Existing law:

1. Provides that all insurers, brokers, agents and others engaged in the transaction of insurance owe a prospective insured who is 65 or older a duty of honesty, good faith and fair dealing, in addition to any other duty, whether express or implied; (IC §785.5)
2. Requires insurers and insurance agents and brokers, in recommending the purchase or exchange of an annuity, to have reasonable grounds for believing that the recommendation is suitable for the consumer based on facts disclosed by the consumer, as specified; (IC §10509.910)
3. Defines “suitability information” to be provided by the consumer to include:
   1. Age;
   2. Annual income;
   3. Financial situation and needs, including the financial resources that will be used to fund the annuity;
   4. Financial experience;
   5. Financial objectives;
   6. Intended use of the annuity;
   7. Financial time horizon;
   8. Existing assets, including investment and life insurance holdings;
   9. Liquidity needs;
   10. Liquid net worth;
   11. Risk tolerance;
   12. Tax status;
   13. Whether or not the consumer has a reverse mortgage; (IC §10509.913)
4. Prohibits the sale of an individual annuity to a senior if the purpose of the sale is affect eligibility for Medi-Cal, under specified conditions (Insurance Code §789.9);
5. Prohibits an insurance agent or broker from participating in efforts to obtain veterans benefits or services for a senior unless the agent or broker has no direct financial incentive to refer the policyholder or prospective policyholder to any veterans benefits program offered through the government. (IC §785.5)

This bill adds to the definition of “suitability information” when purchasing an annuity whether or not the consumer intends to apply for means-tested government benefits, including but not limited to, Medi-Cal or the veterans’ aid and attendance benefit.

Comments

It is illegal for an insurance agent or broker to sell an annuity to a senior if the purpose of the sale is for the senior to qualify for government benefits, including Medi-Cal and the Veteran’s Aid and Attendance Benefit. They also have a statutory duty of honesty, good faith and fair dealing to all seniors. Despite this, some unscrupulous brokers have targeted wealthy elderly residents of nursing homes to reposition their assets in order to apply for certain means-tested benefits from the U.S. Department of Veterans Affairs (VA). An integral part of the scheme is selling unwitting retirees unsuitable annuities that earn the brokers large commissions and profits. Part of the scam is convincing the senior that these benefits are actually entitlements. These annuities can tie up assets for years and carry hefty surrender penalties if the senior is denied the government benefits they have been promised or find they need access to their assets to pay unexpected medical or other expenses. Some agents have also been accused of selling unsuitable annuities to seniors for the sole purpose of qualifying for Medi-Cal and shielding assets from Medi-Cal recovery.

Legislation was enacted in 2011 (AB 689 Blumenthal, Chapter 295, Statutes of 2011) that required insurers to establish a system to supervise the suitability of annuity sale recommendations so that the insurance needs and financial objectives of consumers at the time of the transaction are appropriately addressed. That bill established a list of specified information the consumer must provide to determine suitability, including age, annual income, financial situation and needs, intended use of the annuity, risk tolerance, net worth and tax status. This bill adds whether the consumer intends to apply for means-tested government benefits to the above list.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 5/3/16)

California Advocates for Nursing Home Reform (source)

California Commission on Aging

California Department of Insurance

California Long-Term Care Ombudsman Association

Consumer Attorneys of California

Contra Costa Advisory Council on Aging

Retired Public Employees Association

San Diego District Attorney

OPPOSITION: (Verified 5/3/16)

None received

ARGUMENTS IN SUPPORT: California Advocates for Nursing Home Reform have sponsored SB 924 because on occasion unscrupulous agents will attempt to mislead seniors into believing that government benefits intended for low-wealth or impoverished seniors such as the Veterans Aid and Attendance Benefit are actually entitlements, and in order to qualify it is necessary liquidate assets and convert them into annuities they claim are “government friendly”. These annuities can tie up the senior’s assets for years and can create hefty surrender penalties if the senior needs to access their assets prematurely. The California Department of Insurance states that since these actions by agents are illegal, whether or not a consumer intends to apply for means tested government benefits should be added to the list of suitability criteria for the purchase of annuities.

Prepared by: Erin Ryan / INS. / (916) 651-4110

5/4/16 14:58:08

**** END ****

SENATE COMMITTEE ON

Senator Richard Roth, Chair

2015 - 2016 Regular

Bill No: Hearing Date: April 13, 2016

Subject:

SUMMARY

Adds to the definition of “suitability information” whether the consumer intends to apply for means-tested government benefits, including but not limited to, Medi-Cal or the veterans’ aid and attendance benefit.

DIGEST

Existing law

1. Provides that all insurers, brokers, agents and others engaged in the transaction of insurance owe a prospective insured who is 65 or older a duty of honesty, good faith and fair dealing, in addition to any other duty, whether express or implied; (IC §785.5)

1. Requires insurers and insurance agents and brokers, in recommending the purchase or exchange of an annuity, to have reasonable grounds for believing that the recommendation is suitable for the consumer based on facts disclosed by the consumer, as specified; (IC §10509.910)
2. Defines “suitability information” to be provided by the consumer to include:
   1. Age;
   2. Annual income;
   3. Financial situation and needs, including the financial resources that will be used to fund the annuity;
   4. Financial experience;
   5. Financial objectives;
   6. Intended use of the annuity;
   7. Financial time horizon;
   8. Existing assets, including investment and life insurance holdings;
   9. Liquidity needs;
   10. Liquid net worth;
   11. Risk tolerance;
   12. Tax status;
   13. Whether or not the consumer has a reverse mortgage; (IC §10509.913)
3. Prohibits the sale of an individual annuity to a senior if the purpose of the sale is affect eligibility for Medi-Cal, under specified conditions (Insurance Code §789.9);
4. Prohibits an insurance agent or broker from participating in efforts to obtain veterans benefits or services for a senior unless the agent or broker has no direct financial incentive to refer the policyholder or prospective policyholder to any veterans benefits program offered through the government. (IC §785.5)
   

This bill

1. Adds to the definition of “suitability information” whether the consumer intends to apply for means-tested government benefits, including but not limited to, Medi-Cal or the veterans’ aid and attendance benefit.
   

COMMENTS

1. Purpose of the bill To ensure that insurance agents and brokers and insurance companies have the information they need to determine if an annuity product is suitable for a senior or is being sold or issued for the purpose of shielding assets to qualify for means-tested government benefits.
   
   
2. Background It is illegal for an insurance agent or broker to sell an annuity to a senior if the purpose of the sale is for the senior to qualify for government benefits, including Medi-Cal and the Veteran’s Aid and Attendance Benefit. They also have a statutory duty of honesty, good faith and fair dealing to all seniors. Despite this, some unscrupulous brokers have targeted wealthy elderly residents of nursing homes to reposition their assets in order to apply for certain benefits from the U.S. Department of Veterans Affairs (VA). An integral part of the scheme is selling unwitting retirees unsuitable annuities that earn the brokers large commissions and profits. Part of the scam is convincing the senior that these benefits are actually entitlements. These annuities can tie up assets for years and carry hefty surrender penalties if the senior is denied the government benefits they have been promised or find they need access to their assets to pay unexpected medical or other expenses. Some agents have also been accused of selling unsuitable annuities to seniors for the sole purpose of qualifying for Medi-Cal and shielding assets from Medi-Cal recovery.

Legislation was enacted in 2011 (AB 689 Blumenthal, Chap. 295 Statutes of 2011) that required insurers to establish a system to supervise the suitability of annuity sale recommendations so that the insurance needs and financial objectives of consumers at the time of the transaction are appropriately addressed. That bill established a list of specified information the consumer must provide to determine suitability, including age, annual income, financial situation and needs, intended use of the annuity, risk tolerance, net worth and tax status. This bill would add whether the consumer intends to apply for government benefits to the above list.

These benefits provide an essential lifeline for the low-income seniors they were designed to assist, allowing them to stay in their home or the community rather than in an institution. Because of these abuses, the VA has proposed regulations that would make it even more difficult than it already is to qualify for those that really need the benefits.

1. Support According to the California Department of Insurance, it is illegal for California insurance agents to sell annuities to seniors if the purpose is for the senior to qualify for the Veterans Aid and Attendance Benefit or under certain circumstances to qualify for Medi-Cal. Since insurers are required to supervise and ultimately take responsibility for producer annuity recommendations and sales, whether or not a consumer intends to apply for government benefits should be added to the suitability criteria.

California Advocates for Nursing Home Reform have sponsored SB 924 because on occasion unscrupulous agents will attempt to mislead seniors into believing that government benefits intended for low-wealth or impoverished seniors such as the Veterans Aid and Attendance Benefit are actually entitlements, and in order to qualify it is necessary liquidate assets and convert them into annuities they claim are “government friendly”. These annuities can tie up the senior’s assets for years and can create hefty surrender penalties if the senior needs to access their assets prematurely.

1. Opposition None received.
   
2. Prior and Related Legislation AB 689 Blumenthal, Chap. 295 Statutes of 2011 required insurers to establish a system to supervise the suitability of annuity sale recommendations so that the insurance needs and financial objectives of consumers at the time of the transaction are appropriately addressed.
   

POSITIONS

Support

California Advocates for Nursing Home Reform (Sponsor)

California Department of Insurance

California Long-Term Care Ombudsman Association

Consumer Attorneys of California

Contra Costa Advisory Council on Aging

Retired Public Employees Association

San Diego County District Attorney

Oppose

None received

-- END --