HOUSE BILL REPORT
HB 2901
As Amended by the Senate
BYRepresentatives Dellwo, Chandler, P. King, Baugher, Nutley and Winsley; by request of Insurance Commissioner
Modifying the statutes pertaining to the Washington life and disability insurance guaranty association.
House Committe on Financial Institutions & Insurance
Majority Report: Do pass. (13)
Signed by Representatives Dellwo, Chair; Zellinsky, Vice Chair; Chandler, Ranking Republican Member, Anderson, Baugher, Beck, Crane, Day, Dorn, Inslee, Nutley, K. Wilson and Winsley.
House Staff:John Conniff (786-7119)
AS PASSED HOUSE FEBRUARY 9, 1990
BACKGROUND:
In 1971, the Washington State Legislature created the Washington Life and Disability Insurance Guaranty Association (WLDIGA). Every life and disability insurance company which is authorized to do business in Washington is required to be a member of the association. The association pays certain kinds of claims of policyholders of insolvent life and disability insurance companies. Money to pay these claims comes from the other life and disability insurance companies doing business in Washington.
When a life or disability insurance company is liquidated, all of the other life and disability companies must contribute money to pay claims of the liquidated company. The association calculates each member company's contribution to the guaranty fund based upon the amount of insurance the member sells in Washington. If these contributions are not enough, the association assesses the members again each year until there are sufficient funds to meet policyholder obligations. The amount contributed by a member insurer to the guaranty fund is gradually deducted from state premium taxes over a period of 10 years.
Certain types and amounts of policyholder claims against an insolvent insurance company are not covered by the WLDIGA. For example, a variable life or variable annuity policy is not covered by association. A variable policy is one in which benefits vary depending upon the investment performance of the company. Policies issued by domestic life and health insurers are covered by WLDIGA whether or not the claimant is a Washington resident. However, if the policy was issued by a foreign or alien insurer, the claimant must be a Washington resident either when the policy was purchased or when the company is liquidated. If the life or health insurance is part of a group policy, the claimant must be a resident when the insurance company is liquidated.
In addition to limitations on who may file a claim with WLDIGA, claims are limited in amount. Life insurance and annuity death benefit claims are limited to $300,000 for each policy issued to the claimant. For example, even if the claimant has a life insurance policy with a half million dollar death benefit, the claimant can only receive $300,000 from the association. However, there is no limit on the amount that can be claimed for other types of benefits. For example, if the claimant has a half million dollar annuity policy paying monthly benefits, the claimant can obtain the full amount. Similarly, health insurance benefits are not limited in amount. However, the WLDIGA can go to court and ask for a modification of either the terms and benefits of the policy or for an adjustment in premiums required to keep a policy in force. These adjustments are usually necessary to convince another insurer to assume the policies and obligations of the insolvent insurer.
SUMMARY:
The Washington Life and Disability Insurance Guaranty Association Act is amended.
The association will no longer cover the claims of non-resident policyholders.
The amount the association will pay for benefits claimed from an insolvent insurer is increased from $300,000 to $500,000 for death benefits. Previously unlimited liability for disability and annuity benefits is limited to $500,000. In addition, the limits apply per person rather than per policy.
A new distinction is created between allocated and unallocated annuity contracts. Unallocated annuity contracts are those in which the benefits cover a group collectively except to the extent that an insurer has guaranteed benefits to a particular member of the group. The association's liability for unallocated annuity contracts is limited to $5 million.
The association is not liable for any benefits promised under an unallocated annuity contract issued to an employee benefit plan protected under the federal Pension Benefit Guaranty Corporation or promised under an unallocated annuity contract which is not issued to or in connection with a specific employee, union or association of natural persons benefit plan; or promised under a government lottery.
The accounts established by the association to pay benefits are modified to permit certain new subaccounts and to permit the transfer of funds among accounts.
The association is permitted to charge reasonable interest for delinquent payments of assessments to the association by member companies.
The amount the association may charge member companies for general administrative expenses is increased from $50 to $150.
The rate at which a member company may claim a credit for assessments by the Association against premium taxes is accelerated from a 10 year to a five year write-off period.
EFFECT OF SENATE AMENDMENTS: Technical mistakes are corrected and an emergency clause is added.
Revenue: The bill has a revenue impact.
Fiscal Note: Requested January 25, 1990.
House Committee ‑ Testified For: Basil Badley, Health Insurance Association of America, and American Council of Life Insurance; Scott Jarvis, Office of the Insurance Commissioner; and Dave Rogers, Office of the Insurance Commissioner.
House Committee - Testified Against: No one.
House Committee - Testimony For: The insurance industry and the insurance commissioner's office worked for over a year to modify the guaranty fund. The fund has not been substantially amended since its adoption in 1971. Washington state should not be responsible for the citizens of other states that have chosen not to create a guaranty fund. The proposed changes to the fund protect the insurance industry from unlimited liability for certain types of products sold by an insolvent insurance company. In return for these new limitations, fund coverage limits for other more routine claims of Washington residents is increased. Finally, the accelerated tax write-off parallels the write-off period contained in the property and casualty guaranty fund statute.
House Committee - Testimony Against: None.
VOTE ON FINAL PASSAGE:
Yeas 94; Absent 1; Excused 3
Absent: Representative Prentice
Excused: Representatives Basich, Chandler, Sommers D