SB 5196

Washington State House of Representatives Office of Program Research	BILL ANALYSIS

Financial Institutions & Insurance Committee

SB 5196

Brief Description: Regulating insurable interests and employer-owned life insurance.

Sponsors: Senators Fairley, Benton, Keiser, Benson, Franklin and Berkey; by request of Insurance Commissioner.

Brief Summary of Bill

Requires written consent of an employee before an employer may insure the life of the employee for the benefit of the employer.

Requires the disclosure of certain information to the employee whose life is insured within 30 days of purchase of the policy by the employer.

Hearing Date: 3/17/05

Staff: Jon Hedegard (786-7127).

Background:

Regulatory authority of the Insurance Commissioner.
The Office of the Insurance Commissioner (OIC) regulates insurance transactions in the State of Washington. This includes life insurance policies that are issued or delivered in Washington. Insurance rates and insurance forms are filed with the OIC. The OIC ensures that the rates and forms comply with the Insurance Code.

Insurance Contracts and Insurable Interests.
A person may enter into an insurance contract in order to insure the life of another if the benefits are payable to the insured person (or their personal representative) or if the person procuring the contract has an "insurable interest" in the person insured.

Insurable Interests.
The insurable interest may be based in:

a substantial personal or emotional interest in an insured stemming from close family ties;
a substantial economic interest in the continuing life, health, or safety of an insured;
specified financial interests related to certain contracts, business relationships, and stock option arrangements;
certain interests of guardians, trustees or other fiduciaries with respect to beneficiaries; or
the interests of a nonprofit organization with respect to life insurance policies if certain criteria are met.

Traditionally, many businesses have purchased coverage on key personnel. This protects the business against the loss of a key person, such as an owner, partner, or CEO. Over the last several years, some companies and entities have extended their coverage of employees beyond high ranking staff. The lives of lower level, non-salaried employees have been insured for the benefit of the company or entity. This coverage has often been purchased without the knowledge or consent of the insured employee.

Summary of Bill:

An insured must consent in writing to the issuance of an employer-owned group life insurance policy.

Within 30 days of purchasing a life policy on an employee, an employer must disclose to the employee the identification of the insurer, the benefit amount, and the identity of the beneficiary.
Employers are prohibited from retaliating against an employee who will not consent to inclusion in an employer-owned life insurance policy.
With respect to employer-owned life insurance policies, the bill applies only to those policies issued and delivered after the effective date of the act.
An insured is not required to consent to the issuance of a group disability insurance policy.
The bill clarifies that the application of chapter 48.18 RCW to all types of insurance other than ocean marine insurance and foreign trade insurance.
Numerous technical changes are made, including the renumbering of statutory sections and editorial revisions to clarify existing language.

Appropriation: None.

Fiscal Note: Not requested.

Effective Date: The bill takes effect 90 days after adjournment of session in which bill is passed.